Bitcoin slipped below $77,000 on Tuesday after another failed breakout attempt as rising oil prices and imminent central bank decisions dampened risk appetite. Despite the short-term weakness, Maelstrom CIO Arthur Hayes argues that wartime fiscal expansion is beginning to shift conditions in Bitcoin’s favor.
War, Debt, and AI Disruption
Speaking at Bitcoin Vegas 2026, Hayes presented a more bullish outlook for Bitcoin, projecting the asset could reach $125,000 by year-end as global liquidity dynamics change amid increased war-related spending. He said his view is driven by three major forces: credit deflation tied to artificial intelligence, leadership changes at the Federal Reserve, and a structural shift in how U.S. banks will absorb growing government debt.
Hayes framed his case around a broader expansion of the money supply, arguing that heightened fiscal pressure—especially from defense budgets—will necessitate greater liquidity in the financial system. While acknowledging disruptions from the ongoing U.S.–Iran conflict, he said the situation has not yet produced a broad risk-off environment, allowing markets to remain focused on macro liquidity trends rather than geopolitical panic.
Hayes identified credit contraction linked to AI as a key dynamic. Automation and AI adoption are eroding revenues for many software-as-a-service companies and threatening higher-income knowledge-worker roles that make up a large share of bank lending. Comparing market performance since Bitcoin’s October peak, he noted a sharp divergence: Bitcoin fell roughly 40%, while the Nasdaq remained mostly flat. He attributed that pattern to pressure on SaaS and related businesses as AI replaces expensive human labor—a quiet credit deflation event that, in his view, central banks did not fully recognize at the time, contributing to insufficient monetary response and Bitcoin’s decline.
He described AI as a kind of subprime risk to credit markets because many affected workers carry loans backed by incomes that are now at risk. However, Hayes said the macro picture shifted after the escalation of the U.S.–Iran conflict in late February. Governments moving to a wartime posture imply significantly higher defense spending, which must be financed through additional borrowing and ultimately more monetary accommodation.
Addressing concerns about incoming Federal Reserve chair Kevin Warsh and the possibility of tighter policy, Hayes argued that expectations of a hardline approach are misplaced. He said the Fed will be constrained by the need to keep bond markets orderly, working in coordination with Treasury leadership. Hayes described an operational balance-sheet adjustment in which commercial banks swap reserve balances for Treasurys and repurchase agreements, effectively reducing the Fed’s reported balance sheet while leaving system liquidity intact.
That mechanism, he explained, means the net liquidity impact persists regardless of how policy is framed publicly. Hayes also highlighted the implementation of the Enhanced Supplemental Leverage Ratio (eSLR) on April 1 as a critical catalyst. The rule change allows major banks—such as JPMorgan Chase and Citibank—to hold fewer reserves against certain assets, increasing their capacity to buy government debt and extend loans without materially draining liquidity from the broader system.
Outpacing AI-Driven Credit Losses
Using estimates from S&P Global, Hayes said the regulatory change could enable roughly $1.3 trillion in new lending. When combined with the banking system’s credit multiplier, he estimated this could translate into approximately $4 trillion of additional credit—more than offsetting potential losses tied to AI-driven job displacement.
Hayes also noted that foreign demand for U.S. Treasurys has stagnated even as overall debt levels rise, meaning domestic banks will need to absorb a larger share of new issuance—especially if defense spending rises sharply. That shift increases the importance of bank balance-sheet capacity to underwrite government borrowing and support credit creation.
“We’ve had some chop. We’ve had a war. Now it’s time to break out. That’s why I believe Bitcoin is going higher. I think my end-of-year target is around $125,000.”