Bitcoin Price Plunge: Arthur Hayes Unpacks Liquidity Crisis

In a recent and insightful essay titled "Snow Forecast," published on November 17, 2025, prominent cryptocurrency analyst Arthur Hayes articulates a compelling argument for Bitcoin's sharp price correction from its October all-time highs. Hayes posits that this downturn is not an anomaly but a direct and predictable consequence of tightening global dollar liquidity, particularly after the abatement of what he terms "fake flows" derived from sophisticated derivative trading strategies. For Hayes, Bitcoin serves as an unfiltered "free-market weathervane of global fiat liquidity," its value reflecting future money supply expectations rather than transient daily news cycles.

Deconstructing Bitcoin's Recent Downturn

Hayes critically examines the market dynamics leading up to the current slump. He references the "US Liberation Day" market upheaval on April 2, 2025, when initial fears of a depression sparked by aggressive tariff actions from the Trump administration gripped financial markets. Following a "TACO" – Trump's term for a tariff truce – on April 9, Hayes had optimistically declared "Up Only!" for Bitcoin. This prediction largely materialized, with Bitcoin surging approximately 21%, followed by Ether and other altcoins. Bitcoin dominance concurrently decreased from 63% to 59% during this period. Intriguingly, this rally occurred even as Hayes's proprietary USD Liquidity Index registered a 10% decline from April 9. Hayes contends that this divergence was not indicative of a structural decoupling but rather a temporary distortion engineered by sophisticated ETF basis trades and the operations of Digital Asset Treasury (DAT) vehicles.

The Illusion of Institutional Adoption: ETF Basis Trades

Hayes is particularly forthright in his assessment of spot Bitcoin ETF flows, which many observers erroneously interpreted as definitive proof of widespread "institutional adoption." Delving into the holdings of major ETFs like BlackRock's IBIT, Hayes observes that the predominant holders are typically hedge funds and proprietary trading desks. These entities primarily utilize the ETF as one component in a basis trade strategy: simultaneously shorting a CME-listed Bitcoin futures contract while purchasing the ETF to capitalize on the spread between the two instruments.

When the annualized basis significantly exceeds the Fed Funds rate, these sophisticated players aggressively engage in this trade, generating "large and persistent net inflows into the ETF." This activity, Hayes argues, cultivates the misperception among those unfamiliar with market microstructure that there is substantial institutional interest in Bitcoin exposure. In reality, he asserts, these players are largely indifferent to Bitcoin's intrinsic value, participating solely to extract a few additional percentage points above the Fed Funds rate. As the basis contracts and the arbitrage opportunity diminishes, these same participants rapidly liquidate their positions, triggering "massive net outflows" and initiating a negative feedback loop that impacts retail investors.

Digital Asset Treasury Vehicles and Market Distortions

A similar "optical illusion" was created by DATs. Hayes specifically points to companies like Strategy (MSTR), which possess the ability to acquire additional Bitcoin when their stock trades at a premium relative to their underlying crypto holdings—a metric referred to as mNAV. When this premium dissipates and transforms into a discount, the efficiency with which these entities can accumulate BTC at a low cost is significantly curtailed. Collectively, the combined influence of ETF basis flows and DAT issuance "allowed Bitcoin to rise even though dollar liquidity contracted," Hayes explains. However, he emphatically declares, "But this state of play is over […]. Without these flows obscuring the negative liquidity picture, Bitcoin must fall to reflect the current short-term worry that dollar liquidity will contract or not grow as fast as the politicians promised."

The Impetus for Bitcoin's Future Recovery

Returning to his foundational premise that "money is politics," Hayes suggests that the onus is now on President Trump and Treasury Secretary "Buffalo Bill" Bessent to act decisively. Their options, he contends, involve either leveraging the Treasury's power to "run roughshod over the Fed, create another housing bubble, hand out more stimulus checks," or risk being perceived as ineffective. Hayes draws a compelling parallel to 2022, a period when President Biden and Treasury Secretary Janet Yellen orchestrated a substantial reduction in the Fed's reverse repo balances. "Yellen issued more Treasury bills than notes or bonds, which sucked $2.5 trillion out of the Fed’s Reverse Repo Program from 3Q2022 until 1Q2025, which pumped stonks, housing, gold, and crypto." Based on this historical precedent, Hayes expresses "100% confidence that [Bessent] will engineer a similar outcome" to stimulate liquidity.

Nevertheless, Hayes maintains a cautious stance in the immediate future. He acknowledges the bullish argument that as the US government normalizes operations post-shutdown, the Treasury General Account could be reduced by $100–150 billion, and the Fed might conclude quantitative tightening by December 1. However, he counters that "since July approximately $1 trillion of dollar liquidity evaporated based on my index." In this context, a $150 billion liquidity injection is marginal, and discussions of renewed quantitative easing (QE) remain "just talk" until confirmed by influential financial journalists. While conceding that "the bulls are correct; over time, money printer go Brrrrrr," Hayes insists that "first, the markets must retrace the gains since April to better align with the liquidity fundamentals."

Maelstrom's Strategic Positioning and Future Outlook

Hayes reveals that Maelstrom, his fund, has already adjusted its market positioning. "Over the weekend, I raised our USD stables position in anticipation of lower crypto prices," despite the fund remaining "long as fuck" on a broader scale. He identifies Zcash (ZEC) as the sole token with the potential to "outrun the negative dollar liquidity situation in the short-term."

Hayes passionately argues, "With AI, big tech, and big government, privacy across most sectors of the internet is dead. Zcash and other privacy cryptos using zero-knowledge proof cryptography are humanity’s only chance to fight this new reality." He finds it contradictory to "our sensibilities as disciples of Satoshi" that derivative-based stablecoins, non-functional tokens, and centralized exchanges dominate the top cryptocurrency rankings. Hayes emphatically states that "Zcash or a similar type of privacy crypto belongs right below Ethereum," highlighting its fundamental utility in a world increasingly devoid of digital privacy.

The ongoing Bitcoin correction, according to Hayes, also serves as a critical warning signal. "The Bitcoin dive from $125,000 to the low $90,000s whilst the S&P 500 and Nasdaq 100 indices hover around all-time highs tells me that a credit event is brewing." He forecasts a potential 10–20% equity market drawdown and a 10-year US Treasury yield approaching 5%. In such a stressful environment, "Bitcoin could absolutely drop to $80,000 to $85,000." However, should this scenario compel the Fed and Treasury to "accelerate their money printing capers," Hayes believes Bitcoin "could zoom towards $200,000 or $250,000 at year end."

Furthermore, Hayes anticipates China's participation in the next wave of global easing once the US demonstrably escalates dollar creation. He cites the People’s Bank of China’s recent acquisition of government bonds as "the beginning of China QE" and underscores Beijing's reported indignation over the US "stealing" Bitcoin from Chinese pig butchering scam operators, interpreting this as evidence of President Xi Jinping's view of Bitcoin as a strategic asset. He provocatively concludes, "If both Trump and Xi, leaders of the two largest economies globally, believe that Bitcoin is valuable, why are you not bullish long term?" At press time, BTC traded at $90,477, reflecting the immediate market sentiment.