On January 15, 2026, at 8:00 AM UTC+8, BitMEX co-founder Arthur Hayes published a new article titled "Frowny Cloud," bringing the fluctuations of Bitcoin back to a seemingly "old chestnut" that is often overlooked by traders—U.S. dollar liquidity and the credit cycle. In this article, he does not discuss on-chain innovations, halving cycles, or sentiment turning points, but instead focuses on traditional financial indicators such as the Federal Reserve's balance sheet, commercial bank loans, and mortgage rates, attempting to explain why Bitcoin in 2025 appears weak despite many narratives seeming abundant.
In his framework, the sluggishness of Bitcoin in 2025 is not a "failure of the crypto story," but rather a mirror projection of the contraction of U.S. dollar credit on prices. As 2026 is described by him as a new phase where "liquidity may expand," the question naturally arises: if the gates of U.S. dollar credit open again, how will the liquidity transmission chain from central banks and banks to households and businesses, and all the way to Bitcoin, replay or even transform?
From Surge to Stalling: 2020 to…
To understand Hayes' judgment on Bitcoin's performance in 2025-2026, he first rewinds time to 2020. That year, the Federal Reserve massively expanded its balance sheet in response to the pandemic shock, turning the traditional financial context of "balance sheet expansion" and "quantitative easing" into reality: liquidity was pushed into the market with unprecedented force. Research briefs show that during this extreme easing, Bitcoin's price recorded an increase of about 400%, a figure that Hayes views as a typical case—when U.S. dollar credit expands significantly, high-volatility assets like Bitcoin often reflect this tide first and most violently.
However, by 2025, a starkly different picture emerged. According to the viewpoints compiled in the briefs, Bitcoin's poor performance in 2025 is attributed by Hayes to the active contraction of U.S. dollar liquidity. He states that "the weak performance of BTC in 2025 is essentially a mirror of the contraction of U.S. dollar credit," directly mapping price weakness to a tightening credit environment. In his description, Bitcoin has not "failed," but has strictly followed a larger rhythm: as the speed of U.S. dollar inflows into the financial system slows or even reverses, the marginal funds flowing into risk assets naturally decrease, and the extreme volatility that was previously amplified by liquidity will be compressed back by the harsher reality of credit.
However, Hayes is not satisfied with simply replicating the linear story of "2020 balance sheet expansion → Bitcoin surge." He emphasizes that this market cycle is different from previous ones; in addition to conventional monetary policy factors, elections and policy expectations have begun to more clearly intervene in the narrative of liquidity. He views the weakness of 2025 as a necessary phase of U.S. dollar credit tightening, while the potential easing in 2026 is packaged as a "second act" intertwined with macro policy, political cycles, and market imagination, laying the groundwork for later discussions about the presidential election, liquidity expectations, and Bitcoin's trajectory.
The U.S. Dollar Credit Gates: The Invisible Flood of the Balance Sheet
In "Frowny Cloud," Hayes constructs a relatively simplified yet logically coherent path of U.S. dollar liquidity expansion: from the Federal Reserve's balance sheet, to commercial bank loans, and then to mortgage rates, ultimately penetrating every individual and enterprise willing to leverage. His core intention is to rebind Bitcoin's price from the flat plane of "emotion + story" back to the three-dimensional structure of "credit + debt."
First is the central bank's balance sheet dimension. When the Federal Reserve expands its on-balance-sheet assets, the supply of base money in the system increases, providing a more ample liquidity backdrop for the entire financial system. Hayes believes that this level of "balance sheet expansion" is merely the opening of the floodgates, not the flood itself. What truly pushes this flow toward real and financial assets is the next link: the growth of commercial bank loans. When banks are willing to expand their credit to businesses and households in a more relaxed regulatory and interest rate environment, the credit multiplier in the system is amplified, with each unit of base money being layered into multiple levels of leverage.
Within this chain, the decline in mortgage rates is one of the key triggers. The research brief cites Hayes' viewpoint: "The growth of commercial bank loans and the decline in mortgage rates will create a compound effect of liquidity expansion." When the rates of long-term loans, such as housing mortgages, significantly decline, the marginal borrowing willingness of households and businesses naturally rises, transitioning from "able to borrow" to "willing to borrow," and the potential leverage that was previously dormant on balance sheets begins to be activated in the form of actual debt. Thus, from the central bank's balance sheet expansion to bank lending, and then to lower mortgage rates, a closed expansion loop is formed.
Hayes narratively connects this process: at the macro level, the central bank presses the balance sheet expansion button; at the meso level, commercial banks convert the new credit into loans directed toward real estate, business expansion, and consumption; at the micro level, individual households and companies, under the inducement of lower interest rates, choose to take on more debt, buy more expensive assets, and allocate more to high-volatility targets. Along this path, the new credit ultimately does not remain in abstract macro indicators but flows into the stock market, bond market, and the more volatile crypto assets in the form of real buying power.
In this framework, Bitcoin's role shifts from an "independent growth story" to a high beta sub-asset of the U.S. dollar credit cycle. When liquidity expansion is successfully transmitted, the additional marginal risk appetite in the system often overflows preferentially into these types of assets, driving up prices and volatility; conversely, when credit contracts or expansion is hindered, the market will immediately "dry up," and prices will enter a cooling period that is entirely opposite to past momentum. What Hayes attempts to emphasize is how this invisible flood from the balance sheet to trading terminals may open the gates again in 2026, creating an amplified echo in the Bitcoin market.
Wall Street's Shadow Leverage: The Detour of MSTR and Metaplanet
At the specific trading level, Hayes does not remain in macro discussions but provides his chip choices for the first quarter of 2026—research briefs show that he focuses on going long on MSTR and Metaplanet, viewing these two companies as amplified exposures to Bitcoin price fluctuations. In his design, these targets are not simply "stocks with BTC holdings," but rather shadow Bitcoin leverage tools that combine Wall Street preferences, regulatory frameworks, and market structures.
For institutional investors, obtaining Bitcoin exposure through equity in publicly listed companies rather than directly holding the cryptocurrency has several practical considerations. First, many traditional institutions have investment authorizations and compliance boundaries that still restrict direct ownership of crypto assets, while buying shares of a company listed on a mainstream exchange can be viewed as "equity investment" within the existing framework, making it easier to pass internal and regulatory reviews. Second, companies like MSTR adopt an active "hoarding coins + issuing debt + buying more coins" capital operation logic, which further amplifies their stock price sensitivity to Bitcoin prices, creating a naturally high-leverage BTC Beta that can provide a more aggressive return curve during bullish phases.
The role of Metaplanet is similar; although there are differences in size, region, and market attention, it essentially leverages traditional equity structures to capture expectations and capital flows for Bitcoin's upward movement. For those funds that cannot or do not wish to directly allocate BTC, stocks of such companies become a crypto exposure tool under a "compliance disguise." In his actual operations in the first quarter, concentrating long positions in MSTR and Metaplanet is akin to betting: once U.S. dollar liquidity expands again in 2026 as he expects, these "shadow Bitcoin ETFs" will amplify the entire market's volatility and gains amid crowded funding.
This path also reveals another layer of linkage between traditional finance and the crypto market: even if regulation has not fully loosened, the market will build leverage bridges through various structured products and equity vehicles. When the credit released by central banks and banks begins to seek higher-yielding outlets, some funds will bypass the controversies of direct coin ownership, first flowing into these targets that are highly bound to Bitcoin and have the guise of traditional finance, and then through their capital operations, reverse amplify the demand and sentiment for BTC, thus forming a secret channel of "Wall Street shadow leverage."
Layout in Adverse Winds: Hayes' ZEC Chips
Focusing on the main line of Bitcoin and the amplified exposures of MSTR and Metaplanet, Hayes also chose a more marginal and counter-wind path during the phase of low market sentiment and pressure on mainstream asset performance—continuously increasing his position in ZEC. The research brief clearly records this action but also emphasizes that the current market discussions about ZEC's potential rewards or specific activity mechanisms still belong to the realm of verification, so the analysis can only focus on "his increase in this asset position during a weak market."
In his portfolio logic, ZEC is not meant to replace Bitcoin's core narrative but rather serves as a preemptive bet before liquidity recovery. When the market is in a phase of credit contraction and emotional freezing, privacy assets are often viewed as more marginal and higher-risk tracks, leading to naturally thinner liquidity. It is in this environment that early positioning means accepting greater volatility and drawdowns, in exchange for the potential premium of dual recovery in valuation and narrative once the easing cycle restarts and risk appetite rebounds.
During liquidity easing cycles, the premiums that privacy assets may gain often come from the intersection of two clues: on one hand, macro-level credit expansion raises the price center of the entire risk asset pool, significantly increasing the market's tolerance for "high volatility + high story"; on the other hand, old themes of financial sovereignty, on-chain privacy, and anti-censorship will be repackaged in each new round of monetary easing, becoming part of the current narrative. In this context, assets like ZEC can be seen as potential destinations when liquidity overflows in search of higher elastic targets.
By juxtaposing ZEC positions with long positions in MSTR and Metaplanet, Hayes is essentially building a betting combination across different risk levels: Bitcoin and its equity amplifications express a high beta representation of the U.S. dollar credit cycle, while more niche privacy assets like ZEC serve as "back-row chips" to absorb overflow funds and marginal speculative demand after liquidity truly floods and mainstream asset valuations are pushed higher. This structured layout not only amplifies the return elasticity when the macro directional judgment is correct but also significantly increases the drawdown risk when the path is incorrect.
The Fog of Election Year: Policy, Narrative, and Quantifiable Signals
Surrounding the potential liquidity expansion and crypto market performance in 2026, there is a special background in the discussion context that Hayes is in—the presidential election cycle is more openly incorporated into the analysis framework of the crypto market. The research brief points out that there is a saying in the current market that "this is the first time a systematic analysis has linked the presidential election cycle with the crypto market," but it is also clearly marked as information pending verification, meaning that the related discourse is more of a spontaneously generated market label rather than a fully substantiated academic or historical conclusion.
In this context, narratives surrounding potential easing expectations begin to grow organically. Some market participants attempt to link future monetary environments with electoral strategies, deducing the economic stimulus or easing policies that a particular government or candidate might adopt at specific stages, and further inferring how these policies could affect U.S. dollar liquidity and risk asset prices. However, the research brief also emphasizes that statements like "a certain politician adopts easing policies for the midterm elections" currently remain as market speculations that need verification and cannot be cited as established facts, nor can causal chains between political motives and liquidity be constructed without evidence.
In an environment where political noise and liquidity signals intertwine, Hayes' framework actually provides a calmer perspective: traders should focus more on quantifiable funding data rather than emotional policy interpretations. This means that instead of searching for clues in political rhetoric, election polls, and social media sentiment, it is better to return to clearly observable variables—the rhythm of changes in the Federal Reserve's balance sheet, the increase or decrease in total commercial bank loans, and whether mortgage rates are significantly declining. These hard indicators do not directly tell the market who will win the election, but they will determine at a deeper level how much credit is released in the system and how quickly and through what channels this credit flows into asset prices.
From this perspective, the election year resembles a "fog" that amplifies emotional fluctuations rather than being the true root cause of liquidity. Bitcoin and the broader crypto market can be temporarily pulled by sentiment, but ultimately must find their position between the rises and falls of U.S. dollar credit. For those attempting to position themselves in 2026, focusing on quantifiable and verifiable funding signals amidst the noisy political narrative may be more important than aligning with a particular political storyline.
Embracing 2026: The Paradox of Liquidity Betting
Returning to the overall framework that Arthur Hayes has built for 2026, Bitcoin is placed in a position far removed from a single asset story. He repeatedly emphasizes: Bitcoin's performance is a derivative of the U.S. dollar credit cycle, not a "parallel universe" that can exist independently of the liquidity environment. From the approximately 400% surge during the balance sheet expansion in 2020, to the weakness in 2025 against a backdrop of credit contraction, and to the potential liquidity re-expansion in 2026, he attempts to replace fragmented events and emotional explanations with a continuous narrative of currency and credit.
Within this framework, his trading route is also relatively clear. First, by utilizing MSTR and Metaplanet to amplify Bitcoin's beta, allowing funds to achieve higher return elasticity through equity structures and company-level leverage when the direction is perceived correctly. Second, by continuously increasing positions in ZEC during periods of market downturn, he attempts to preemptively occupy positions before liquidity overflows into more marginal assets, betting on the potential valuation premium that privacy assets may gain during future easing cycles. This combination views Bitcoin as the main wave atop the U.S. dollar credit tide, with MSTR and Metaplanet acting as accelerators on the wave crest, while ZEC and others are seen as high-risk splashes at the wave's tail.
Alongside this high-sensitivity layout, there exists the boundary repeatedly emphasized in the brief: Hayes does not provide specific target ranges for Bitcoin prices in 2026, and the research team explicitly prohibits fabricating any "200,000" or "1,000,000" type targets based on speculation; there is also no reliable evidence to support further extensions of causal motives between potential political figures and liquidity expansion. In other words, what truly deserves to be placed at the analytical center remains those verifiable and reviewable hard indicators—balance sheet size, loan growth rates, mortgage rate curves, and how they collectively shape the ebb and flow of U.S. dollar credit.
As for how Bitcoin will complete its self-pricing in 2026, the story is still unwritten. It may follow the renewed surge of the U.S. dollar tide, replaying a high beta market similar to 2020, or it may stall again in a more severe manner amid crowded trading of risk assets. What can be done now may not be to bet on a specific endpoint, but to choose the level of risk one is willing to stand on, based on an understanding of liquidity structures and credit cycles.
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