OpinionBitcoinMarkets
|5 min ReadHayes Warns Stealth QE Is Near as Liquidity Tightens
Jax Morales
Senior Analyst
Published
Jan 16, 2026
The world keeps turning and, as Arthur Hayes likes to say, compounding does not care who you are. Governments can spend only through taxes or debt, and politicians always choose debt. The United States is no different. With trillion-dollar deficits locked in, the real question is simple. Who buys all this Treasury debt, and where does their money come from? Hayes argues the answer leads to one conclusion. As deficits balloon, the Federal Reserve will be forced to expand its balance sheet again. Call it what you want, he says. The effect is the same. More dollars. Stronger Bitcoin.
Treasury Issuance Surges While Buyers Change
The Trump administration extended the 2017 tax cuts. That means no new revenue. It also means the Treasury must continue borrowing at massive scale. Large banks expect deficits of around $2 trillion a year, with matching levels of Treasury issuance.
Foreign central banks no longer want to be the buyer of last resort. After the United States froze Russia’s reserves in 2022, reserve managers view Treasuries as seizure-risk assets and have turned to gold instead.
The U.S. private sector cannot fill the gap either. Americans saved about 4.6 percent of income in 2024, while the deficit ran at 6 percent of GDP. Commercial banks bought roughly 2 trillion issued.
That leaves one group. Relative value hedge funds. According to the Federal Reserve, these Cayman-based funds absorbed $1.2 trillion in Treasuries from early 2022 to late 2024, roughly 37 percent of net issuance.
They run a simple trade. Buy cash Treasuries. Sell the matching futures. Capture a tiny basis spread. Because the spread is tiny, they borrow heavily to juice returns.
Repo Plumbing Decides Everything
To run this trade, RV funds rely on the repo market. They pledge Treasuries as collateral and borrow overnight cash. When cash is plentiful, repo rates sit at or below the Fed’s upper bound for overnight rates. When cash is tight, repo rates spike above it. That is when markets start breaking.
The Fed tries to control these pressures with three tools. The reverse repo facility pays money market funds the lower bound rate. Banks earn the interest-on-reserves rate. The Standing Repo Facility, or SRF, supplies cash at the upper bound against Treasuries.
Money market funds once stored trillions in the RRP. Now that T-bill yields are high, the RRP is empty. MMFs prefer buying bills. Commercial banks lost trillions in reserves during quantitative tightening. Their capacity to supply repo liquidity shrank. As demand for repo cash rises with Treasury issuance, the supply shrinks. That drives repo rates toward the top of the Fed’s band.
When cash gets too tight, RV funds cannot roll funding cheaply and Treasury markets wobble. The SRF exists to prevent this. It allows banks and other firms to borrow cash directly from the Fed at the upper bound. Hayes calls the SRF “the printer with training wheels.” If SRF usage rises, it means the Fed is quietly supplying new dollars so RV funds can keep buying Treasuries.
Stealth QE Will Return as Deficits Explode
Hayes argues the Fed has two basic ways to keep markets functional. Classic QE, where it buys securities and creates bank reserves. Or stealth QE, where it uses the SRF to flood repo markets with cash. Because QE is political poison, the Fed will avoid explicit balance sheet expansion as long as possible. Instead it will rely on the SRF. But as deficits rise and old debt rolls over, SRF usage must grow. That expansion effectively increases the dollar supply.
Once SRF balances begin trending upward, Hayes says, it will mark the start of a new Bitcoin bull cycle. Until then, markets may chop sideways. The government is still borrowing without spending due to the shutdown, which drains liquidity. The Treasury General Account sits well above its target and will not release funds until the government fully reopens.
If traders believe a four-year cycle top is in, Hayes thinks they are misreading the signals. Dollar plumbing shows liquidity is being constrained temporarily, not permanently destroyed.
As he puts it, the jargon sounds complicated. But it boils down to two forces. When money is created, Bitcoin rises. When money is held back, Bitcoin stalls. He believes the next surge begins when stealth QE quietly turns back on.
Disclaimer: This document is intended for informational and entertainment purposes only. The views expressed in this document are not, and should not be taken as, investment advice or recommendations. Recipients should do their own due diligence, taking into account their specific financial circumstances, investment objectives and risk tolerance, which are not considered here, before investing. This document is not an offer, or the solicitation of an offer, to buy or sell any of the assets mentioned.