Arthur Hayes: Avoid Bonds, Watch Bitcoin and Banking Move Stablecoin Liquidity

BitMEX co-founder Arthur Hayes advises investors in his recent blog to avoid government bonds while positioning for Bitcoin and banking stocks.

Hayes argues that Treasury Secretary Bessent’s stablecoin support creates massive liquidity opportunities through traditional banking rather than cryptocurrency companies like Circle.

Arthur Hayes Warns Against Bonds Despite Expected Rate Cuts

Arthur Hayes disagrees with financial advisors recommending government bonds based on forecasts of falling yields and central bank rate cuts.

While he acknowledges that central banks globally will likely cut rates and print money to prevent government bond market collapses, he argues the potential returns from bonds pale in comparison to other investment opportunities.

The analyst expects bonds to generate modest returns of 5% to 10% even if his predictions about monetary policy prove correct.

However, he warns investors will miss substantial gains from alternative assets during the same period. He predicts that Bitcoin price will potentially reach $1 million, representing 10x returns, and the Nasdaq 100 possibly spiking 5x to 100,000 by 2028.

Hayes criticizes investors waiting for Federal Reserve Chairman Powell to announce unlimited quantitative easing and rate cuts before selling bonds and buying cryptocurrency.

He argues this approach will not materialize unless the United States enters military conflicts with Russia, China, or Iran. Besides, he highlights a potential collapse of systemically important financial institutions.

The entrepreneur points to historical precedent where investors suffered opportunity costs waiting for traditional monetary policy responses while alternative liquidity mechanisms drove asset prices higher.

He contends that Treasury Secretary Bessent’s approach through stablecoin regulation and banking policy changes offers more immediate and substantial market impact.

Stablecoin Regulation Creates Massive Treasury Debt Financing

Arthur Hayes identifies Treasury Secretary Bessent’s stablecoin enthusiasm as a strategic solution to government financing challenges rather than genuine support for cryptocurrency innovation.

The Treasury faces funding approximately $2 trillion in yearly federal deficits plus $3.1 trillion in maturing debt during 2025, requiring creative financing mechanisms beyond traditional bond sales.

The Genius Stablecoin Act creates a regulatory framework that benefits large banks while restricting competition from technology companies like Meta, which cannot launch independent stablecoins without banking partnerships.

The legislation prohibits paying interest to stablecoin holders, preventing fintech companies from competing effectively against established financial institutions.

Hayes argues that stablecoin adoption by major banks unlocks up to $6.8 trillion in treasury bill purchasing power through converting regular deposits into blockchain-based stablecoins.

Banks gain operational advantages, including reduced compliance costs estimated at $20 billion annually across major institutions, while maintaining higher profit margins through treasury bill investments.

JPMorgan’s planned JPMD stablecoin launch on Coinbase’s Base network exemplifies this strategy, offering customers improved functionality while allowing banks to eliminate expensive operational departments.

The stablecoin framework provides banks with government-guaranteed deposit bases that smaller fintech competitors cannot match, ensuring market dominance for established financial institutions.

Banking Stocks Offer Better Returns Than Circle

Arthur Hayes recommends investing in major banking stocks rather than cryptocurrency companies like Circle.

He emphasized that large banks will capture the majority of stablecoin market benefits through regulatory advantages.

The eight largest banks could see stock prices increase by an average of 184% based on cost savings and profit margins from stablecoin operations.

The analyst calculates potential value creation of $3.91 trillion for major banks through combining $20 billion in annual compliance cost savings with enhanced profit margins from treasury bill investments.

The current market capitalization of these eight banks is approximately $2.1 trillion, which shows extremely high potential for upside from stablecoin adoption.

Circle’s worth against Coinbase distorts markets, since Circle is worth nearly 45% of Coinbase, even though it shares 50% of net interest income with its counterparty.

Hayes points out that Circle has traded 472% better than Bitcoin since its initial public listing, though he doubts whether this premium will be sustainable based on regulatory restraints.

Other policy changes would unlock $3.3 trillion of bank reserves deposited at the Federal Reserve if legislators reduce interest paid on reserve balances.

Senator Ted Cruz proposed eliminating the payments to reduce government deficits while forcing banks to invest reserves in treasury securities.