Bitcoin’s price behavior is signaling deeper financial stress that traditional markets have yet to price in, according to Arthur Hayes, co‑founder of cryptocurrency exchange BitMEX.
Hayes said this week that the leading cryptocurrency’s continued decline, which has diverged sharply from the relatively flat performance of the Nasdaq 100 Index, could be “flashing” early warnings of tightening credit conditions in the U.S. dollar economy, potentially foreshadowing a broader credit crunch. In a post on his Substack newsletter, he described Bitcoin as acting like a “fiat liquidity fire alarm,” reacting before equities and other traditional indicators.
Bitcoin is showing that credit in the financial system is falling
Arthur Hayes said Bitcoin is an early warning sign of economic problems ahead because it’s highly sensitive to changes in the financial system and reacts faster than most traditional assets. Hayes explained that BTC stocks and other investments take longer to reflect the impact of falling liquidity than BTC does.
He also said that a falling Bitcoin price while the Nasdaq 100 Index stays stable is usually a sign of problems in the financial system that stock prices haven’t yet reflected, and that will soon affect broader markets.
Hays mentioned the growing impact of AI on white-collar jobs and said many people could lose their income and struggle to pay off debts, including credit card bills, car loans, and mortgages. He estimates that banks could lose up to $330 billion in consumer credit and $227 billion in mortgage debt if 20% of the country’s 72.1 million knowledge workers were affected.
Banks will likely give out fewer loans or make borrowing harder for everyone when they notice more people falling behind on their payments. This will, in turn, slow down the flow of money into the economy because people who can’t borrow as easily will spend less, forcing businesses to make less.
According to Hayes, weaker banks will feel the impact of this chain reaction the most, and some could even become insolvent because they lack the funds to cover obligations. In the end, everyone, including consumers and businesses that rely on credit to operate, will be affected.
AI job losses could make banks lose money and force the Federal Reserve to step in
Arthur Hayes says AI tools can now handle tasks that required large human teams, so industries like software-as-a-service companies have been underperforming compared to tech stocks in recent months.
He also explained that these job losses have led to an increase in credit card delinquencies and have placed immense pressure on consumer discretionary companies, as households are now struggling to keep up with debt payments.
Hayes warns that the Federal Reserve may have to step in with large-scale support to prevent the situation from becoming a full-blown crisis.
Other analysts also agree that significant banking problems would definitely lead to government intervention. They believe this could, in turn, make Bitcoin and other scarce digital assets more attractive by undermining trust in traditional money systems.
When a system relies on more money printing to survive, people begin to see scarce assets as a safer place to store value. Hayes presents two potential market routes in the face of this situation, as explained in the article.
The first is that the fall of Bitcoin from $126,000 to $60,000 may already be pricing in the slowdown, with stocks having time to catch up. Alternatively, the fall in Bitcoin may continue, with stocks later catching up as they too price in the same credit risks.
In either case, the outcome is likely to be the same: lots of money will be pumped into the system to prevent widespread bank problems.
Hayes believes this reaction could offset Bitcoin’s losses and even propel it to new all-time highs once the system stabilizes again. This is an example of how job losses, credit issues, and bank stress can all impact one another, with early signs of what is to come in Bitcoin.