Top Trader Explains Bitcoin's Surge: What Is the Market Actually Trading?

Video title: The Godfather Of Crypto Trading: My Final Warning To Bitcoin Holders
Video source: Altcoin Daily
Compiled by: Peggy, BlockBeats

Editor's note: On Aug. 19, the U.S. Treasury Department announced that, starting Sept. 9, it would raise the single-operation liquidity support buyback cap for 10- to 30-year long-term Treasuries from $20 billion to at least $40 billion. The policy scale is not large relative to the more than $30 trillion U.S. Treasury market, but after the announcement, long-term Treasury yields fell quickly, the dollar weakened, and Bitcoin broke back above $70,000.

Two explanations have emerged for this rebound. One attributes it to Trump's push for crypto market structure legislation, while the other argues that what truly changed market pricing was the Treasury Department's demonstrated policy sensitivity to rising long-term interest rates. In other words, what investors are trading may not be the $40 billion buyback itself, but what actions the Treasury and the Federal Reserve might take if Treasury yields continue to rise.

Arthur Hayes chose the latter explanation in an interview with Altcoin Daily. In his view, Bitcoin is a "pressure release valve" for changes in global liquidity: when the market begins to worry that the U.S. will suppress long-term financing costs through larger buybacks, Federal Reserve balance sheet expansion, or even yield curve control, scarce assets will regain buying interest.

Related reading: Arthur Hayes' Latest Interview: ETH to $30,000; FLOP Will Surpass ETH

This remains a macro thesis with a distinctly personal stance. The Treasury has emphasized that the goal of the buybacks is to improve market liquidity for long-term Treasuries, not to directly release money; the Federal Reserve has also not announced yield curve control. Whether Hayes' judgment holds ultimately depends on whether buybacks continue to expand, whether long-term rates again approach the policy stress zone, and whether the Fed actually expands its balance sheet.

The following is a compiled summary of key information from the original text:

On Aug. 19, the U.S. Treasury Department announced that it would raise the single-operation liquidity support buyback size for 10- to 20-year and 20- to 30-year nominal coupon Treasuries from a maximum of $20 billion to at least $40 billion. The new arrangement will take effect on Sept. 9 and run through Nov. 4.

Before the news, the U.S. 30-year Treasury yield had risen to about 5.34%, the highest since 2007; after the announcement, long-term Treasury yields briefly fell by about 10 basis points, and the dollar weakened in tandem. Bitcoin subsequently broke above $70,000 for the first time since June, and related crypto stocks also broadly rose.

In the interview with Altcoin Daily, Arthur Hayes argued that the core thread of Bitcoin's rise is not within the crypto industry, but in the U.S. Treasury market.

$40 Billion Is Not Large; the Market Is Trading the Policy Signal

The Treasury Department's increase of the single long-term Treasury buyback size from $20 billion to at least $40 billion is not enough by itself to significantly change the supply-demand structure of the Treasury market. Hayes also acknowledged that this is not a number sufficient to directly create large-scale liquidity.

He is more focused on the timing of the buyback expansion announcement.

After long-term Treasuries were sold off and the 30-year yield rose to a nearly two-decade high, the Treasury quickly stepped up buybacks. In Hayes' view, this shows the market the policy authorities' "pain point" regarding long-term rates: when rising yields begin to threaten government financing costs and financial market stability, the Treasury may take more aggressive intervention.

"The size is not stunning, but it is a signal," Hayes said.

The Treasury's official definition of this operation is "liquidity support buybacks," mainly used to repurchase less liquid older issues and improve trading conditions in the Treasury market. It is not equivalent to Federal Reserve quantitative easing, nor does it necessarily increase the net amount of dollars in the market.

Therefore, more precisely, the buyback announcement does not directly prove that the U.S. has restarted "money printing," but it reinforces a market expectation: if long-term rates continue to spiral out of control, policy tools may be further escalated.

Hayes' Bitcoin Logic: From Treasury Stress to Liquidity Expansion

Hayes views Bitcoin as the most direct "pressure release valve" when central banks expand the money supply.

His logic can be broken down into three steps: U.S. debt and interest expenses continue to grow, and the Treasury needs to maintain the financing capacity of the Treasury market; if long-term Treasuries lack buyers and yields keep rising, policy authorities may stabilize the market through expanded buybacks or other tools; once these operations ultimately lead to an increase in dollar liquidity, Bitcoin with its fixed supply will become a potential beneficiary.

Under this framework, Bitcoin's rise does not come from the $40 billion buyback directly flowing into the crypto market, but from investors trading in advance a future environment of looser liquidity.

Hayes believes that what really needs attention is yield curve control. It refers to policy authorities maintaining Treasury yields near target levels by purchasing bonds of specific maturities. The U.S. has not implemented this policy, but Hayes judges that if long-term yields continue to rise, the market will raise expectations for implicit or explicit yield control.

He further stated that once the market confirms that the Federal Reserve will expand its balance sheet on a large scale, Bitcoin could quickly enter the "hundreds of thousands of dollars" range. He expects Bitcoin to rise to about $126,000 by year-end; if policy clearly shifts toward yield curve control, it could move faster toward $500,000.

A More Aggressive Thesis: Foreign Holders Sell, the Fed Steps In

Compared with Treasury buybacks, Hayes is more focused on the FIMA Repo Facility, the "Foreign and International Monetary Authorities Repo Facility."

This tool allows eligible foreign central banks and international institutions to obtain dollar liquidity from the Federal Reserve using their holdings of U.S. Treasuries as collateral. Hayes speculates that Japan and European countries may need to sell some U.S. assets in the future and repatriate funds for fiscal, defense, and social spending. If major overseas holders of U.S. Treasuries shift from buyers to sellers, long-term Treasury yields could come under further pressure.

In his scenario, the U.S. could expand the FIMA repo facility, allowing overseas official institutions to exchange Treasuries for dollars, then sell dollars in the foreign exchange market and buy back their own currencies. This would both ease direct selling pressure on the Treasury market and potentially absorb some liquidity demand through the Federal Reserve's balance sheet.

However, this part is mainly Hayes' speculation about future policy paths. Existing public information does not confirm that the Federal Reserve will remove transaction limits on the FIMA tool, let alone announce that it will use the tool to absorb unlimited sales of Treasuries by foreign investors.

Therefore, the "unlimited money printing" Hayes refers to has not yet occurred. It represents what he sees as the extreme scenario that policy may ultimately move toward.

Why Is Bitcoin More Important Than Regulatory Tailwinds?

During the interview, Altcoin Daily also asked about the impact of U.S. crypto market structure legislation on the market. Hayes was cautious in his assessment, even arguing that the CLARITY Act is not important for Bitcoin's price.

The CLARITY Act attempts to clarify whether digital assets are securities or commodities and to delineate the regulatory authority of the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission. For companies that need to raise funds, issue tokens, and operate trading businesses in the U.S., clear regulatory boundaries do have practical significance.

But Hayes believes that Bitcoin, which has operated since 2009, does not depend on the U.S. establishing a regulatory framework specifically for it. Compared with Congress passing a crypto bill, how the U.S. Treasury and the Federal Reserve handle debt, interest rates, and dollar liquidity has a more direct impact on Bitcoin's valuation.

This judgment also explains his attribution of the current market move. Trump's push for the CLARITY Act and the Treasury's expansion of buybacks occurred almost simultaneously, and both may have improved market sentiment; but Hayes believes that the variable that truly caused Bitcoin's rapid rebound was investors beginning to reassess the tolerance of U.S. policy authorities for long-term interest rates.

Reuters, citing analyst views, said that the scale of the Treasury operation is relatively limited and the relief for the bond market is also short-lived; however, against the backdrop of a previously narrow trading range and accumulated short positions, this signal triggered short covering in the crypto market, amplifying the price increase.

This means that this round of Bitcoin's rise can be explained by multiple factors: falling Treasury yields reduced the opportunity cost of risk assets, a weaker dollar improved the liquidity environment, regulatory news boosted industry expectations, and short covering amplified short-term volatility. Attributing the entire increase to the Treasury buyback is equally likely to overestimate the impact of a single event.

What to Watch Next: Long-Term Yields Near 5%

The core indicator Hayes gives is not Bitcoin's technical chart, but U.S. long-term Treasury yields.

He believes that recent policy responses show that the U.S. Treasury has become more sensitive to rapid increases in long-term yields. If the 10-year yield approaches 5% and the 30-year yield challenges its highs again, the market will watch whether the Treasury continues to expand buybacks and whether the Federal Reserve introduces new liquidity tools.

If buyback sizes continue to increase, the Federal Reserve's balance sheet expands again, and the dollar continues to weaken, Hayes' liquidity trading framework will be strengthened. Bitcoin may then continue to be viewed as a scarce asset for hedging currency expansion and sovereign debt risk.

Conversely, if long-term yields fall on their own, buybacks remain at the level of liquidity management, and the Federal Reserve does not expand its balance sheet, then interpreting the $40 billion buyback as a prelude to yield curve control may be an overreach.

Therefore, what this interview really discusses is not whether Bitcoin will rise to $126,000 or $500,000 by year-end. The core question Hayes raises is: when the Treasury market again approaches the policy stress zone, will the U.S. allow long-term rates to rise freely, or will it use more liquidity to stabilize the market?

Bitcoin is trading the second possibility in advance.