TL;DR
- Arthur Hayes argues that the US government’s repo-based funding model expands the dollar supply without calling it QE, which may support crypto over time.
- He highlights that the main buyers of US debt are leveraged Relative Value hedge funds using repo, backed by the Federal Reserve.
- Hayes believes this growing liquidity could fuel Bitcoin’s next bull cycle despite short-term turbulence.
Arthur Hayes has released a new essay titled Hallelujah, mixing sharp commentary, macro analysis, and a nod to Satoshi Nakamoto. His core premise is simple: governments spend more than they collect, raising taxes is politically toxic, so borrowing becomes the default. This borrowing increasingly relies on money that is effectively created within the financial system, indirectly enlarging the global dollar pool and shaping broader capital flows across markets.
Hayes notes that the 2017 tax cuts were extended and that there is no real political appetite to reverse them. Annual deficits sit near two trillion dollars, matched by equivalent debt issuance. The critical question is who buys that debt and with what funds, especially as global confidence in US fiscal discipline continues to erode among long-term investors.
Foreign central banks once played a major role. After the freezing of Russian reserves in 2022, many shifted a portion of their holdings toward gold as a safer store of value. The US private sector also falls short, as the savings rate has remained below the deficit level. Large banks absorbed only a limited share of recent issuance, leaving a wide funding gap for alternative players to fill.
Relative Value hedge funds have stepped into this gap using high-leverage strategies.
Why The Repo Machine Matters
These funds finance purchases through the repo market, posting Treasuries as collateral to borrow overnight cash. The funding cost tracks SOFR, which the Federal Reserve guides using tools including the Standing Repo Facility. When liquidity becomes strained, this facility supplies cash in exchange for Treasuries, preventing funding stress and ensuring Treasury auctions continue smoothly even in volatile conditions.
Impact On Digital Assets
Hayes calls this mechanism a stealth form of money creation. As reliance on the facility grows alongside rising debt issuance, the dollar supply expands and may benefit Bitcoin and liquidity-sensitive crypto assets. However, he cautions that the near term may stay choppy due to delayed government spending and an elevated Treasury General Account that temporarily removes cash from markets, potentially keeping risk assets under pressure for a while longer.
