Bitcoin’s sharp decline from its recent all-time high may be more than just a typical correction. According to crypto entrepreneur Arthur Hayes, the 52% drop is signaling a much larger financial event , one potentially driven by rapid advances in artificial intelligence.
However, Hayes believes that while more downside pain may be ahead, the eventual response from the Federal Reserve could ignite the next major crypto bull run.
Bitcoin Acting as a “Liquidity Fire Alarm”
In his latest essay titled “This Is Fine,” Hayes argues that Bitcoin is acting as a forward-looking indicator of stress in the fiat credit system.
While the Nasdaq has remained relatively stable, Bitcoin plunged from around $126,000 to near $67,000. Hayes sees this divergence as a warning sign that markets have yet to fully price in a coming credit contraction.
According to him, Bitcoin is one of the most responsive freely traded assets to changes in global liquidity. When liquidity tightens, BTC reacts quickly — often before traditional equities.
AI Could Trigger Massive Credit Defaults
Hayes outlines a scenario where artificial intelligence rapidly displaces a portion of the workforce.
If just 20% of America’s 72 million knowledge workers were displaced, he estimates:
Over $500 billion in consumer credit and mortgage defaults
Significant stress on regional banks
A credit shock potentially half the size of the 2008 financial crisis
Such an event, he argues, would create a deflationary wave across financial markets.
Gold Rising, Bitcoin Falling , A Warning Sign?
Hayes also points to gold outperforming Bitcoin as another red flag. In traditional risk-off environments:
Gold tends to rise as a safe haven
Risk-sensitive assets like Bitcoin fall
This dynamic, he believes, signals growing fears of a deflationary credit event within the U.S. financial system.
The Fed’s Response: “Money Printer Goes Brrr”
Despite the bearish short-term outlook, Hayes remains structurally bullish.
He predicts that if a major AI-driven banking crisis unfolds, the Federal Reserve would be forced to:
Inject emergency liquidity
Cut rates aggressively
Restart large-scale money creation
Once liquidity floods back into the system, Bitcoin could:
Rally sharply from its lows
Reclaim previous highs
Potentially set new all-time records
Hayes compares this potential response to emergency measures taken during past regional banking stress events.
More Pain Before the Rebound?
Hayes cautions that Bitcoin may fall further before central bank action begins. Political gridlock could delay intervention, increasing short-term volatility.
He warns BTC could:
Break below the $60,000 level
Experience extended consolidation
Face additional liquidations
For investors, he advises:
Staying liquid
Avoiding excessive leverage
Waiting for clear signs of renewed liquidity
Big Picture
According to Hayes’ thesis:
AI-driven job displacement triggers credit stress
Markets enter a deflationary shock phase
Central banks respond with massive liquidity
Bitcoin benefits from renewed money printing
While the short term may remain volatile, Hayes believes the next major liquidity wave could ultimately push Bitcoin to new record highs.