AI mismatch detonates liquidity, and Bitcoin breaks previous highs at the end of the year
According to Woofun AI, Maelstrom's chief investment officer Arthur Hayes put forward a core argument in The Rollup podcast: the global macro landscape is undergoing profound restructuring. The AI industry's capital mismatch and the end of Japanese arbitrage trading will force the Federal Reserve to accelerate the creation of dollar liquidity, thereby favoring depreciation of fiat assets such as Bitcoin and gold. Hayes believes that this process is not a simple market fluctuation, but an inevitable result of the restructuring of the global trade structure and monetization of fiscal deficits. The EUR/JPY exchange rate is a key leading indicator for observing this accelerated liquidity process.
The return of Japanese capital has become one of the most notable structural changes in the current global financial market. On September 8, 2026, Japan's Finance Minister Katayama Satsuki publicly instructed domestic institutions to re-evaluate asset allocation standards, clearly calling for a reduction in foreign asset holdings and an increase in investment in Japanese domestic assets.
This directive directly points to the Japanese Government Pension Investment Fund (GPIF), which is the largest pension fund in Japan and a key market player with a quasi-government nature. At the time, the USD/JPY exchange rate was in the high range of 160 to 163. Looking back at history, the last time GPIF made such a drastic asset allocation adjustment was after 2012. At that time, in the context of Abe's implementation of “Abenomics,” the government stimulated the economy by printing banknotes, and spent two years replacing opponents and appointing supporters, which ultimately prompted GPIF to increase the allocation ratio of foreign securities and reduce the allocation of domestic securities.
This shift directly contributed to the weakening of the yen and the rise of the dollar against the yen, and began an era where Japanese investors went overseas on a large scale. However, the current policy direction is diametrically opposite. The government is trying to reverse this trend that has been going on for more than ten years and requires GPIF to sell foreign assets such as US treasury bonds, buy Japanese treasury bonds, and bring the capital back to the country.
US policymakers have responded quickly and in a complex manner, trying to meet political goals while maintaining global financial stability. Scott Bessent and Kevin Warsh were key players in this game. Bessent intervened by selling the euro and buying yen, and publicly proposed removing the single-counterparty quota limit for the Federal Reserve's foreign and international monetary authority repurchase facility (FIMA Repo Facility).
The essence of this proposal is to put pressure on Warsh to perform its duties, and allow GPIF and other institutions to use treasury bonds as collateral to obtain US dollar loans from the Federal Reserve without directly selling US treasury bonds, and then sell dollars and buy yen in the foreign exchange market to achieve capital return. Subsequently, the US Treasury announced a $20 billion increase in treasury buybacks, but this move was insignificant compared to the approximately $40 trillion bond market. Some kind of secret agreement may have been reached on the sidelines during the G20 meeting in August. Bloomberg reported that GPIF held an unplanned meeting during the Japanese holiday month of August, which is seen as a sign of a policy shift. Since then, USD/JPY has plummeted from 160 to 155 in one trading day, and EUR/JPY also fell by about 3 yen during the Asian trading session.
Meanwhile, Federal Reserve Governor Waller said inflationary pressure did not seem to be as severe as expected, implying that the Fed should not raise interest rates. Together, these events point to a goal: to weaken the dollar and strengthen the yen by creating dollar liquidity to reshape the global trade structure.
From a broader perspective, Japan Inc. (Japan Inc.) is ending the world's largest Japanese yen arbitrage transaction that it dominates. Hayes sees Japanese society as a whole as an entity that operates arbitrage transactions. Over the past 30 years, Japan has achieved overall wealth growth through the depreciation of the yen and the rise in US technology stocks through the purchase of foreign assets. As GPIF is asked to turn around, the entire 'Japan Corporation' will follow suit: sell foreign bonds and stocks, sell foreign currency, buy yen, and invest capital in Japanese treasury bonds, local businesses, and real estate.
This process takes time, but once initiated, the trend is irreversible. The dilemma facing the US is that its financial system is already heavily dependent on gains from rising stock markets and continued debt issuance. When Japan, the biggest buyer, withdrew, America's only response was to print money and take over the transactions made by Japan in the past. Japan used to accept a rise in the dollar to 200 yen to get rid of the legacy of the housing bubble in the 1980s, and the US is currently adopting a similar strategy: even if the dollar index (DXY) falls to 50, as long as it can become an industrial power again and reduce debt to about 30% of GDP from about 100% to about 30% after the previous similar strategy was adopted. Both are essentially different stages of the same transaction, and both require the economy to re-inflate through currency depreciation and balance sheet expansion.
The shift in US monetary policy is closely linked to the bubble of AI narratives. Hayes pointed out that the period when the US monetary environment was truly restrictive only lasted from December 2021 to October 2023. Since then, Janet Yellen began issuing more short-term treasury bonds and withdrew $2.5 trillion from reverse repurchase facilitation, and the market re-entered an upward phase. AI becomes the government's 'liability card' to explain the deficit problem. Politicians such as Warsh, Trump, and Bessent are vigorously promoting AI narratives, claiming that as soon as they win the AI competition with China, the debt problem will disappear and productivity will increase dramatically.
However, these people don't necessarily really understand the technical details of AI; they just accept narratives peddled by tech leaders like Dario, Sam, and Elon. This narrative overshadows the fact that government spending is a record share of GDP and provides political legitimacy for the continuing fiscal deficit. Once large-scale AI laboratories are under pressure due to the failure to establish a unit economic model, the government will definitely take steps to rescue them, and the only way to rescue them is to invest more money, that is, continue to print money. As a result, AI not only did not bring about deflation, but instead became a reason for the government to continue to inject large amounts of capital into the market. This, along with the return of Japanese capital and European issues, formed the macro basis for crypto assets to reach new highs.
Data compiled by Woofun AI shows that serious consequences of AI capital misallocation are showing, and the government bailout logic will further reinforce the trend of devaluation of fiat currencies. Using the cover of “The Economist” as an example, Hayes portrayed Nvidia (NVDA.US) CEO Jensen Huang as an example, pointing out that this is often a sign of the top of the market. The cover ignored Nvidia (NVDA.US)'s possible cash flow issues, revolving financing, or accounting tricks like 'Enron 2.0' and blindly advocated the AI narrative. The current situation is extremely beneficial to Bitcoin and gold, because politicians cannot stop spending; otherwise, they must admit that they have made huge mistakes in the past on issues such as data centers, social media, and data usage.
If the government admits there is a problem with the direction of AI, it will have to remove support for the industry, let Elon and others bear their own capital costs, and no longer provide special regulatory arrangements. However, the mechanism of political operation determined that this would not happen. Companies such as Anthropic should disclose real profit and the unit economic model of the inference business, but companies that continue to burn money often only show revenue figures. The future of OpenAI and Anthropic is uncertain, and Sam Altman and Dario Amodei must design impressive financial engineering to complete a deal or go public.
The funds of many venture capital institutions are locked in, and if their shares fall by 50% to 60% after listing and lack government bailouts, they will not be able to meet the DPI promised to investors. As a result, people in the AI community don't have cash, only book assets, and they can't buy crypto assets on a large scale. Instead, the central bank's general balance-sheet expansion to cover up capital mismatches in the AI sector is the real driving force behind Bitcoin's rise. Just as policymakers expanded balance sheets in 2009 to cover up capital mismatches in the housing sector, this time the target is AI debt, which is larger in scale and with the same logic.
The difficulties of market narrative control and the independence of the Federal Reserve reveal the nature of policy making. Hayes believes that what really sets the narrative is the market itself: if the 10-year US Treasury yield rises to 4.8% or the dollar rises to 160, Bessent is the only competent person in charge. Like a firefighter, he reached temporary agreements in various fields to prevent the system from collapsing. Policymakers are tied to the market and can't beat math and compound interest. Federal Reserve Chairman Warsh controls the balance sheet, but his independence lives on.
Referring to former Federal Reserve Chairman Arthur Burns's speech “The Pain of the Central Bank” in 1979, when the Federal Reserve Chairman took office, he all claimed to defend independence, but in the end, he would still cooperate with government spending that the American people voted for. Warsh resigned as a board member around 2011 due to his opposition to quantitative easing, and then made tough remarks in the private sector for 15 years, but now at the Federal Reserve, he can only set up a working group to submit reports. Hayes predicts that Warsh will keep interest rates unchanged at the upcoming meeting, using the third-order rate of change in inflation indicators that do not include actual consumption items to prove a decline in inflation, thus providing an excuse for not raising interest rates.
Meanwhile, the nominal growth rate of the US economy in the last quarter was about 8%, yet short-term interest rates were only 3.5% to 3.75%. This is a textbook-style easing operation. By keeping interest rates unchanged, Warsh not only maintains a hawkish image, but also claims that reserve management purchases are not quantitative easing, but only an operation to deal with technical issues in the repurchase market. This statement is enough to confuse most voters. Bessent maintained balance on the other side to prevent problems from breaking out.
Bitcoin price predictions are heavily constrained by political cycles. Hayes believes that Bitcoin may break through its all-time high before the end of the year, but the upward process will not be smooth. Until the US midterm elections, the government cannot reveal its true intention, which is to cover up the deficit by printing money. American voters are most concerned about affordability, and Trump must explain that easing measures are not about printing money.
If Bitcoin rises to $500,000 the day before the election, it could be detrimental to Trump's political image. As Scott Bessent pointed out in the Wall Street Journal review article, most Americans believe that the Federal Reserve is a producer of inequality, so the government must maintain the image that it cares about taxpayers' purchasing power of money. Will Clemente recently expressed confidence in the long-term outlook, but short-term fluctuations are unavoidable. Hayes agreed with this view, believing that the market may first rise rapidly, then move sideways or even fall back, and then continue to rise as large-scale money printing approaches.
This pace reflects the tension between political timelines and financial reality. For global crypto asset holders, structural factors require governments to create money. This trend is certain, but politicians must manage public expectations, causing repeated market fluctuations.
The euro crisis, France's debt problem, and accelerated liquidity indicators form another key clue. Hayes pointed out that EUR/JPY is the only leading indicator of the acceleration of dollar liquidity creation. Although the Federal Reserve's balance sheet is currently rising, the magnitude is not extreme compared to the COVID-19 pandemic or 2009, so Bitcoin has only risen from about $63,000 to $80,000. A real crisis is needed to resolve the perceptual problem of a significant expansion of the balance sheet. The crisis on the yen side is that Japanese investors such as GPIF, Nomura Securities, and “Mrs. Watanabe” are selling foreign assets, and in order to avoid direct sales, they need to provide loans through repurchase financing, which is driving up the yen. The problem on the euro side is the buyback market. Major French banks, led by BNP Paribas, Crédit Agricole, and Société Générale, account for about 20% of the buyback market.
If there is a problem with the euro, France will bear the brunt because Japan holds a large amount of French debt. Japan cannot sell US assets, but it can sell European assets, particularly French treasury bonds OAT and Bank of France bonds. As the situation in France worsens, new politicians may demand that the Bank of France implement quantitative easing domestically. This is illegal under EU rules, but the French government may act on the grounds of saving the domestic bond market. The EU may say to Le Pen and Mélenchon that it will not buy French bonds, creating a de facto 'soft law'.
If EUR/JPY falls from about 182 to 140 or even 120, the French banking system will have serious problems that can only be solved by creating a currency, which could also mean the end of the Eurosystem. If the Bank of France is concerned about capital controls, it will withdraw from the US repurchase market, forcing the Federal Reserve to increase reserve management purchases, thereby accelerating the growth of money supply. Hayes called Scott Bessent the 'Buffalo Bill' not because of short-term treasury bonds (bills), but rather from the serial killer in “The Silent Lamb,” meaning that he is a “country's serial killer” and handles international relations through sanctions and other means.
Asset allocation strategies, Ethereum's advantages, and specific token opinions reveal the best choices in the current market environment. Hayes believes that if you want to take a higher risk than Bitcoin, but don't want to drop 75% overnight due to protocol issues, Ethereum is the right choice. It is the worst-performing large-cap coin in the last cycle, and has yet to break through an all-time high of close to $5,000 in 2021, so the risk return is excellent. In 2025 and 2026, the pace of AI development changed at a high rate, and investors were already profiting well, but this phase is over.
Nasdaq is still likely to rise another 40%, 50%, or even 60%, but Bitcoin may rise to $1 million, gold may rise to $15,000, and defensive assets such as ExxonMobil (XOM.US) may also rise several times. AI assets will not perform as well as scarce assets. Hayes suggests a barbell strategy: on one end, hard currency and scarce assets, such as Bitcoin and Zcash, benefit from currency depreciation; on the other end, on-chain companies with reasonable fundamental valuations and can generate profits, such as Hyperliquid, ether.fi, and Ethena, benefit from the increased legitimacy of the crypto industry.
He predicted that when people begin to believe that politicians will not continue to print money, this shift will not occur until the 2028 US presidential election. At that time, the opposition Democratic Party may propose tax increases. The market will worry that the scale of money printing will shrink, and investors will need to allocate the other side of the bar. Hayes holds a large interest in volatility hedge funds and expresses this view through options trading. For HYPE, he believes that the current risk return is not ideal, and the increase may not be as high as Ethena. Zcash, on the other hand, needs to observe the progress of formal verification and other work. The industry has entered a mature stage similar to the Internet bubble after the collapse in 2001. There is still slow growth and sharp retracement in the long-term rise of assets, but the real value is more than in the past.