Bitcoin's Path to New Highs Hinges on Monetary Expansion as Trump Intensifies Fed Rate Cut Demands

Monetary Expansion Key to Bitcoin Recovery

Bitcoin's ability to reach new all-time highs will depend on the expansion of monetary conditions, according to BitMEX co-founder Arthur Hayes, who expressed optimism that dollar liquidity will increase in 2026 despite the cryptocurrency's underperformance against gold and tech stocks in 2025 ^[1].

"If gold and the Nasdaq have the juice, how is Bitcoin going to get its groove back? Dollar liquidity must expand for that to happen," Hayes stated, adding that he believes this expansion will occur in 2026 ^[1].

Bitcoin declined 14.40% in 2025, while gold surged 44.40% across the year ^[1]. Technology stocks emerged as the top-performing sector in the S&P 500 in 2025, delivering a total return of 24.6%, which exceeded the S&P 500 Index's overall return of 18% by 6.6% ^[1].

Catalysts for Dollar Liquidity Growth

Hayes identified several factors that could support a "drastic increase" in dollar liquidity in 2026, including expansion of the US Federal Reserve's balance sheet through money printing, falling mortgage rates as liquidity loosens, and increased willingness by commercial banks to lend to US government-backed strategic industries ^[1].

"The US will continue to flex its military muscle, and to do so requires the production of weapons of mass destruction financed by the commercial banking system," Hayes explained ^[1].

Monetary expansion is generally considered bullish for Bitcoin, as investors tend to gravitate toward riskier assets like cryptocurrencies when anticipating US dollar devaluation due to inflation ^[1].

Hayes attributed Bitcoin's 2025 performance to declining dollar liquidity, while noting that the Nasdaq avoided similar declines because artificial intelligence had been "nationalized by both China and America." He stated that "through executive orders and government investment, Trump is blunting the free market signals so that capital, irrespective of the real return on equity, floods into everything related to AI" ^[1].

Trump Intensifies Pressure on Federal Reserve

President Donald Trump renewed his calls for Federal Reserve Chair Jerome Powell to lower interest rates following the release of December's consumer price index data, which showed headline inflation rose 2.7% year over year and core CPI increased 2.6% ^[2].

Despite inflation remaining above the Fed's 2% long-run target, Trump argued that current levels are low enough to justify rate cuts. "We have very low inflation. That would give 'too late Powell' the chance to give us a nice, beautiful, big rate cut," Trump told reporters before departing Washington for an economic event in Detroit ^[2].

During his Detroit speech, Trump criticized Powell as "that jerk" and stated he wants to return to "the old-fashioned way" of economics, where positive economic news leads to market gains rather than rate increases ^[2]. "If I had the help of the Fed, it would be easier, but that jerk will be gone soon," Trump said, later adding that "when the market goes up, they should lower rates" ^[2].

Clash Over Fed Independence

Trump dismissed criticism from JPMorgan Chase CEO Jamie Dimon regarding a Justice Department probe into the Fed, rejecting suggestions that he was undermining the central bank's independence. "I think it's fine what I am doing. And we have a bad Fed person," Trump stated ^[2].

The president suggested that Dimon's opposition might be financially motivated, saying "Jamie Dimon probably wants higher rates. Maybe he makes more money that way" ^[2].

Bitcoin as Monetary Technology

Hayes characterized Bitcoin as "monetary technology" that derives value from fiat debasement. "This alone guarantees that Bitcoin's value is greater than zero. But for Bitcoin to be worth close to 100,000 United States of American Dollars requires continuous fiat monetary debasement," he stated ^[1].