Arthur Hayes: We are still in a bull market cycle, BTC will reach $1 million during Trump's term

Many readers forget the KISS principle when reacting to the policies of the administration of U.S. President Donald Trump. The goal of Trump’s media strategy is that every day you wake up and say to your friends, your partner, or your heart, “Oh my god, did you see what Trump/Elon/Robert Kennedy et al did yesterday? I can’t believe they did that.” Whether you’re emotional or frustrated, the melodrama “The Emperor’s Day” is entertaining.

For investors, this constant state of excitement is not conducive to accumulating funds. One day, you buy, and then quickly sell after digesting the next news headline. The market hits you in the process, and your funds are quickly reduced.

Remember the KISS principle.

Who is Trump? Trump is a showman in real estate. To be successful in real estate, you must master the art of borrowing huge amounts of money at the lowest possible interest rates. Then, in order to sell homes or rent out space, you must brag about how impressive the new building or development will be. I am not interested in Trump's ability to generate sympathy in the global community, but in his ability to finance his policy goals.

I believe Trump wants to finance his “America First” policies by taking on debt. If not, he will let the market naturally wipe out the credit embedded in the system and trigger a recession worse than the 1930s. Does Trump want to be known as the 21st century’s Herbert Hoover or Franklin Delano Roosevelt (FDR)? American history disparages Hoover because historians believe he didn’t print money fast enough, and idolizes Roosevelt because his New Deal policies were paid for with printed money. I believe Trump wants to be considered the greatest president ever, and therefore, he doesn’t want to destroy the fabric of the empire with austerity.

To drive home the point, remember that Hoover’s US Treasury Secretary Andrew Mellon said the following when dealing with an over-leveraged US and global economy after the stock market crash:

"It will clean up the labor force, clean up the stocks, clean up the farmers, clean up the real estate. It will clean up the corruption in the system. The high cost of living and the high quality of life will go down. People will work harder and live more morally. Values ​​will adjust and the enterprising will pick up the pieces left by the less capable."

Scott Bessent, the current US Treasury secretary, would not be so testy.

If I am correct that Trump will achieve "America First" through debt financing, how does this affect my view of the future of global risk asset markets, especially cryptocurrencies? To answer this question, I must form a view on the way Trump is likely to increase the amount of money/credit (i.e. print money) and reduce its price (i.e. interest rates). Therefore, I must have a view on how the relationship between the US Treasury led by Scott Bessent and the Federal Reserve led by Jerome Powell will develop.

KISS

Who did Besant and Powell serve? Was it the same person?

Bessant was appointed by Trump 2.0, and judging by his past and current interviews, his worldview is very much in line with Trump’s.

Powell was a Trump 1.0 appointee, but he's a traitor. He defected to Obama and Clinton's side. Powell destroyed what little credibility he had left by implementing a massive 0.5% rate cut in September 2024. At the time, the US economy was growing above trend and the embers of inflation were still there, no rate cut was needed. But Obama-Clinton puppet Harris needed a boost, and Powell did his job and cut rates. It didn't turn out as expected, but Powell announced after Trump's victory that he would finish his term and once again firmly fight inflation.

When you are overloaded with debt, a few things happen. First, interest payments eat up a significant portion of your free cash flow. Second, because of your high debt levels, no one will lend you money, so you can’t fund additional asset purchases. So you have to restructure your debt, which requires extending the maturity and reducing the coupon rate. This is a soft default because, mathematically, doing both of these things reduces the present value of the debt burden. Once your actual debt burden is reduced, you can borrow again at an affordable rate. From these perspectives, the Treasury and the Fed both have a role to play in restoring America’s financial health. The success of this effort has been hampered by the fact that Bessant and Powell serve different masters.

Debt restructuring

Bessant has publicly stated that the current U.S. debt situation must change. He wants to eventually extend the average length of the debt burden, which Wall Street calls “debt maturity.” Many macro experts have suggestions for achieving this goal; I discuss this solution in detail in The Genie. However, the bottom line for investors is that the U.S. will softly default on its debt burden by reducing its net present value.

Given the global distribution of U.S. debt holders, it will take time to achieve this restructuring. It is a geopolitical puzzle. So in the short term (I mean the next three to six months), we, the inventors of cryptocurrency, have nothing to worry about.

New Loans

Powell and the Fed have broad control over the quantity of credit and its price. The Fed is legally allowed to print money to buy debt securities, which increases the quantity of money/credit, i.e. prints money. The Fed also sets short-term interest rates. Given that the US cannot default in nominal dollar terms, the Fed determines the risk-free rate on dollars, the effective federal funds rate (EFFR). The Fed has four main levers to manipulate short-term rates: the reverse repurchase program (RRP), interest on reserve balances (IORB), the fed funds floor, and the fed funds ceiling. We don’t need to go into the money markets, we just need to understand that Powell can unilaterally increase the quantity of dollars and lower their price.

If Bessant and Powell were in cahoots, it would be very easy to analyze the future path of dollar liquidity and the reactions of China, Japan and the EU to U.S. monetary policy. Given that they are clearly not in cahoots, I wonder how Trump can manipulate Powell into printing money and lowering interest rates while still allowing Powell to comply with the Fed's inflation-fighting mandate.

Suppressing the economy

The Federal Reserve's Recession Law: If the U.S. economy falls into recession or the Federal Reserve is worried that the U.S. economy will fall into recession, it will cut interest rates or print money.

Let’s test this pattern using recent economic history. Thanks to Bianco Research for this excellent chart.

This is a list of the direct causes of recessions in the United States since World War II . A recession is defined as negative quarterly GDP growth. I will focus specifically on the period from 1980 to the present.

Here is a chart of the lower bound on the federal funds rate. Each red arrow represents the start of an easing cycle that coincided with a recession. As you can see, it is clear that the Fed will at least cut rates during a recession.

Fundamentally, Pax Americana and the global economy it rules are debt-financed. Large corporations issue debt to finance future production and the expansion of current operations. If cash flow growth slows significantly or falls outright, the ultimate repayment of the debt becomes questionable. This is problematic because corporate liabilities are, to a large extent, assets of banks. Banks hold corporate debt assets to back their customer deposit liabilities. In short, if debt cannot be repaid, then the “value” of all existing legal credit bank instruments becomes questionable.

Furthermore, in the US, most households are heavily in debt. Their consumption patterns are based on mortgages, auto loans, and personal loans as margin payments. If their cash flow generation capacity slows or declines, they will not be able to meet their debt obligations. Likewise, the banking system holds the above debt and supports its deposit liabilities.

The Fed must avoid large-scale defaults or a significant increase in the probability of defaults on corporate and/or household debts during a recession or before cash flow generation slows or contracts. This would lead to corporate and consumer debt defaults, which would trigger systemic financial distress. In order to protect the solvency of the debt-financed economic system, the Fed will actively or passively cut interest rates and print money every time a recession occurs or the risk of a recession increases.

KISS

Trump manipulated Powell to ease financial conditions by either causing a recession or convincing markets that a recession was coming.

To avoid a financial crisis, Powell will do some or all of the following: cut interest rates, end quantitative tightening (QT), restart quantitative easing (QE), and/or suspend the supplementary leverage ratio for banks to buy U.S. Treasuries.

DOGE

How did Trump unilaterally cause a recession?

The marginal driver of America’s exceptionalism in economic growth has always been government itself. Whether the spending is fraudulent or necessary, government spending creates economic activity. Moreover, government spending has a money multiplier. This is why the Washington, D.C. metropolitan area is one of the wealthiest in the country, because there are a ton of professional vampires sucking blood out of the government. It’s hard to estimate the exact money multiplier directly, but conceptually, it’s easy to understand that government spending has a follow-on effect.

Confusing:

• The median household income in Washington, D.C. is $122,246, which is well above the national median.

• This makes Washington, D.C. the 96th highest-income city in the United States.

As a former president, Trump is well aware of the extent of fraud, deception, and waste within the government. The bipartisan establishment has no interest in curbing this phenomenon because everyone benefits from it. Since the Trump faction is neither a Democrat nor a Republican, they have no qualms about exposing the shortcomings of government spending plans. The establishment of an advisory committee with Trump's stamp of approval, called the Department of Government Efficiency (DOGE) and headed by Elon Musk, is the centerpiece of a move to quickly and dramatically reduce government spending.

How does DOGE do this when many of the largest spending items are non-discretionary? If payments are fraudulent, they can be stopped. If computers can replace the government employees who manage these items, human resource costs will drop dramatically. The question then becomes, how much fraud and inefficiency goes into government spending each year? If DOGE and Trump’s word is to be believed, it’s in the trillions of dollars per year.

One potentially outrageous example is who the Social Security Administration (SSA) sends checks to. If we believe DOGE’s claims, the department is distributing nearly a trillion dollars to deceased individuals and people whose identities have not been properly verified. I don’t know the truth of this claim. But imagine that you are a SSA benefit scammer and know that Elon and “the big guys” dig deep into the data and can report to the Department of Justice the fraudulent payments you have received over the years. Would you continue your scheme or run away? The point is that fraudulent activity may decrease due to the threat of being discovered. As they say in China, kill the chicken to scare the monkey. So while the mainstream media makes a big fuss about Elon and DOGE, I’m sure it’s hundreds of billions of dollars, if not a trillion.

Let’s look at the human resources side of the government spending equation. Trump and DOGE are firing hundreds of thousands of government employees. Whether unions are strong enough to mount a legal challenge to the wholesale elimination of “useless” government workers has yet to be determined. But the consequences are already being felt.

“The biggest risk is that the layoffs we are seeing now are just the tip of the iceberg. The size and timing of future layoffs will determine whether the labor market can keep functioning,” DeAntonio explained. “We currently expect the size of the federal workforce to decline by approximately 400,000 people through full-year 2025 due to a continued hiring freeze, delayed resignations, and DOGE-initiated layoffs.” – Fox Business

Although Trump 2.0 is just over a month into his presidency, DOGE’s impact is evident. Unemployment claims are surging in Washington, D.C. House prices are falling. Consumer discretionary spending (likely fueled by massive fraud and deception by the U.S. government) is disappointing financial analysts’ forecasts. The market is starting to talk about the “R” word (Recession).

Home prices in Washington, D.C., have fallen 11% since the beginning of the year, according to new analysis from real estate marketplace Parcl Labs, which tracks the impact of the Department of Government Efficiency (DOGE)'s actions on the city's housing market. – Newsweek

Rothstein said in an article for Bluesky that the U.S. is almost certainly headed for a severe economic contraction due to massive layoffs in the government sector and the sudden cancellation of federal contracts. – Economic Times

R stands for recession, the scarlet letter of the economy. Powell doesn’t want to be a modern-day transgender Hester Pring, so he has to respond.

Powell changes his stance again

Powell has certainly been influenced by the many changes he has made since 2018. The question for investors is whether Powell will act proactively to save the financial system from collapse or act reactively after a large financial institution goes bankrupt. The path Powell chooses is purely political. Therefore, I cannot predict.

What I do know is that $2.08 trillion of U.S. corporate debt and $10 trillion of U.S. Treasury bonds must be rolled over this year. If the U.S. were on the brink of or in the middle of a recession, the cash flow shock would make rolling over these huge bills nearly impossible at current interest rates. So, in order to preserve the sanctity of the financial system under our rule, the Fed must and will act.

The problem for us crypto investors is the speed and size of the credit outflow from the U.S. Let’s analyze the main steps the Fed will take to reverse the situation.

Lower interest rates

It is estimated that every 0.25% reduction in the Fed Funds rate is equivalent to $100 billion in quantitative easing or money printing. Let’s assume that the Fed cuts the rate from 4.25% to 0%. This is equivalent to $1.7 trillion in quantitative easing. Powell may not cut the rate to 0%, but you can bet that Trump will allow Elon to continue to cut spending until Powell gets the rate down to the desired level. When the rate reaches an acceptable level, Trump will control his aggression.

Stop quantitative tightening

The Fed's recently released minutes from its January 2025 meeting detail that some board members believe quantitative tightening must end sometime in 2025. Quantitative tightening is the process by which the Fed reduces the size of its balance sheet, thereby reducing the amount of dollar credit. The Fed conducts $60 billion of quantitative tightening per month. Assuming the Fed begins its actions in April, this means that the end of quantitative tightening in 2025 will inject $540 billion in liquidity relative to previous expectations.

Restarting QE/SLR exemption

To absorb the supply of US Treasuries, the Fed could restart QE and grant banks an SLR (Supplementary Leverage ratio) exemption. Using QE, the Fed can print money and buy Treasuries, thereby increasing the amount of credit. The SLR exemption allows US commercial banks to use unlimited leverage to buy Treasuries, thereby increasing the amount of credit. The key is that both the Fed and the commercial banking system are allowed to create money out of thin air. Restarting QE and granting SLR exemptions are decisions that only the Fed has the authority to make.

If the federal deficit remains in the $1-2 trillion/year range and the Fed or the Bank absorbs half of the new supply, that means the money supply will increase by $500 billion to $1 trillion/year. 50% is conservative, as the Fed bought 40% of new issuance during COVID-19. Still, by 2025, large exporters (China) or oil producers (Saudi Arabia) have stopped or significantly slowed their purchases of Treasuries with their dollar surpluses; thus, the Fed and the Bank can do more maneuvering.

Mathematical Total of FED Money Printing

Rate cuts: $1.7 trillion

+

Stop QT: $0.54 trillion

+

Restart of QE/SLR exemption: $0.50 trillion to $1 trillion

=

Total = $2.74 trillion to $3.24 trillion

COVID and DOGE Money Printing

In the United States alone, the Federal Reserve and the Treasury Department created about $4 trillion in credit between 2020 and 2022 in response to the coronavirus pandemic.

DOGE-inspired money printing could reach 70% to 80% of COVID levels.

Bitcoin has risen about 24x from its 2020 low to its 2021 high simply because the U.S. printed $4 trillion in money. Given that Bitcoin’s market cap is much larger now than it was then, let’s be conservative and say Bitcoin could rise 10x if the U.S. prints $3.24 trillion in money. For those asking how Bitcoin could reach $1 million during the Trump presidency, this is how it was done.

What must be true

Despite the current market downturn, I have painted a very optimistic future picture for Bitcoin. Let’s look at my assumptions so that readers can judge for themselves whether they are reasonable.

• Trump will finance "America First" through debt.

• Trump is using DOGE to purge political opponents addicted to fraudulent revenue streams, cut government spending, and increase the likelihood of a recession from a slowdown in U.S. government spending.

• The Federal Reserve will use a range of policies to increase the quantity of money and reduce the price of money before or after a recession.

It's up to you to decide whether this makes sense given your worldview.

U.S. Strategic Reserve

I woke up on Monday morning to Trump hype. On Truth Social, Trump reiterated that the US would build a strategic reserve consisting of Bitcoin and a bunch of shitcoins. The market surged on this "news". This is nothing new, but the market saw Trump's reaffirmation of crypto policy intentions as an excuse for a violent dead cat bounce.

If this reserve is to have a positive impact on prices, then the U.S. government must be able to actually buy these cryptocurrencies. There are no secret idle dollars waiting to be deployed. Trump needs the help of Republican lawmakers to raise the debt ceiling and/or revalue gold to match current market prices. These are the only two ways to fund a strategic reserve of crypto. I'm not saying Trump won't keep his promise, but it may take longer to start buying than leveraged traders can hold out before being liquidated. So, play down this rally.

Trading strategies

Bitcoin and the wider cryptocurrency market are the only truly global free markets left. The price of Bitcoin tells the world in real time how the global community feels about the current state of fiat liquidity.

Bitcoin reached a high of $110,000 on the eve of Trump's coronation in mid-January 2025 and fell to a local low of $78,000, a drop of about 30%. Although the US stock market index is still close to its historical highs, Bitcoin is shouting that a liquidity crisis is coming . I believe the signal sent by Bitcoin, therefore, a serious correction in the US stock market is coming, driven by recession concerns.

If Bitcoin leads the market on the downside, it will also lead on the upside. Given how quickly a minor financial turmoil can turn into a full-blown panic due to the massive amount of leverage embedded in the system, if my predictions are generally correct, we won’t have to wait too long for the Fed to act. As the filthy fiat financial system, led by the U.S. stock market, catches up and starts printing money, Bitcoin will bottom first and then start to rise.

I firmly believe that we are still in a bull cycle, so the worst bottom would be the all-time high of the previous cycle at $70,000. I am not sure we will go that low. A positive USD liquidity signal is that the US Treasury General Account is falling , which acts as a liquidity injection.

Given my high confidence in my assumptions about the type of financier Trump is and his ultimate goals, Maelstrom would add to my position if Bitcoin trades between $80,000 and $90,000. If this is truly a dead cat bounce, I would expect to add to my position again if Bitcoin trades below $80,000 .

If the S&P 500 and Nasdaq 100 fall 20-30% from their all-time highs, coupled with a major financial institution on the verge of bankruptcy, we may experience global correlation at some point. This means that all risk assets will be hit hard and Bitcoin may fall below $80,000 again, and may even fall to $70,000. Whatever happens, we would be prudent to buy the dip without leverage to prepare for the final dirty fiat financial market turmoil before the global economy, led by the United States, can expand again and push Bitcoin to $1 million or more.

Watch out China. China wants to keep the RMB stable against the dollar, for better or worse. If the supply of dollars increases, he can instruct the People's Bank of China to increase the supply of RMB to ensure that the USD/RMB exchange rate remains stable.

KISS.

Let the politicians do their thing, go your own way and buy Bitcoin.