Arthur Hayes: Trump and Bessenet join forces to "create the market", will BTC reach 250,000 by the end of the year?

Reprint: Mars Finance, Daisy

The highest tribute of humanity to the universe is the joy that comes with dancing. Most religions incorporate music and dance into their worship rituals. However, the "House Music Church" that I believe in does not do so in the church on Sunday morning with "sway your body", but rather at Club Space around the same time.

During my university years, I joined a ballroom dance club. Each type of ballroom dance has strict patterns (for example, in standard rumba, one must not move their feet when bending the knees). For beginners, the hardest part is completing the basic steps on the beat, with a significant amount of effort spent on finding the rhythm.

My favorite music is in 4/4 time, while the waltz is in 3/4 time. Once you master the rhythm, your ears also need to catch the downbeat of the main instrument and count the remaining measures of the instrumental parts. If all the music is just mechanically repeating the beats "one, two, three, four", it will surely be monotonous. It is the layers added by composers and producers with different instruments and sound effects that give depth and richness to the music. However, when dancing, these unimportant sounds do not help in accurately hitting the beat.

Like music, price charts are a manifestation of human emotional fluctuations, and our investment portfolios dance accordingly. Just like in ballroom dancing, the decisions to buy and sell various assets must align with the specific rhythm of the market. A misstep in timing can lead to losses. Like a dancer who takes the wrong step, losing money is always a messy affair. The question is: if we want to maintain elegance and wealth, which instrument should we listen to in the financial markets?

If there is a core principle that supports my investment philosophy, it is this: understanding the changes in fiat currency supply is the most important variable in profitable trading. This is even more crucial for cryptocurrencies—at least for Bitcoin, which has a fixed supply; its price increase rate directly depends on the pace of fiat currency supply expansion. Since the beginning of 2009, the flood-like creation of fiat currency, relative to the minuscule supply of Bitcoin, has made Bitcoin the best-performing asset in human history when priced in fiat currency.

The jarring noise woven by current financial and political events is akin to auxiliary sounds in music. While the market continues to rise, it is accompanied by severe negative catalysts that could trigger discordant notes. In the face of threats from tariffs and war, should we remain passive? Or are these merely trivial distractions? If it's the latter, can we hear the bass drum that guides the direction – namely, credit creation?

The impact of tariffs and wars is quite significant, just as the tuning of an important instrument can ruin an entire piece of music. However, these two issues are interrelated and have no effect on the gradual rise of Bitcoin. President Trump cannot impose substantial tariffs on China because China will cut off the supply of rare earths to the "United States of America" and its vassal states. Without rare earths, the U.S. cannot manufacture weapons to sell to Ukrainian President "Slavic Butcher" Zelensky, nor can it supply Israeli Prime Minister "Bedouin Butcher" Netanyahu. Thus, both the U.S. and China are caught in a deadly tango, maintaining a delicate balance on economic and geopolitical levels. This is why the current situation—though brutally deadly for the people in the two wars—will temporarily not have a substantial impact on global financial markets.

At the same time, the drum of credit continues to beat its rhythm. The United States needs industrial policy — in fact, a euphemism for state capitalism, that dirty word: fascism. The U.S. must shift from semi-capitalism to a fascist economic system because the war supplies produced independently by its industrial giants are far from meeting the current geopolitical needs. The Iraq War lasted only twelve days, simply because Israel depleted the missile stockpile provided by the U.S., unable to maintain an impeccable air defense system. Russian President Putin scoffs at the threat of increased U.S. and NATO aid, as they cannot match Russia's weapons production capacity, cannot keep up with the production pace, and certainly lack Russia's cost advantage.

The United States needs a more fascist economic arrangement to boost employment and corporate profits. From a Keynesian perspective, war is beneficial to the economy. The weak organic demand of the public is replaced by the endless demand for weapons produced by the government. Most importantly, the banking system is willing to extend credit to businesses because producing the materials required by the government ensures profits. Wartime presidents are often very popular (at least in the beginning) because everyone seems to become wealthier. If a more comprehensive method of accounting for economic growth is adopted, it will be clear that war is extremely destructive in terms of net benefits. But such ideas cannot win elections—every politician's primary goal is re-election (if not for themselves, then for their party members). Trump, like most of his presidential predecessors, is a wartime president, and for this reason, he has transitioned the U.S. economy into a wartime state. At this point, the rhythm becomes clear: we must track the channels through which credit is injected into the economy.

In the article "Black or White" (refer to the previous article by Jinse Finance "If Trump's 'America First' Plan Succeeds, BTC Will Reach 1 Million Dollars"), I explained how the government's profit guarantees for "key" industries lead to the expansion of bank credit. I termed this policy as "poor man's quantitative easing," which can create a credit fountain. I had predicted that this would become a means for the Trump team to stimulate the economy, and the MP Materials deal is the first large-scale real-world case. The first part of this article will analyze how this deal expands the supply of dollar credit—this template will be used by the Trump administration to produce the key materials needed for 21st-century warfare: semiconductors, rare earths, industrial metals, and more.

War also requires the government to continuously incur huge debts. Even if capital gains tax increases due to the appreciation of wealthy assets along with credit expansion, the fiscal deficit will continue to rise. Who will buy this debt? Stablecoin issuers.

As the total market capitalization of cryptocurrencies rises, a portion of it will be stored in the form of stablecoins. The vast majority of these managed stablecoin assets are invested in U.S. Treasury bonds. Therefore, if the Trump administration can create a favorable regulatory environment for traditional finance (TradFi) to participate in crypto investments, the total market capitalization of cryptocurrencies will surge. Consequently, the managed stablecoin assets will automatically increase, creating more purchasing power for U.S. Treasury bonds. Treasury Secretary Besant will continue to issue Treasury bonds that far exceed the scale of Treasury bills and bonds, specifically for stablecoin issuers to subscribe.

Let us dance the credit waltz, and I will guide the readers to perfectly interpret this financial dance.

1. Quantitative Easing for the Poor

Central bank money printing cannot create a robust wartime economy. The financial industry has replaced rocket engineering. To correct the failures in wartime production, the banking system is encouraged to provide credit to government-designated key industries (rather than corporate snipers).

American private enterprises adhere to profit maximization as their principle. Since the 1970s, it has been more profitable to engage in "knowledge" work domestically while outsourcing production overseas. China was happy to upgrade its manufacturing technology by becoming the global low-cost (which has evolved into high-quality over time) factory. However, what threatens the elite rule of "American hegemony" is not the $1 Nike shoes, but the empire's inability to produce wartime supplies when its hegemony faces severe challenges. This is the root of the uproar over rare earth issues.

Rare earths are not rare, but their large-scale processing faces huge environmental externalities and capital expenditure requirements. More than thirty years ago, China decided to dominate rare earth production, and today’s China benefits from that foresight. To turn the situation around, Trump is drawing on the Chinese economic system to ensure that the United States increases its rare earth production to sustain the imperialistic nature of its warlike tendencies.

According to a report by Reuters, here are the key points regarding the transaction of the U.S. rare earth producer MP Materials:

● The U.S. Department of Defense will become the largest shareholder of MP Materials.

● This transaction will enhance the United States' rare earth production and weaken China's dominance.

● The Ministry of Defense will also set a floor price for key rare earths.

● The floor price will be twice the current market price in China.

● MP Materials' stock price surged nearly 50% due to the transaction news.

Everything seems beautiful, but where does the construction funding come from?

MP Materials stated that JPMorgan and Goldman Sachs will provide a $1 billion loan to build a facility with ten times the capacity.

Why are banks suddenly willing to lend to the real economy? Because the U.S. government guarantees that this "face project" will allow borrowers to make a profit without any risk. The T-shaped table below will analyze how this transaction creates economic growth through the creation of credit out of nothing.

MP Materials (MP) needs to build a rare earth processing facility and has obtained a $1000 loan from JPMorgan Chase (JPM). This borrowing action created $1000 in new fiat currency and deposited it into the JPMorgan Chase account.

Subsequently, MP began constructing rare earth processing facilities. To this end, it needed to hire plebeian workers (Plebes). In this simplified model, it is assumed that all costs are labor costs. MP must pay the workers' wages, resulting in a debit of $1000 from its account, while the plebeian workers' account at JPMorgan is credited with $1000.

The U.S. Department of Defense (DoD) needs to pay for these rare earths. The funding is provided by the Treasury, which must issue bonds to finance the Department of Defense. JPMorgan converts the MP corporate loan assets into reserves held by the Federal Reserve through the discount window. These reserves are used to purchase bonds, resulting in a credit to the Treasury General Account (TGA). The Department of Defense then procures rare earths, and this amount becomes MP's revenue, which ultimately returns as deposits to JPMorgan.

The final fiat balance (EB) is $1000 higher than the initial JPMorgan loan amount. This expansion is due to the money multiplier effect.

Government procurement guarantees are achieved in this way, utilizing commercial bank credit funds to facilitate the construction of new facilities and create jobs. Although not mentioned in this example, JPMorgan Chase now issues loans to stable working-class individuals (Plebes) for the purchase of assets and goods (real estate, cars, iPhones, etc.). This again creates new credit, which ultimately flows into other American businesses and returns to the banking system as deposits. It is evident that the money multiplier must be >1; this wartime production will stimulate economic activity, counted as "economic growth."

The money supply, economic activity, and government debt are inflating simultaneously. Everyone is happy - the common people get jobs, and financiers/entrepreneurs enjoy profits guaranteed by the government. If such economic policies can create welfare out of thin air for everyone, why have they not become a common policy in countries around the world? Because it will lead to inflation.

The human resources and raw materials needed for the production of goods are limited. The government creates money out of thin air through the commercial banking system, which squeezes the financing channels and even production capacity of other goods, ultimately leading to shortages of raw materials and labor. However, the supply of fiat currency is never exhausted, and the inevitable result is wage and commodity inflation, which will ultimately put individuals and entities not directly connected to the government or banking system in distress. If in doubt, one might as well refer to the daily historical materials from the two World Wars.

MP Materials trading is the first typical case of the "poor man's quantitative easing" policy. The brilliance of this policy lies in the fact that it does not require Congressional approval—under the leadership of Trump and his 2028 successor, the Department of Defense can directly issue guaranteed purchase orders in routine operations. Profit-driven banks will naturally follow suit, fulfilling their "patriotic duty" by funding government-dependent enterprises. In fact, legislators from all parties will rush to argue why the businesses in their own districts should receive Department of Defense contracts.

Since this credit creation model can circumvent political resistance, how should we protect our portfolio from the ensuing erosion of inflation?

2. Cryptocurrency Bubble

Politicians are well aware: stimulating credit growth to drive "key" industries will inevitably lead to inflation. The real challenge lies in guiding excess credit to inflate an asset bubble that won’t undermine social stability. If wheat prices were to soar like Bitcoin has over the past 15 years, most governments would have been overthrown by popular revolution long ago. Therefore, the government encourages the public—these groups whose actual purchasing power continues to shrink—to participate in the credit game by investing in state-backed anti-inflation assets.

Let's look at non-crypto examples in the real world: since the late 1980s, China's banking system has created the largest scale of credit in the shortest time in human history, primarily directed towards state-owned enterprises. They have successfully built low-cost, high-quality factories globally, with one-third of the world's industrial products now produced in China. If you still think Chinese manufacturing is of low quality, you might want to take a test drive of BYD and then compare it with Tesla.

Since 1996, China's M2 money supply has surged by 5000%. Ordinary citizens trying to escape credit inflation face extremely low bank deposit interest rates, prompting a rush into the real estate market—this is exactly what the government's urbanization strategy encourages. As of 2020, the continuously rising housing prices have effectively suppressed the public's desire to hoard physical goods. Measured by the income-to-housing price ratio, the housing prices in China's first-tier cities (Beijing, Shanghai, Shenzhen, Guangzhou) are among the highest in the world.

Land prices have increased 80 times over 19 years, with a compound annual growth rate of 26%.

This kind of housing price inflation has not shaken the stability of society, as ordinary middle-class comrades are able to purchase at least one apartment through loans. Therefore, everyone is involved. An extremely important second-order effect is that local governments primarily fund social services by selling land to developers, who then build apartments to sell to the public. As housing prices rise, land prices and land sales grow in sync with tax revenue.

We may conclude that the excessive credit growth under the Trump administration must create a bubble that allows ordinary people to make money while also providing funds for the government. The bubble that the Trump administration is going to create will be centered around cryptocurrencies. Before delving into how the crypto bubble will achieve the Trump administration's policy goals, let me first clarify why Bitcoin and cryptocurrencies will surge rapidly as the United States moves towards a fascist economy.

I created a custom index named <.BANKUS Index> (in white) on the Bloomie platform. This index integrates the bank reserves held by the Federal Reserve Bank with the total deposits and liabilities of the banking system, serving as an alternative indicator for loan growth. Bitcoin is marked in gold, and both benchmark lines are set at 100 basis points as of January 2020. As the scale of credit doubles, Bitcoin's increase reaches 15 times – its fiat price has a highly leveraged relationship with credit growth. At this point, no retail or institutional investor can deny: if you believe that more fiat currency will be issued in the future, Bitcoin is the best investment target.

Trump and Bensent have also been conquered by the "orange pill (i.e., Bitcoin)". From their perspective, the most significant advantage of Bitcoin and cryptocurrencies is that the cryptocurrency ownership rate among traditionally non-stock-holding groups (young people, low-income earners, and non-white individuals) has surpassed that of wealthy white baby boomers. Therefore, the prosperity of cryptocurrencies will win broader and more diverse support for the ruling party's economic agenda. More crucially, according to the latest executive order, to encourage various savings to be invested in the crypto space, 401k pension plans are now explicitly allowed to invest in crypto assets—these plans manage about $8.7 trillion in assets. It's simply ready to take off!

The ultimate move is the proposal for a capital gains tax exemption on cryptocurrency put forward by "Emperor Trump". Trump is promoting: war-driven crazy credit expansion + regulatory green light for pension funds entering the market + complete tax exemption policy. It's a celebration for everyone!

Everything seems perfect, but there is a fatal flaw: the government must issue more debt to fulfill procurement guarantees to private enterprises from departments like the Ministry of Defense. Who will take on this debt? Cryptocurrency will once again emerge as the winner.

Once capital enters the cryptocurrency market, it typically does not withdraw. If investors want to temporarily observe, they can hold USDT and other dollar-pegged stablecoins. To earn custody fund income, USDT must invest in the safest traditional financial income-generating instruments: short-term government bonds. These bonds have a maturity of less than one year, with nearly zero interest rate risk and liquidity comparable to cash. The U.S. government can print money freely and infinitely, making default nominally impossible. Currently, the yield on short-term government bonds ranges between 4.25% and 4.50%. Therefore, as the total market capitalization of cryptocurrencies increases, the amount of funds absorbed by stablecoin issuers also rises—ultimately, most of this custody capital will flow into the short-term government bond market.

On average, for every 1 dollar increase in the total market value of cryptocurrencies, 0.09 dollars flow into stablecoins. Assuming Trump successfully pushes the total market value of cryptocurrencies to reach 100 trillion dollars by the time he leaves office in 2028—this is equivalent to a 25-fold increase from current levels, if you think this is impossible, it just shows that your understanding of the crypto market is still too shallow. At that time, the global capital inflow will enable stablecoin issuers to generate about 9 trillion dollars in short-term government bond purchasing power.

From a historical perspective, at that time, the Federal Reserve and the Treasury significantly increased the issuance of short-term government bonds rather than long-term bonds to finance the United States' participation in World War II.

Now Trump and Besen have completed a perfect loop:

1. Created an American-style fascist economic system to produce wartime materials needed for indiscriminate bombing;

2. The inflationary impulse in financial assets caused by credit growth directly points to cryptocurrencies, whose prices have soared, allowing many people to gain huge profits and feel wealthier. They will vote for the Republican Party in 2026 and 2028... unless they have a teenage daughter at home... However, the lower-income population has always voted with their wallets.

3. The booming development of the cryptocurrency market has brought a massive influx of funds to stablecoins pegged to the US dollar. These issuing institutions invest the US dollar stablecoins they hold in newly issued government bonds to cover the ever-expanding federal deficit.

4. The drums are shaking the heavens and the earth, and the credit limit is continuously rising. Why don't you invest fully in cryptocurrencies? Don't be intimidated by tariffs, wars, or various social issues.

5. Trading Strategies

It's very simple: Maelstrom is already fully invested. Because we are degens, the altcoin market offers great opportunities beyond Bitcoin (the crypto reserve asset).

The upcoming Ethereum bull market will completely tear apart the market. Since Solana surged from $7 to $280 from the ashes of FTX, Ethereum has become the most disliked large-cap cryptocurrency. But now it's different - Western institutional investors led by Tom Lee have fallen in love with Ethereum. Regardless of anything else, just buy first. Or you could choose not to buy and then sit in the corner of a nightclub drinking bland beer like a sour grape, watching a group of people you think are less intelligent than you splurge money on sparkling water at the table next door. This is not financial advice, so handle it as you see fit. The strategy of Maelstrom is: All in Ethereum, All in DeFi, All in ERC-20 altcoin-driven degen ecosystem.

My end-of-year target price:

Bitcoin: $250,000

Ethereum: 10,000 USD