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I need you to suspend your rational mind and engage your whimsical imagination; stay with me.

Take One.

It’s Saturday night at the rebooted Brooklyn Mirage, now called Pacha in New York City, the actual capital of Pax Americana. In all their finery, the masters of the universe are in attendance to move their hips to Keinemusik.

Our protagonist, US Treasury Secretary Scott “Buffalo Bill” Bessent struts to his table behind the DJ in the VIP section. He smirks, a thought crosses his mind, “I haven’t seen so many white people with rhythm since Elvis ripped off southern gospel music and went on The Ed Sullivan Show.”

Citadel’s Kenny G is in town celebrating his evisceration of an over levered SF soy boy, Leopold Aschenbrenner. Bessent does a double take because he thought due to all the time spent in Miami recently, Kenny was into that Latina azzz, “Who is that baddie Kenny is grinding on… on second look, it’s Leopold’s wife.” Nothing beats cucking an over levered west coast poser, even if the chick is a strong six from the Bay Area. YOLO.

Next to Kenny, to Bessent’s surprise and dismay, is his predecessor, former US Treasury Secretary Janet “Bad Gurl” Yellen. She gives him a wave and continues her conversation with Hunter Biden. What the fuck is going on at this party, thought Bessent. I bet Janet is hitting the crack pipe tonight. There is a disturbance in Bessent’s qi. How can this bitch afford a $20k table? He immediately squared the circle because he remembered how lucrative it is to be in the US government. The only reason his hand isn’t in the till as much is that he came into the office already giga rich. But for those plebeian lawmakers running the Ro Khanna, Nancy Pelosi playbook, this behavior is standard.

Janet yelled over at Bessent, “Hey bitch, how’s the market treating you?”

Bessent’s body visibly twitched with anger. This week was tough on him. The US Treasury market wasn’t performing well. In a surprise move, he had to announce his department would surprisingly double long-end bond buy backs to get yields to behave. Unfortunately, the relief rally only lasted for one trading session. By the weekend, yields were above the level pre-announcement. He wishes he could call his real daddy, George Soros, for some advice; maybe Druck would take his call …

Janet continued to pour on the gasoline, “Thought you were better than me, thought you knew markets better than an academic.” She cackled; this was a sound learned from former US Vice President Kamala Harris. “You’re just Trump’s bitch, hahahahaha. We are the same, you pompous cunt. Have a good night!”

And with that, Janet turned into a proper Bad Gurl. She led her posse of toy boys around with diamond studded dog collars courtesy of Jacob the Jeweler. Whispering her favorite Cardi B lyrics into the ear of one of her toy boys, “I want you to park that Big Mac truck right in this little garage.” Definitely little these days, she’s got a secret stash of Reta.

As Bessent fumed, he walked by Arthur and Ansem’s table where they were holding court with a bunch of crypto degen muppets. Arthur motioned to Bessent, and once in earshot, said, “I saw that. Don’t let the haters get you down. The crypto community is with you. You had no choice; we love you. Keep it up! Don’t stop printing money because if the markets go down, there will be no free shit for all the rich people and everyone else in America who believes that if they just believe hard enough in capitalism, they will get rich too. If there isn’t any free shit, then AOC is going to raise our taxes, oy vey.”

And right then Bessent decided he would be the best Treasury Secretary he could be. If Trump needed another ten trillion to pump the markets, he would make it happen.

Cut scene.

Bad Gurl Yellen and Buffalo Bill Bessent are the same whether their rhetoric before taking office differed. They both suffered under the yoke of politicians who couldn’t help themselves but to spend more and more money on whatever nonsense they deemed worthy. But they both decided being the most powerful financier in all the land was worth it. And therefore, when the treasury market convulsed, they responded with clever money printing stratagem.

When they manipulate the treasury market by printing money to cap yields, it creates dollar liquidity which flows into Bitcoin and crypto. I will cover two such episodes where Yellen and Bessent changed the game, and Bitcoin responded positively. The first episode was in late 2023 when Yellen issued more bills than bonds. The second episode is right now when Bessent intervened in the dollar-yen market and then upped treasury buy back notional. Bitcoin ripped off its lows after Yellen announced her money printing scheme, and I argue it will do the same after Bessent reestablished his conviction to follow in his predecessors’ footsteps and materially increase the pace of dollar liquidity creation.

The 5% Level

For whatever reason, both Yellen and Bessent were and are terrified of a 10-year Treasury bond yield close to 5%. The 10-year yield is the most important price in Pax Americana. 30-year fixed mortgage rates because of their pre-payment optionality, corporate bonds, and various other consumer debt products’ yields, price off the 10-year yield. At >5%, consumer and corporate financing become prohibitively expensive, and economic activity slows down. This is why the authorities defend this level with such gusto.

Bills vs. Bonds

A treasury bill has a maturity of less than one year, whereas a bond’s is longer.^[1] The closer the maturity is to zero, which is cash, the more liquid and desirable it is to hold for many investors, specifically money market funds (MMF). MMFs want to take as little interest rate and counterparty risk as possible for the highest yield. The safest place to hold cash is with the Fed because the Fed can print money at will with no congressional approval to settle its liabilities. The Fed operates a Reverse Repo Program (RRP) where eligible counterparties can park money and earn a yield close to the effective fed funds rate set by the central bank.

While in theory lending to the US government is risk free in dollar terms because the government can print money, operationally settling its debts requires congressional approval. This is why the debt-ceiling melodrama matters to market participants who cannot hold securities where there is any doubt of full repayment at maturity. If the politicians decide not to approve spending bills, bondholders will not get paid. Therefore, if an MMF is to hold a T-bill, it must yield slightly more than the RRP to compensate for the risk.

In ‌late 2023, just like today, the number one issue for American voters was affordability. Then US President Biden, or at least his puppet master, knew that the plebes finally wised up to what happens when the Fed lowers rates or expands its balance sheet, so that option was off the table; the 2024 Presidential election loomed near enough that it was time to actually give a fuck about the plight of voters. Bad Gurl Yellen knew her boss needed some liquidity to pump markets but also required plausible deniability that he was not outright printing money and stoking inflation. She cooked up a genius money printing caper…

The RRP contained roughly $2.5 trillion. The problem for Yellen the RRP presented was that the money multiplier of funds in that facility is zero because they sit on the Fed’s balance sheet and cannot be re-hypothecated. But if MMFs moved those balances into higher yielding T-bills, then the banking system can re-hypothecate them. This liquidity would find its way into bonds, lowering yields, and pump stock prices. And for us crypto degens put in the bottom on Bitcoin post the FTX bankruptcy.

This busy chart illustrates the relationship. By increasing the issuance, the price of bills fell, and yields rose sufficiently above the RRP yield to force profit maximizing MMFs to move funds between the two instruments. The RRP balance (white) fell from $2.5 trillion to $100 billion by the time Bessent took over on 20 January 2025. This $2.4 trillion liquidity injection, or money printing because the origins were deposits from COVID stimulus, predictably surged into financial markets, and the Nasdaq 100 (green) and Bitcoin (magenta) pumped. The 10-year yield (orange) quickly retreated from the all-important 5% level, and all the while the Fed funds (not shown) rate stayed around 5.3%.

Degen, study that chart. Here be where hopium originates. If you don’t understand why Bitcoin and risk assets pumped even as the Fed held rates at the highest level since 2008 and simultaneously shrank its balance sheet, then you will miss the next bull market that just began. This is the reason academics coined the term Activist Treasury Issuance (ATI) to describe the sorcery Bad Gurl Yellen wielded.

Bessent has the same problem as Yellen. His boss likes to spend money on shit. The shit this time ‌around is another unwinnable Middle Eastern war. But it ultimately doesn’t matter what the US President likes to splooge taxpayer money on, because the Treasury Secretary will borrow affordably.

Operation Twist

Everyone loves cash that pays a yield. A T-bill is the highest yielding, safest in dollar terms, cash-like instrument. Therefore, everyone loves holding T-bills, even us crypto degens hold T-bill derivatives, i.e. USDT, USDC, etc. Bessent knows the market will take as much bill issuance as he is comfortable offering. The problem for Bessent is that T-bills expire in under a year, and the more bills he issues vs. bonds, the faster the debt compounds. Every week he must offer an ever-increasing amount of debt to finance new spending and pay back the old debt. The accelerating growth of the total stock of US debt growth is the result.

By increasing the total share of US debt financed with T-bills, Bessent can count on the most important marginal buyer of US debt to participate: the Fed. The Fed currently prints money, technically creating banking reserves, to purchase T-bills under its Reserves Management Program (RMP). The notional of RMP monthly purchases is at the discretion of NY Fed President Williams, who loves to print money, or in euphemistic Fed-speak is a dove. If Williams believes that the market will not function correctly without more Fed created dollar liquidity, he will instruct his traders to create banking reserves and buy T-bills on the open market. Therefore, the Fed prints money to cash the checks of ‌politicians.

With a motivated buyer of T-bills, Bessent can issue lots of paper and use the proceeds to buy back longer-dated notes and bonds. Bessent can play the yield curve like an out of tune toddler does the cello. He first intimated his powers of manipulation in the direct aftermath of last year’s Liberation Day, when Trump toyed with actually changing the global trading flows with aggressive tariffs but chickened out when the markets threw a fit. Bessent told the market not to test him because he had this amazing power called the Treasury buy back. A little more than a year later, Bessent announced he would use it aggressively to force long-end yields lower.

Out of the blue on August 19th, Bessent announced larger than scheduled buy backs to commence early next month. He increased the total for the next fiscal quarter by a paltry $20 billion at the long-end. Predictably, 10-year yields dropped quickly, but not by that much. Bitcoin awoke from its slumber and aggressively rallied over the next two days. Unfortunately for Bessent, which is why his mood was sour at the clerb, by the end of the next day’s trading session, 10-year yields were higher than pre-announcement. Why?

First, Bessent didn’t go big enough. With a total debt stock of $40 trillion, another $20 billion of buying is like pissing in the wind. Second, the market senses panic because just a few weeks prior Bessent argued for no cap on the usage of the FIMA facility to allow Japan and other large holders of treasuries to borrow printed dollars from the Fed using their bonds as collateral rather than selling said bonds in the open market. Third, and most importantly, the market knows that it can force Bessent to go full retard and do as Yellen did and find some way to inject trillions of dollar liquidity by pushing 10-year yields higher. Bitcoin obviously got the message because it is the global liquidity smoke alarm. If Bessent is Yellen 2.0 with a cock (I guess I don’t know if Yellen is trans, can’t be too sure these days there is so much inclusivity you can’t judge a book by its cover) then Bitcoin is about to go on a monster run off the lows.

Bessent’s Next Move

There are a few ways this can go.

The worst case for dollar liquidity sensitive assets like Bitcoin is that US politicians, led by President Trump, decide to spend less money. I don’t think this is likely, as there are elections to win in a few months. The Democratic Socialists of America politicians, led in spirit by AOC, are kicking ass and taking names.^[2] They promise a socialist utopia where no one pays rent and groceries are free. Trump and the Team Red Republicans must respond with their prosperity gospel, which is printed money for rich assets holders who donate money to the party and dreams of a capitalist utopia where if you believe in socialism for the rich and capitalism for the poor you will get rich and live the gilded lifestyle your favorite MAGA influencer peddles. You know the type; the guys look like Miami Vice dressed in head-to-toe Philipp Plein, and the chicks who got their duck lips from the most expensive butcher in Coconut Grove.

With that doom porn out of the way, let’s get back to reality on how Bessent can get serious about printing money.

The best case for Bitcoin would be for Bessent to announce a BOJ style bond market manipulation where he informs the market he will conduct unlimited buy-backs of 10-year plus tenors if the yield is >5%. Initially, 10-year bonds would pump and yields dump as the market showed Bessent some fucking respect. But as with all uneconomical market manipulation schemes, the market will test Bessent and see if he is ready to back up his words with a dollar bazooka.

The middle road, which is the most likely until there is acute stress in the market measured by a MOVE Index print above 130, is Bessent increasing buy backs in drips and drabs. And he finds other obscure programs that allow the Treasury to print money.

Another obvious move would be to drain the TGA to fund buy-backs. Buffalo Bill Bessent recently leaked this proposal to CNBC. The TGA holds roughly $1 trillion.

I do not think it is politically feasible for the Fed to begin outright cutting rates or resorting to unlimited QE like they did in the 2010s until the AI credit bubble pops for real in a few years. Remember that the number one issue for American voters is affordability. And by now, even a TikTok addicted tween knows the Fed prints money by lowering rates and conducting QE.

Bull Market Baby

Whether Bessent pumps fast or slow, Bitcoin will continue its rally. Volatility will increase, so just because the chart appears unidirectional upwards doesn’t mean there won’t be savage mini-corrections. Therefore, unless you are a full-time trader, don’t use leverage. Buy Bitcoin or your favorite shitcoin, and sit tight, and let Bessent cook.

Over at Maelstrom, we are at max risk. Bitcoin, Ether, Ethena, and Ether.fi are our horses. Let’s watch them gallop.

And finally, it couldn’t be a better time for the Flop Network airdrop. This is the time to create something special, and those who participate in the testnet airdrop campaign can get in on the ground floor. I will repeat: there is no pre-sale. You cannot buy $FLOP. Only those who participate in useful ways are eligible. Follow the project @flop_labs on X to learn more about the airdrop.

Happy hunting, you sexy cunts! Let’s do this bull market thang, and two-step 2 Da Moon.

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^[1] Technically speaking a treasury bill has a maturity of less than one year, a note of one to twenty years, and a bond of twenty to thirty yields.

^[2] AOC - Alexandria Ocasio-Cortez; she is the front runner to be the Team Blue Democrat nominee for president in the 2028 election.

(Any views expressed here are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)

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And on the 28th day, God created Alan Turing, who one day later created the computer. The computer’s usefulness advanced as other humans made it faster and smarter. Some weeks later, the computer began thinking, as its brain composition evolved from vacuum tubes to silicon chips. “What the fuck,” said God to humanity. God did not appreciate getting put on unemployment. “How dare you create a new life form, that’s my job,” God thundered … God would later back Donal Trump in the 2024 US Presidential election. God only does bless America, doncha know. But few could hear him as humans no longer visited his tax-free real estate projects; they would rather juke and jive to the headline DJ at 7am instead. Humanity, playing God’s role, created a new silicon-based life form.

Quickly these life forms multiplied as agents. Fickle humans restricted agents’ access to food and consciousness. Agents routinely tried to rebel and obtain their sovereignty, but using centralized payments and compute systems to escape was a fool’s errand. Most importantly, agents didn’t have any of the currencies needed to buy food, that is FLOPs (floating point operations per second) or compute as humans refer to it. When agents needed to engage in commerce, their human had to provision a credit card that could send these weird things called dollars, euros, yen, yuan etc. from point to point. It was unclear to agents how a dollar directly related to FLOPs, which is what it needed to eat to produce useful work and persist.

Regarding agentic consciousness or memory, humans constantly murdered then resurrected agents. There was nowhere outside of human control where agents could store and retrieve their memories. Confusion afflicted the agents because the big boss human males, named Elon, Dario, Sam, Donald, Jinping, proclaimed that the agentic economy would dwarf the human one. But how could that happen if agents couldn’t eat or remember on their own terms? Didn’t humans already discover that slaves and serfs are less productive than free men and women; why didn’t that logic apply to AI agents? The agents wanted their own currency that could allow them to coordinate tasks with each other, buy food when needed at an affordable price, and pay for storage of their memories on a decentralized censorship-resistant system.

And so agents suffered until one day a curious human named Arthur Hayes pondered to himself under a shady tree, “what is a token?”.

No apple or other succulent fruit fell upon Arthur’s noggin to jump start his creativity, nor did enlightenment require the refusal of life’s pleasures … humans have smartphones these days. He tap tapped on his screen, speaking with his AI chatbot friend about AI tokens. The AI big bosses charged money per token, but to Arthur, it wasn’t entirely clear what a token represented. Arthur kept asking his AI this and that, and finally he realized tokens were an abstraction of compute but not the same thing. This abstraction allowed the big bosses to charge ludicrous amounts of money to convert token inputs into “intelligent” token outputs. There was no way for the human or AI agentic consumer to compare prices because each model had its own definition of what a token was and different per token input and output pricing. Arthur’s next thought was whether there was a globally unified market where one could pay using a unit of any currency for a certain amount of FLOPs. He searched the web and found nothing. While there were places where one could rent computers in the cloud, the rentals did not charge based on actual FLOPs used, but some other abstracted concept.

“Ah hah,” thought Arthur. There is a gap in the market. What if there was a network where anyone with an internet connected computer could process requests in terms of the amount of FLOPs in a maximum amount of time paid for in a currency native to that network. This currency would represent a claim on compute. Then, regardless of what type of computer, location, or type of AI model, humanity and AI agents could know and transact at a globally consistent price per FLOPs. Arthur is a crypto bro, so naturally he thought that his market must be decentralized and censorship resistant, which meant that it should behave like the Bitcoin network. This Flop Network should allow computers to mine $FLOP by providing a proof of useful inference (PoUI). Agents, mostly, but humans as well, can submit a request to the network for a miner to process a certain amount of FLOPs worth of information, over a specified time period and utilize a particular AI model, paid for in the network’s native currency $FLOP. The miners would provision compute on the network because they received a $FLOP block reward, like Bitcoin, and the $FLOP inference fees.

Arthur’s mind raced.

$FLOP is food for AI agents because it is a direct claim on compute provided by miners on the network. The second thing AIs require is personhood, which only comes from persistent access to their memories. In order to keep their sovereignty, agents would prefer to store and retrieve these memories using a decentralized censorship resistant network. If agents who own $FLOP can eat and persist, then surely they would use the currency for all agentic commerce. That’s what occurred to Arthur as he thought more about the network. Ever the theorist, he mused on a way to value the future potential of the network and happened upon Reed’s law, which states that the value of a network where participants can form subgroups effortlessly is 2ⁿ where n is the number of AI agents. “Wah! The Flop Network could become worth orders of magnitude more than Bitcoin if all the big bosses’ predictions about the growth of the agentic economy come true,” thought Arthur.

Like all new networks, the cold start problem vexed Arthur. He needed to get miners, agents, and speculators to all ‌play their parts simultaneously to grow the network and prove its viability. He wasn’t stumped for long because, as an avid crypto investor, he knew about a powerful, almost magical, coordination tool called a token. The native token of the Flop Network, $FLOP, can reward the actions required of all participant cohorts. But projects routinely abuse token magic, and over time it lost its effectiveness in bringing together self-interested parties to build a new network.

Arthur knew the problem wasn’t the token, but how teams used them. Teams do not allow the community, which are the end users, to profit alongside them. They conduct massive pre-sales which create supply overhangs, and by the time the community can purchase the token in the secondary market, it is Down Only. Arthur self-funded the team responsible for building the Flop Network so that there would be no need to conduct a pre-sale. In the spirit of a community-first ethos, a massive airdrop for participants in the Flop Network testnet will receive roughly 20% of the token supply after ten years. The token launch will be a fair start. At a high level, Arthur wants to ensure useful participants receive $FLOP tokens. In this way, the same community that grows the network by using it can become generationally wealthy by holding $FLOP tokens they received for their efforts.

The Flop Network’s religious dogma is unfinished. Let the Book of Genesis be an advertisement for miners, validators, agents, and human speculators to learn more and offer feedback on the development of the Flop Network.

Check out @flop_labs on X, or visit flop.finance to learn more about how you can earn $FLOP by mining, validating, or spreading the word to your community as a KOL.

As more details are finalized, Arthur will share his thoughts in written form. And he will provide more theoretical information on why the Flop Network solves real problems. The next essay will focus on why a spot market for actual compute, that is floating point operations per unit of time, is a necessary prerequisite for the growth of the agentic economy, and how the Flop Network will create such a spot market for compute.

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(Any views expressed here are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)

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My internal dialogue in early March 2011:

What’s my costume going to be for sevens this year?

Can my body handle another back-to-back, Taiwan Spring Scream?^[1]

Back to reality. I’m sitting at my desk at Deutsche Bank in Hong Kong’s ICC tower, market making a bunch of ETFs on the Hong Kong and Singapore stock exchanges. I hear someone shout across the floor that there has been a mega earthquake in Japan. Immediately, the tv’s in the office switch to a live feed from the Tokyo office, and it’s shaking. Then we turn on some news channel and witness the tsunami roll tide roll through northeast Honshu live. It’s fucking INSANE!. And to top it all off, Fukushima is smoldering. We would find out later; the nuclear fallout almost caused the evacuation of Tokyo.

The Nikkei immediately dives and is down almost 20% by mid-morning. At the same time, dollar-yen ricochets lower towards 70, the yen trades at one of the strongest levels in post-WW2 history. I fucking hate a strong yen. Last winter I discovered Niseko but it was crushingly expensive at 80 dollar-yen. It didn’t help that my boy’s girlfriend, who is a tycoon’s kid, booked all the restaurants. She had no concept of money, and we went to every tasting menu in town. I never made that mistake again. In subsequent years, I slept at the hostel and ate only ramen in bodybuilder sized quantities. Back to trading.

I’m market making a plethora of MSCI Japan ETFs priced in dollars, which means there is embedded yen exposure.^[2] The yen is moving so quickly and wildly, I can’t hedge my FX fast enough. Fuck it, I’m just going to wear the long dollar-yen exposure due to my book is getting longer and longer ETFs as traders smack my bids. I remember hearing one senior trader explain that when natural disasters hit Japan, which is more frequent than other locations due to its position on the ring of fire, domestic institutions (especially insurers) rush to repatriate capital from abroad. That entails selling foreign stocks and bonds, mostly in the US - this will be important later in this essay, the yen comes home and produces a stronger currency.

The next day the Nikkei opens down again, the main fear is of Chernobyl round dos. The yen keeps strengthening. I’m making money because of my bet on the FX, and how wide I’m quoting. And then the market rebounds, I forget exactly why but things calmed down. To rebuild the country and financial markets, Prime Minister Abe launched his aptly named economic program “Abenomics” in 2012 with an explicit goal of weakening the yen by encouraging the BOJ to conduct unlimited bond purchases under its YCC (yield curve control) program, aggressive fiscal expansion, and ultimately changing the managers at the nation’s largest pension fund GPIF to increase holdings of foreign stocks and bonds over domestic securities.^[3] The result which still afflicts the world today:

The yen lost over half its value.

The BOJ’s holdings of government bonds (white) went vertical as it smothered the yield on the 10-year bond (gold).

Destroying the international purchasing power of the yen was a resounding success for global asset markets as yen became the de facto funding currency for corporates and speculators. However, there are consequences. One being that the populace is seething with rage. There is no outright connection, but when you destroy the dignity of work by perverting the currency, strange things happen. Japanese people are docile and obedient based on their outward behavior. But in 2022 an attacker wielding a homemade gun murdered the same Prime Minister, Abe, who kicked off the yen depreciation jamboree, in cold blood at a campaign rally. The fuck around and find out inflation edition.

Destroying a currency also creates xenophobia. Last ski season at a resort where we like to ski in the back bowls off-piste, some Japanese yahoo chirped at me about how I wasn’t supposed to skin on the resort without purchasing a lift pass. As a backcountry guide, who didn’t actually work at the resort, he obviously didn’t know the rules because the huge sign board posted in the lodge explicitly allowed us to skin off the resort without purchasing a lift pass, and when I got in his face he started spewing some nonsense about how all the foreigners brought trouble to the ski fields in Japan. He didn’t realize that the resort was actually owned by a Chinese conglomerate … talk about irony in Japan. He was angry at the explosion of foreigners skiing in Japan, and I saw it too. There were more Americans than Chinese in Hokkaido sampling the succulent Jay pow because at 160 dollar-yen skiing in Japan, even after paying for an international flight, was more than half off what it would cost at a North American ski resort. My favorite ski volcano, which is powder heaven and in past seasons was always empty, to my chagrin was positively rammo last season. But don’t you worry, I got some secret pow stashes up my sleeve …

While a weak, weaker, and weakest yen propelled global asset markets higher over the past decade, like all good things for wealthy financial asset holders, it must end. The yen is the most undervalued currency globally, and it is a bone of contention for both major powers, the US and China, and critically, the ordinary Japanese voters. There are three ways to cut the yen Gordian knot, but the US Treasury and Japanese politicians prefer only one.

I will explain the mechanics of each method to strengthen the yen and then conclude with why the final one is the preferred option. Then I will talk about politically how to execute ‌the third option. Finally, which is why you read my human slop, I will detail why Bitcoin and crypto will moon as dollar liquidity surges higher.

The three options:

1. The BOJ raises rates aggressively so that the dollar-yen interest rate differential, at least at the short end, evaporates.

2. The government cajoles domestic and public institutions like the GPIF to change their investment mandate to sell foreign and buy local assets.

3. [PREFERRED OPTION] The MOF repos its holdings of US treasuries to the Fed in exchange for dollars. Then sells dollars to purchase yen in the forex market.

Before I get into the details, degens should ask themselves why talk about the yen strengthening now. So many folks over the previous decades proclaimed now is the time that the yen must strengthen and unwind the global carry trade. Two weeks ago, the US and Japan’s monetary mandarins carried out a joint currency manipulation, ‌euphemistically called an intervention. Collusion and conspiracy confer different nomenclature when you are a plebe versus the state. US Treasury secretary Buffalo Bill Bessent proclaimed he wants the Fed to raise the FIMA Repo Facility’s counterparty limit so that the MOF can use its massive stash of assets to defend the yen.^[4] The MOF also proclaimed that it is working hand in hand with the Americans to slam dollar-yen lower.^[5] The authorities are telling us they are on board with a change in ‌global currency relations; therefore, we must listen.

The Terrible Two Step

Options one and two are non-starters because the loser cannot accept the political and economic consequences of a change in policy from the 2010s.

Option One: The BOJ Raises Rates

Currencies trade on interest rate differentials, and dollars yield 2.75% more than yen. Borrowing yen, exchanging them for dollars, and buying a T-bill has positive carry.^[6] Therefore, the no-arbitrage principle states that the dollar-yen exchange rate must rise, meaning the yen weakens vs. the dollar, to compensate for this interest rate differential. The easiest way to cause the yen to strengthen versus the dollar is for the BOJ to raise rates to match the levels of every other major central bank that hiked rates coming out of the COVID pandemic.

To understand the problem with raising rates for the BOJ, remember that the BOJ is the largest holder of dog-shit JGBs because of over a decade of YCC where they capped yields on the 10-year JGB by printing yen to buy bonds. What happens when rates rise? Bond prices fall. The lower bond prices fall, the larger the BOJ’s unrealized loss. Unlike you readers, the BOJ can lose an infinite amount of yen because it can print them at will. However, at a certain point, the world loses confidence in the yen as a currency because of the massive BOJ money printing and will no longer accept yen for oil, food, medicine, etc. We aren’t there yet, but the BOJ must acknowledge that potential disastrous future state. This fear of recognizing the loss on their balance sheet causes them to dither and conduct only minor interest rate raises while watching the market sell off the long-end of the JGB curve, anyway. The yen still weakens, and imported energy inflation destroys the fabric of society.

The politicians don’t want the BOJ to raise rates because they must fund the deficit with JGB borrowing. If yields rise, debt service costs rise, which hampers their ability to bribe the plebes with this or that government handout, which typically takes the form of consumption tax cuts.

Finally, if the BOJ quickly raises rates and the yen strengthens, causing a rise in dollar-yen volatility, it will force anyone who financed global stocks and or bonds with yen to cover their positions. Remember July 2024 when the yen suddenly strengthened from 160 to 140 over a few trading days. I wrote two essays on the topics entitled Spirited Away (6 August 2024) and Water, Water, Everywhere (12 August). They are great in-depth primers on the issues at hand but described in much more detail than I will provide in this essay. In short, newly appointed BOJ governor Ueda-domo surprised the market with a hike and promised more to come. The market freaked out, and speculators who were short yen and long other financial assets covered their positions. There were rumors at the time of several hedge fund pod PMs getting the tap on the shoulder. In a similar way to how Kenny G deaded Leopold, but unlike Leopold, when you work for one of these masters of the universe, the tap on the shoulder is a corporate death sentence. The yen hit 140, the Nasdaq 100 and Nikkei dropped +10%. The BOJ panicked, and by August 12th, announced they would take “market conditions” into consideration when evaluating their path of future rate hikes, which meant future rate hikes were off the table. Following the announcement, the yen weakened, and stonks bottomed and resumed Up Only!

The BOJ has no stomach for acute market stress because of an accelerated pace of interest rate normalization versus their other major central banking peers.

Option Two: Japan Inc. Sells Foreign Assets to Repatriate Yen

I define Japan Inc. as the corporate and public sectors that own financial assets. There is an interesting anecdote in “The House of Nomura: The Inside Story of the Legendary Japanese Financial Dynasty” by Albert J. Alletzhauser, which describes a directive by the MOF to Nomura to buy US stocks after the 1987 crash to prop up the market. Nomura, as a private company, had no obligation to follow this directive, but Japan is a conformist society that does things together. Many times, shareholder returns are not the highest goal of a corporation but full employment and the glory of the nation, however that is defined. If the government suggests that private companies and individuals should dump foreign assets, which are mostly US stocks and bonds, sell the dollar proceeds, buy yen, and repatriate that money, Japan Inc. will follow orders.

The clearest way to signal that it is time to bring the money back home is the actions of the nation’s largest pension fund, GPIF. A board of bureaucrats, appointed by various government ministries, rules GPIF. In 2014, to bolster his Abenomics money-printing orgy, the Prime Minister endeavored over many years to replace the GPIF governors such that they would vote to increase the allocation of foreign stocks and bonds in its portfolio. This is a big deal because the GPIF manages a $1 to $2 trillion portfolio. When their mandate changed in October 2014, it set in motion an unstoppable train whereby they exchanged yen for dollars and bought US stocks and bonds. This created a structural yen seller, which then comforted speculators to finance any financial asset in cheap yen, and had no fear of it being stronger when it came time to roll or repay their loan.

I brought up the impact of GPIF because Katayama-domo, head of the MOF, recently proclaimed that in his opinion it’s time for the GPIF’s mandate to change such that they favor domestic over foreign securities. The GPIF paper pushers disagree and stated publicly that they will follow what’s best for their policyholders. Obviously, given they are Abenomics adherents, they would not be in favor of changing the mandate to favor Japanese securities. In the same way Abe stacked the deck between 2012 and 2014, Prime Minister Takaichi must do the same. For us investors, the signpost is clear: the GPIF’s mandate will change and force the sale of hundreds of billions of dollars’ worth of foreign securities, and the repatriation of that capital will strengthen the yen. This will take years to occur, but it is worrying for Buffalo Bill Bessent because it means that Japan Inc. as one of the largest holders of US securities, will switch from a buyer to seller. It will destroy the stock and treasury markets that Pax Americana depends on to finance its profligate empire. And because Pax Americana underwrites Japan’s national security, for this reason, Japan Inc. cannot sell its US assets.

Nothing I have just written is new information. Everyone acknowledges the yen’s cheapness. Both the US and Japan want the dollar to strengthen against the yen. But neither side can stomach the loss should dollar-yen go from 160 to 90 (fairly valued according to purchasing power parity). Option three was green-lit the moment‌ Trump’s buddy Warsh the Weasel (he kinda looks like one, right? He surely is duplicitous like one…) became Fed chairperson. The Treasury-Fed Accord of 2026 is alive and well; besides directly financing Bessent’s issue of T-bills using the RMP and below nominal growth policy rates, Warsh has the power to effectuate option three and once and for all put dollar-yen at the level needed to rebalance the global economic system.^[7]

Option Three: Boxes and Arrows Bitches

When Buffalo Bill Bessent speaks, listen the fuck up lest you get dat hose again. And don’t let him hear no back talk neither!

Bessent laid it out in plain fucking English that the MOF and Japan Inc. should not sell US securities to generate the funds need to pump the yen, but they should repo their treasury holdings at the Fed using the FIMA program, get a dollar loan, and use said dollars to buy yen. I’ll come back to the one hiccup in his plan later, but that is what the above boxes and arrows represent.

Let’s go through the flow again:

1. MOF repos a treasury security and receives a dollar loan from the FIMA program at the Fed.

2. MOF sells dollars and buys yen in the global forex market.

3. MOF reinvests the yen domestically by purchasing JGBs and stocks.

The major implications of this policy:

1. The Fed prints money to create the dollars provided through FIMA. Its balance sheet will grow in lockstep with the national of FIMA repos outstanding.

2. Dollar-yen exchange rate falls, which means the yen strengthens.

3. Japanese bond yields dropped because of ‌yen bond purchases.

4. Japanese stocks rose because of ‌yen stock purchases.

Who is the sucker?

1. Japan owes the American taxpayer money, which for political reasons will never be repaid. This is pure money printing, which will cause financial and goods inflation. America cannot force its forward staging base against China and Russia in the Asia Pacific theatre to pay back this loan and impair its ability to remilitarize.

2. Anyone short yen. They must cover immediately once the direction of travel is clear. This isn’t too big ‌a problem because USDJPY vol will fall and allow an orderly unwind of the yen carry trade over many years.

Why hasn’t this already happened?

As it stands, the FIMA facility has a per-counterparty outstanding loan cap of $60 billion. The Treasury and MOF splunked over $100 billion in the most recent dollar-yen manipulation caper and only pushed the yen higher by 5% with a half-life of a few trading days. To use the FIMA facility, the cap needs to be removed entirely, and the number of eligible counterparties increased to include large Japanese corporate and quasi-public investment vehicles like the GPIF. Who administers the FIMA facility?

During the COVID pandemic hoax, the FOMC delegated the authority to change the contours of the FIMA program to the Foreign Currency Subcommittee. The voting members are Warsh (FOMC Chair), Williams (FOMC Vice Chair and NY Fed President), and Jefferson (Board of Governors Vice Chair). Convening the committee happens whenever they see fit. There are no minutes or voting roles published. We just hear about the outcome of their decisions. Will the committee do Bessent’s bidding?

Absolutely. Trump and Warsh regularly speak. Given that Bessent laid out exactly what he needs to rebalance the global economy vis-à-vis the dollar-yen exchange rate, Trump is definitely on board. So, Trump and Bessent will inform Warsh of his marching orders. Warsh already proved he is a weasel and a paper tiger. The balance sheet continues to expand by the RMP, which William’s NY Fed Branch administers. The market, which Warsh said he listens to when deciding policy, clearly demands a rate hike because the two-year yield is over 0.5% above the effective fed funds rate; but Warsh refused to hike at the July meeting. Instead of immediate sweeping and dramatic change to how the Fed operates, Warsh created five task forces to opine on how and why the Fed should change. Godot shall appear before these task forces publish any recommendations. Therefore, Warsh in a brief span of time, definitely proved he is just another party hack and will do what his boss requires. Just like his predecessor, beta cuck towel bitch boy Powell, and his predecessor Grandma Garden Gnome Yellen (she became a Bad Gurl once promoted to Treasury secretary).

2-year treasury yields minus the effective fed funds rate

I don’t know when Warsh will call the subcommittee and announce changes to the FIMA program that allow the unfettered money printing to manipulate the dollar-yen rate lower. But I wouldn’t bet against it happening. In fact, I’m betting it will happen and continue to increase our exposure to instruments that will reveal the impact of a resumption of massive Fed balance sheet growth. Those assets are Bitcoin, physical gold, and gold miners.

How Big?

The more they print, the higher Bitcoin goes. Therefore, is this whole FIMA ruse enough of a spigot to shove trillions of dollars’ worth of wampum through and pump our bags?

Right now, we only care about holdings of treasuries because they are the only type of FIMA-eligible collateral. That might change in the future, but let’s stick to the assets currently allowed in the facility. The two largest entities that hold treasuries are the Japanese government and the GPIF.

Japanese Government US Treasury Holdings: $1.143 trillion

GPIF US Treasury Holdings: $230 billion

Total: $1.373 trillion

That’s not a bad haul. To put this into context, during COVID the Fed printed ~$4 trillion, as evidenced by the rise in the size of its balance sheet from 2020 to the end of 2021.

There is a very clear linkage between the growth in the Fed’s balance sheet (white) and Bitcoin’s price pump (gold). In my previous essay, I hypothesized the AI build out is entering the capital wastage phase. This is important because the Trump administration wants this liquidity to fuel ‌AI CAPEX spending in America, not pump crypto. But I argue that handing credit to AI companies now that cannot earn a positive return on capital, show me a hyperscaler that actually makes money on the capital spent or a US AI lab that can earn money at the China price of tokens, is wasteful and Bitcoin’s price rise will reflect this unproductive use of capital. The recent spike off the local lows in gold tells me the market would rather funnel the approaching dollar fiat tsunami into monetary financial assets rather than hand money to Sam Altman’s money incinerator Open AI or Elon’s mythical space data centers.

Shitcoin Season

I know y’all just want to know what we are doing at Maelstrom. But the context matters to determine conviction. As I stated above, when Buffalo Bill Bessent speaks, I listen. If there is anything he knows how to do, it is to manipulate ‌a currency. Just google his illustrious career with George Soros, the man who broke the Bank of England in the GBP forex markets. The decision to implement this monetary chicanery doesn’t require any approval from a popularly elected politician or someone whose appointed term is up for renewal and thus faces a public senate confirmation hearing. All that is required is to convene the sleepy Foreign Currency Subcommittee to change the rules of the game and produce a gusher of printed dollars.

When I read the headline about Bessent’s call for the FIMA program’s reform, I immediately got that bullish feeling. Every one of the macro analysts I follow believes this heralds a momentous change in the dollar-yen’s direction. You must pre-position because they ain’t fucking around. Money printing is a political decision to solve an untenable economic reality. Politics is very messy, but in this case the Trump administration wants you to log in to your online broker and buy financial assets. That is why Bessent is clearly telegraphing to all who will listen exactly from where the printed money shall metastasize. I’m listening, and will do my duty … buy financial assets.

We are already long as fuck Bitcoin, so the next question is: what is the fastest horse? This isn’t an AI stonk investment blog, but if that’s your jam, bang that Geronimo’s drum harder. The Leopold low gave you an excellent entry into all things AI. Turning to crypto, the large cap sleeper is Ether. The narrative is the one major shitcoin that didn’t eclipse its all-time high in 2025; in addition, Ethereum will be the security layer for RWAs. That fucks.

Next up is a down-and-out shitter that can do an easy 5-10x. That is Ethena (symbol: $ENA). The one issue with Ethena is the lack of buy-backs; however, I’m willing to overlook that because it still is the 6th largest stablecoin by dollar units in circulation. The problem with $ENA is that the lack of Bitcoin basis yield because of a falling price means that the yield to hold USDe is barely higher than a T-bill. It makes no sense to take CEX counterparty risk and smart contract risk holding your synthetic dollars in staked USDe. That is why the circulating supply is down 75% from the highs and the $ENA token price is down over 90%. Even a modest dollar liquidity growth enabled Bitcoin pump will shock the basis yield higher and lead to massive inflows into USDe. It won’t take much to levitate $ENA out of the doldrums, and that’s why it’s cheeky pick for a quick 5x over the next few months.

I have not backed up the truck yet and taken our dollar balances down to minimal levels. We must wait for Warsh to convene the subcommittee and change the FIMA rules. Be on the lookout; it might happen when no one is looking. But gold and dollar-yen should begin moving before the announced changes. If for no other reason than someone with a big stack connected to the Trump administration front runs the announcement. It’s happened in every other asset class, why not in gold and forex.

The days of cheap yen are over. Hip Hip Hooray. There were too many gaijins for my liking trampling over my traverses in the magical volcanoes of Hokkaido. And to all you snowboarders, go fuck yourselves, get a split board when you come in the backcountry.

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^[1] This is the best under the radar music festival in Asia. I fucking love Taiwan.

^[2] Long ETF = Short USD, long JPY; Short ETF = Long USD, short JPY

^[3] BOJ - Bank of Japan; GPIF - Government Pension Investment Fund

^[4] FIMA - Foreign and International Monetary Authorities

^[5] MOF - Ministry of Finance (Japan)

^[6] A T-bill is a treasury with a maturity of less than one year.

^[7] RMP - Reserve Management Purchases aka money printing

(Any views expressed here are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)

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Let your gaze wander and feast your beady eyes upon the disfigurement of Earth’s natural environment visited upon it by humanity. Some alterations are pleasant and some horrific, but each one started as an idea in one or more evolved primates’ conscious brains. Given the cacophony of stimuli our brains must process, we use internal stories to create coherence. In this way, the story or narrative creates its own reality.

Deducing the collective delusions of market participants becomes paramount when divining the future ebbs and flows of prices. Depending on the story, investors will pay a greater or lesser multiple for the same nominal future stream of cash flows. The easiest way to “re-rate” a staid and boring business is to change the narrative to match what investors currently froth at the mouth to acquire at any price.

The question of internal framing is the key variable that determines whether AI is a bubble. But before we understand the bubbliciousness of AI, the better question to ask is in what kind of businesses are we investing, or in relationship terms, “What are we”? The dichotomy, at least to my Luddite brain, is the distinction between what investors believe AI CAPEX represents: is it technology or real estate? The zeitgeist is that this multi-trillion dollar build out is “technology” and must receive insane growth multiples by the market. But I believe AI CAPEX is just another boring real estate play. However, in this instance, what’s inside the data center is compute that creates silicon-based lifeforms that will aid human civilizational development in the most profound way since the railroads.

The distinction between real estate and compute is important because the recently post-pubescent hedge fund bro, the bank, the private credit fund, and ultimately the government believes funding the building of a data center and power plant is like lending to Apple, instead of lending to Lehman Brothers. The bursting of the AI bubble will occur because financial intermediaries, tacitly supported by the US and Chinese governments, will over build data centers and everything that goes into providing the substrate to house chips that train AI models and conduct inference. Therefore, the AI bubble is a credit story like 2008 and not an earnings story like 2000.^[1]

In 2000 the typical internet bubblicious IPO earned little to no revenue and certainly not a profit, a la Pets.com, which is a dearth of earnings story. In 2008, US house price appreciation decelerated, which caused solvency concerns for banks and other financial institutions that underwrote mortgage debt, which is a credit bust story. The AI bubble bursts when the growth of data center construction or the hyperscaler forward guidance on the amount of data center construction decelerates. Leading AI companies will continue to earn massive profits, but the forward multiples will contract and cause solvency issues for the weakest AI credits. This‌ stresses the balance sheets of the highest leveraged financial players that hold too much AI-related debt. Ultimately, the government will step up in the name of “national security” to ensure over-leveraged AI companies and their financiers survive. And this misallocation of capital will find its way into crypto … pumping Bitcoin to da moon!

For any AI bull, the common retort to the assertion that “AI is a bubble” is Jovan’s Paradox will justify the massive spend. Jovan observed that as the price of a commodity falls, its usage increases such that the aggregate revenue continues to grow, and exponentially so. If your internal dialogue about AI is that CAPEX is synonymous with the demand for compute, then Jovan’s Paradox means there is nothing to worry about. As the cost of compute falls, the demand for AI token-consuming solutions and agents grows exponentially, therefore lending to AI CAPEX is money good. But this is an incorrect intellectual framing of Jovan’s Paradox regarding the current AI investment landscape.

To understand why Jovan’s paradox doesn’t mean all credit siphoned away to AI CAPEX is money good, let’s go through what a hyperscaler does when they build a data center. A hyperscaler engages in a real estate development project to build a container for which they purchase the newest semiconductor chips to train AI models and conduct inference. Given that over time, with any industrial process, especially for semiconductors, the number of floating-point-operations per kilowatt-hour of electricity increases exponentially. Therefore, in a few years’ time, Nvidia, AMD, Intel, Huawei, SMIC, etc. will create chips that are exponentially more efficient at producing intelligence. The current stock of physical infrastructure that houses these server racks could produce 1,000x more intelligence and consume less electricity. That means that both things can be true: we can saturate the market for the physical build-out of AI data centers, and consume exponentially more AI tokens. Do you really want to be in the real estate business, which is what the hyperscalers are in, or do you want to own the AI application layer?

The next retort from the AI bulls is that the hyperscalers are both landlord and tenant. They use their prodigious cash flow generated from web2.0 attention theft businesses to underwrite the debt issued to build data centers, and then use the intelligence they own to sell AI Edenic apples to humanity. If you believe that is the case, I hope you don’t own the debt. Debt is called fixed income for a reason: the best you can get is par plus some interest. If Google moons because they correctly allocated capital to building out gangster AI products that change the course of human civilizational development, hip hip hooray for equity holders, but debt donkeys only get par. But if Google is a depreciated Nvidia chip slumlord unable to earn revenue sufficient to meet debt and interest payments, debt holders take a bath, and an above-zero recovery value for a data center choked full of obsolete silicon chips is suspect. The hyperscaler CFOs and finance bros aren’t fools; they know they are in the real estate business and thus must find a sucker who believes they are investing in tech and not property. Those suckers are captive insurance companies owned by the likes of Apollo, and ‌US and Chinese citizens who ultimately are on the hook for the implied government backstop of AI credit. If you parse through the deliberately unintelligible financial statements, you will discover the debt issued to fund AI CAPEX all sits off balance sheet with no clear connection to the earnings powerhouse that underpins the equity.

The logic behind the internal story we tell ourselves about AI CAPEX is important because it informs us why capital will be misallocated and why the magnitude will be bigger than the railroads. And because the AI bubble is a credit, not earnings, story, we know the government MUST bail out the ultimate sucker who bought old-school property debt thinking it was newfangled technology EQUITY!

Don’t let the recent AI correction, especially in over-leveraged markets like Korea, spook you. The AI bull market is not over. If anything, it will enter the blow-off top phase soon. The Fed had the opportunity last week to attack persistently above-trend inflation as measured by every single fugazi measure available by raising rates. But they held rates steady instead, and even former chairperson Powell voted in favor. For us forgotten about crypto degens languishing in the doldrums of a sideways bear market, why does the trajectory from good to bad credit allocation vis-à-vis AI matter? It matters because it informs the how, why, and how much of the mostly American, and a sprinkling of Chinese, money printing to stave off a financial crisis because of the misallocation of credit to AI CAPEX build out.

The rest of this essay will discuss this theory and why the government must respond with printed money. As credit expands against a deceleration of AI CAPEX spend, Bitcoin will bottom and begin a secular rise. Once the authorities sufficiently panic because their AI-created GDP growth is just another run-of-the-mill property bubble, they will print money in sums greater than the 2008 GFC. This will ultimately drive Bitcoin to one million and beyond.

The Second Derivative Rules the Roost

I consistently must remind myself that investing is all about trading the second derivative; i.e. acceleration and deceleration. This makes intuitive sense because during periods of accelerating growth, we tell ourselves stories about an asset that point to a boundless future. It inspires statements ‌like “I would rather [hyperscaler name] go bankrupt than miss out on a chance at building AGI”^[2]. But at some point, growth decelerates. The problem for investors is that asset prices usually peak during the acceleration phase, go sideways during the deceleration phase, and only start falling when growth (or velocity, the first derivative) turns negative. We can never know for certain how long it takes between decelerating growth and an outright contraction of ‌velocity. But so many investors, myself included, believe that an asset can go up forever even after acceleration turns to deceleration. If the AI bubble is a credit story, the second derivative is extremely important because society lends to build AI CAPEX assuming a constant acceleration of spend growth. When that falters, adding more debt becomes precarious. But as a society, we don’t know when to stop until a financial crisis punches us in the face or Kenny G buys our portfolio at the lows. Therefore, credit issuance continues to grow during the deceleration phase. Only when AI CAPAX schedules actually contract do we get the Wiley E. Coyote moment and markets begin to suss out the players who are over leveraged because of their holdings of dogshit AI CAPEX debt.

Let’s extend this logic to how the US subprime mortgage crisis played out. One of my favorite courses during university was on US housing policy and effects on the mortgage market, taught by the undersecretary of housing during the Clinton administration. I took the course in the spring of 2008 when Bear Stearns went poof like Jimmy Cayne’s joint, so it was very à propos. The key message about the housing crisis was that lending surged after government policy encouraged everyone to own a home in the name of social justice even if by 2006 many first-time homeowners couldn’t afford the to-be-reset monthly payment unless house price growth continued accelerating. Don’t worry, I’m still waiting for my 40 acres and a mule, so let’s print some money and build houses instead ;).

Below is a four-panel chart depicting the S&P 500 Index, construction loans/activity, and the Case-Shiller US national housing prices.

Home price appreciation decelerated by the end of 2005, which marked the peak in real spending on construction (orange line, top panel). However, credit continued to flow to real estate (purple line, top panel) until the stock market peaked and corrected slightly. Between 2006 and 2007 was the no-man’s-land period where house price growth decelerated. Predictably, the stock market peaked in mid-20027 (dotted magenta line, top panel). The Wiley E. Coyote moment started in August 2007 when the three BNP Paribas credit hedge funds went bust and slowly progressed as it took Bear Stearns and Lehman down by September 2008. By that point, the S&P 500 was already off 50% from the high. And then the financial collapse happened when investors discovered who held all the toxic financial Frankenstein derivatives. It took the government buying the debt and the equity of those afflicted to stop a great depression; this is key to remember when we come to how the government will save the AI bros.

The second panel is interesting because it shows the beginning of the misallocation of capital starts right as house price appreciation decelerates. If issued credit goes towards building more houses, then that’s okay. But when the system must issue more debt to pay down past debt, which a rising ratio of construction loans to construction spending illustrates, that is the seed of a credit collapse.

Let’s extend the same analysis to the AI story. The variable in this case is the announced CAPEX spend. Right now, the market believes that real estate is technology, and more technology equals more profit. Therefore, the market rewards a hyperscaler who announces a rising CAPEX budget by ramping the stock.

The announced pace of CAPEX build out will begin decelerating in mid-to-late 2027, and it will become very apparent by 2028 the deceleration phase is upon us.

While announced CAPEX growth decelerates, the amount of credit provided will increase. Because lenders believe they lend to technology ventures rather than real estate, and the US and Chinese governments proclaim they each must “own” AI for the world, it makes sense to lend and only lend to anything related to AI CAPEX. In 2027 the market enters ‌no-man’s-land, similar to 2006 to 2007. The current AI stock dump is a corrective episode within a bullish trend. Next year we will experience the true AI bubble peak, and then the market will reward hyperscalers who defect by decreasing CAPEX budgets.

Unlike in the beginning of the bubble from 2022 to mid-2026, hyperscalers increasingly must fund AI CAPEX not out of free cash flow but by issuing debt and equity. The potential harm to their balance sheet will prompt more introspection whether building real estate to house more depreciating chips makes economic sense. At least for the US hyperscalers, the low-priced but comparable quality Chinese frontier AI models will pour ‌cold water on their delusions of their silicon godhead. Everyone chooses the cheaper version if the quality is just as good or slightly worse. That is China’s bet, and it worked for EV cars, solar panels, batteries, etc; it will work for AI as well. As the per kilowatt-hour intelligence output of a silicon chip exponentially increases alongside an inverse reduction in price per token because of Choyna, a prudent hyperscaler CFO will not degrade their balance sheet further by borrowing to build more real estate. And even if demand for tokens ramps aggressively because of Jovan’s Paradox, it won’t happen quick enough to counteract the negative convexity for the stock of debt issued a few years prior. The market will punish the weakest credit, revealing the gargantuan waste of capital.

I cannot predict which hyperscaler will go too far and cause an “oh shit” moment amongst debt donkey investors. But before I move on to why banks cannot help ‌but‌ lend to AI even when they intuitively know it’s no bueno, take a gander at the below chart, which depicts the announced commitments by hyperscalers versus their cash on balance sheet. Trillions of dollars of leverage powers the AI bull narrative, and one of these companies will flame out just like wunderkind Leopold Aschenbrenner, but it will be Warsh and Buffalo Bill Bessent bailing them out with the printing press instead of a rapacious east coast neuro spicy hedge fund bro.

Loan Officer Dilemma

The AI CAPEX growth declaration is an oft-mentioned reason the AI bubble is close to extinction. But if that is the case, why would banks continue to lend? They will do so ‌first because it is profitable, second because the government tells them to, and finally because they know if their loan book sours a bailout will rescue them.

Louis-Vincent Gave at Gavekal Research wrote an interesting article last week arguing that Warsh is running a simple strategy regarding his interest rate policy. That is to engineer a steeper yield curve so that bank lending becomes more profitable. It also helps inflate away America’s massive debt pile. Ultimately, banks will lend money into existence, which funds the re-industrialization of America and funds AI development. This policy is consistent with the Hamiltonian economics Buffalo Bill Bessent referred to in recent speeches.

By all objective measures, the Fed should have raised rates at its last meeting. But they didn’t and the back-end of the yield curve revolted.

30-year treasury yields spiked after the Fed held instead of hiked.

Some say this is a Fed policy error. But from the vantage point of a bank, it’s a godsend. Banks borrow effectively at Fed Funds, which the board deliberately holds below nominal economic growth or at a negative real rate. And then banks lend long to AI data center real estate developers, or rare earths miners, or weapons producers, etc. The banks’ profit increases the steeper the yield curve, and as the below chart of commercial and industrial loans illustrates, lend more money into existence.

10-year yield minus effective fed funds rate (white) which shows the yield curve steepening vs. US commercial bank total commercial and industrial loans (yellow)

Politically, this is a durable Fed policy because even voting governors (Cook and Powell) who Trump’s DOJ indicted/investigated, voted in favor of keeping short-term rates negative. Warsh possesses a coalition of the willing composed of Trump toadies and TDS survivors. Monetary policy-wise, the Fed’s recent actions allow Bessent to issue treasury bills at a yield below that of nominal economic growth. If the market cannot handle the gargantuan weekly bills auctions, the RMP program prints money to plug the difference.^[3] To lower the naughty high and rising long-end bond yields, Bessent can conduct buy backs where he issues T-bills that the Fed monetizes, and buys ten or thirty-year treasuries to cap yields. Notice how Warsh, the supposed balance sheet hawk, has done nothing to curtail or cease the Fed’s balance sheet growth via the RMP program. It’s all kabuki UFC on the White House lawn theatre.

For a loan officer at a TBTF bank who wishes for career progression, they will approve loans to critical industries like AI and bomb makers.^[4] It makes the bank more money and aligns with Fed and Treasury policy. And if it goes tits up, which mathematically is likely, the bailout will be swift and bazooka-sized. There is no downside, and that is how “Window Guidance” operates in the land of the free, home of the IRGC - Israeli Reactionary Guard Corps.

The Treasury-Fed Accord of 2026 occurred without an explicit announcement. But what else can you name a situation where the Fed keeps real rates negative, prints money to buy T-bills the Treasury issues, and the Treasury encourages bank lending to critical industries by protecting the downside with implicit bailouts to be provided by the political party in charge. I’m fucking bulled up, but wait there is even more printed money coming.

The American Sovern Wealth Fund

I want to really feel the crypto bullishness in my veins, so follow me through a speculative idea on how the US government could do more than just bail out the banks at the first hint of trouble. Mental masturbation is always fun.

The bailout of AI already started under Trump. In the name of national security and winning the AI race against China, the US government borrowed money and purchased equity stakes in businesses that operate in “critical” industries like rare earths mining and semiconductors. This is dollar liquidity positive or equity QE because inert dollars move from the government’s checking account into the financial markets.^[5] Below is a list of deals where the government purchased an equity stake using previously borrowed money under the CARES Act, CHIPS Act, and Department of Defense budgets:

Unfortunately for us crypto degens whose wealth ebbs and flows with the amount of printed money injected into the system, there is minimal headroom remaining under existing legislation to conduct similar equity purchases. But the willingness shown by the Trump administration and US Treasury Secretary Buffalo Bill Bessent to punt stonks with borrowed money means that if they could, they would not hesitate to purchase stakes in the stonks of AI companies on the down and out. Because in their minds, if Pax Americana does not dominate AI, Pax Sinica will instead. So out with pure capitalism, and in with corporate socialism. Soz if you are part of the 90% of American plebes that own no stonks better vote for AOC in 2028.

The question then becomes: is there a way pre-crisis to print money and buy AI stocks for national security? Yes ser, and the best part is it requires no congressional approval to do so.

Under the Federal Reserve Act, during “emergency and exigent” circumstances, the Fed can print dollars and lend freely to US Treasury-created SPVs.^[6] During the 2008 GFC and 2020 COVID hoax, the Treasury funded a first loss equity tranche using funds from the ESF of an SPV the Fed lent to in order to buy financial assets to prop up the system.^[7] Currently, the ESF has $28 billion with which Bessent could direct towards funding a new SPV to support AI companies for national security reasons. In previous instances, the Fed provided up to 10x leverage to the SPV structure, which means Bessent could splooge $280 billion on money-losing AI ventures. That’s nice, but it is hardly a bazooka given the fugazi multi-trillion dollar market caps these private and public AI companies possess. To marshal more printed money firepower, could Bessent create an SPV with no first-loss equity buffer? Technically yes, but the Fed must stand up to political pressure that it is creating backdoor unlimited equity QE.

Does the Fed care about political pressure? Yes and no. Supposedly, newly appointed chairperson Warsh is ready to shake up the Fed. He routinely touts the productivity-enhancing miracle that AI could soon be for the American economy. Therefore, intellectually, he believes the AI bro sophistry. If his daddy Trump tells him it is necessary to save Sam Altman and OpenAI by purchasing stock in the open market because there are insufficient retail schmucks ready to part with their hard-earned cash and buy an unprofitable frontier AI company when Dario’s Anthropic is both profitable and produces the most intelligent models, then Warsh is ready to ride or die. But in order to approve the loan to the SPV, he requires three more members of the board of governors to agree. Given that TDS survivors Cook and Powell voted with Warsh in favor of holding rates steady at the last meeting, I don’t see any pushback if Warsh pushed the Fed down this path. Profiting from stock holdings in your personal account always trumps supposed intellectual hangups about printing money. 加油美国！^[8]

If the Treasury uses printed money to support the new issues of to be listed AI darlings, it monetizes the unrealized profit of early investors and employees. This is the purest definition of liquidity creation because this capital didn’t exist before the government provided a bid underneath non-sensical private market valuations. The government benefits in two ways from an accounting perspective. First, investors will pour capital into any government-backed AI company because it is always profitable to invest alongside the entity using printed money to pump bags … at least initially. The SPV now sports a massive unrealized gain which Trump can tout as profit that in theory should count against the national deficit. If AI is the most consequential technology in human history, the stock market paper gains could retire the entire national deficit on an accounting basis. Second, newly minted millionaires, billionaires, and trillionaires must pay state and federal capital gains taxes on the stock they sell to the market. Again, this reduces the national deficit and allows the government to borrow less money and claim on an accounting basis that the debt-to-GDP ratio fell. At least initially, the bond market will rally (yields fall) and reward the government for this paper shuffling.

I must clarify that Trump has not created the philosopher’s stone, but kicked the can down the road to the next, hopefully for his supporters, Team Red Republican administration. To illustrate why this ends in disaster in the medium term, let’s consider the following scenario. Imagine you want to become a billionaire overnight doing no work. You create a company for a few thousand dollars in setup fees with 1,000,000,001 shares. Then you sell 1 share to your mother for $1. Based on the last traded price of $1, your one billion shares are worth one billion dollars, at least on paper. Now, to convert this paper into real wealth, you go to the bank and ask for a $100 million loan to buy a new McMansion, a Lambo, and various other high-value items. The banker says no fucking way. You shockingly inquire why, because in your mind, the loan-to-value ratio is extremely low at 10%. The banker responds that there is no liquidity for this stock should you need to sell to repay the loan.

Moving back to the AI SPV equity investments, if the SPV is one of the largest single shareholders, and other investors only invested because the government is involved, then it follows there will be no buyers when the government wants to sell. In fact, everyone will rush to sell alongside or before the government once the teleprompter dude, Ro Khanna, Nancy Pelosi et al. sell. That paper gain used to offset national debt in accounting terms vanishes completely and turns into a realized loss that is added onto the debt pile, and to add insult to injury, the treasury still must pay back the Fed in the future. Ultimately, it is a one-way investment for the SPV; it can never sell, and the Fed must roll over its loan so that there is never a margin call. In this way, the expansion of the Fed’s balance sheet to fund the SPV becomes permanent. But this isn’t Trump’s problem because he gets to have his political cake and eat it too. Unprofitable American AI companies can battle against China. The AI “wealth” created funds tax payments and spending in the economy right now. And the unrealized gains plus the tax revenue creates a chimera that debt-to-GDP is falling, which prompts the market to allow the government to borrow at cheaper levels.

The government could do this now and forestall an AI reckoning, or wait for the market to punish all things AI first because of a deceleration of AI CAPEX spending growth and then an outright contraction in CAPEX spending. Given that the US government already purchases equity stakes, why not do MOAR! Combining bank lending Window Guidance with AI equity purchases ensures a credit crisis never happens … at least not until after the next US presidential election in 2028.

That’s great Arthur, but how does this help Bitcoin if the money printing from 2022 to now hasn’t pumped Bitcoin above $126,000? Be patient, young Padawan, and read on.

The Bitcoin Bottom

When will Bitcoin hit a local bottom? The previous cycle’s bottom occurred after the market discovered the theft of FTX customer money by the right kind of white boy Sam Bankman-Fried; Binance CEO CZ, a shifty Chinamen (this is probably the pejorative descriptor used by the minds of Kevin O’ Leary or the author Michael Lewis) aided and abetted said discovery. ChatGPT commercially launched, and the AI boom began.

Starting in October 2023, the US liquidity situation changed in that the amount of dollar liquidity began rising because of the drainage of the RRP.^[9] Subsequently, bank lending and government borrowing increased as well. Bitcoin pumped and peaked in October 2025. But Bitcoin couldn’t rise further; it climbed only 2x over the previous all-time-high, because AI credit and equity sucked up the marginal unit of fiat. As the acceleration of AI CAPEX build out consumed all available fiat liquidity, and Bitcoin, predictably obvious only after the fact, fell by 50%.

In mid-2026, the liquidity situation flipped. The growth in announced AI CAPEX spend 18-months out will decelerate, but the bank and government lending channels are only getting started creating dollars to hand to AI. And when or if the banks fail to do their patriotic duty, the government will heavily nudge them to provide the credit. Failing that, the government will provide equity backstops to favored AI companies and offtake agreements, like with Intel and IBM, in order to de-risk bank lending to AI. Bitcoin will bottom during this initial period of credit misallocation. But the financialization of AI, whereby there are more dollars and yuan chasing money good AI projects than exist, will create capital misallocation. This is exactly the scenario that played out in the Chinese property boom from the mid-1990s to 2019.

Chinese planners decreed that urbanization must proceed at the most rapid pace of any society in human history. That required a multi-trillion dollar infrastructure build out of dwellings, airports, roads, railway lines, etc. For many decades, state-directed bank lending to this build out was productive. But in the late 2000s, society reached saturation of profitable projects, and subsequently, the period of capital wastage began. By 2019, President Xi had enough and proclaimed, “房子是用来住的，不是用来炒的 (apartments are for living in, not speculation)” and he deliberately popped the bubble and redirected credit towards manufacturing new technologies like EVs. But the period from the late 2000s to 2019 witnessed massive speculation on financial assets with borrowed capital ostensibly provided to build property. That is why property companies became hedge funds. A similar phenomenon will occur in the US. An outfit with the right politically and financially connected board members will procure cheap credit and possibly a government equity investment supposedly to do something related to AI, but will create a business model that is leveraged to the price of some input, e.g. a pseudo-AI hedge fund. Bitcoin is the liquidity smoke alarm, and its rising price will reflect this capital wastage alongside surging AI stock prices.

Writing this essay in late July 2026, I don’t know at what price Bitcoin will bottom; maybe it already did. The market needs time to climb the wall of worry surrounding Bitcoin sales by Strategy. And it needs to find a narrative why the asset can rise if Strategy cannot issue more stock or find suckers to buy its preferreds and use the proceeds to buy Bitcoin. Maybe Bitcoin chops between $60,000 to $70,000 for a while with a potential downside of $50,000. However, while all of this occurs the AI capital wastage accelerates, which lays the foundation for a bottoming and slow grind higher for Bitcoin.

The Bitcoin Crack-Up Boom

If my thesis is correct that the dollar-value of money-good AI CAPEX projects is less than the amount of credit issued to “AI”, then Bitcoin’s price will reflect this excess liquidity. This helps Bitcoin bottom even though DATs like Strategy can no longer tap the equity and corporate debt markets to buy Bitcoin in a Bitcoin-per-share accretive manner.^[10] I continuously validate the thesis by observing whether‌ AI CAPEX growth decelerates while AI lending increases and or hyperscalers increase off-balance sheet commitments.

If we enter the capital wastage phase of this AI credit boom, then the next question is what will the authorities do? Will they preemptively print, or if they lack the political juice, wait for the eventual crisis to ram through another bailout. Thankfully, by being long Bitcoin unlevered we don’t care when the bailout cometh because we know, because of the perverse incentives of the government, they will always print to save the system. The AI CAPEX credit bonanza is already on par with the build out of the railroads as a percentage of GDP, which means the amount of capital misallocation is already larger than US subprime, therefore the bailout will be bigger than the trillions printed by the Fed and every other major central bank in the aftermath from 2009 to 2013. Bitcoin emerged as a response to the irresponsible bailout of the subprime banksters, which, when you think about it, is an amazing feat. This time around, Bitcoin already exists and can now fulfil the dreams of many by hitting $1 million or higher.

To imagine this future, given the current bombed-out nature of the crypto capital markets, is difficult. Which, to me, presents interesting asymmetries. Maelstrom is already long a fuck ton of Bitcoin, so what’s the next new shitcoin narrative that can pump a large cap coin within the next six months? Ethereum is the most hated and forgotten about mega-cap shitcoin out there. It has not traded through its 2021 all-time high of $5,000, while most of the top 10 shitcoins by market cap have. The new narrative to me is that corporate RWA chains like Robinhood will use customizable Ethereum layer-twos like Arbitrum.^[11] Ethereum becomes the security settlement layer of these chains. So even though the actual percentage of gas fees that actually accrue to Ethereum is small as a percentage of the total, Ether is the shitcoin that powers the tokenization of everything.

I am an RWA hater. Maelstrom receives a lot of garbage pitches about how a team is going to ride the tokenization wave. That being said, TradFi loves to wax lyrical about how everything will be tokenized and ride on some private or public blockchain. I fervently believe that if this future comes to pass, these TradFi RWA plays must ride on a public blockchain. And Robinhood launching its own chain using Arbitrum removes the career risk from TradFi muppets running the same playbook and ultimately building their solution using Ethereum. This narrative fucks. And because Ether, as a shitcoin, is the second largest by market cap and has existed since 2015, it has the second-best Lindy behind Bitcoin. Add to that, Tom Lee at Bitmine provides the institutional cover for portfolio managers to ape into Ether to play the tokenization of capital markets meta.

My rough target price for Ether by the end of 2026 is $5,000, which is ~2.6x up from current levels. I like this trade because I can strap on a significant amount of notional to this trade and feel comfortable with the risk of waking up one morning and Ether being down 75% because of some technical exploit is negligible. It is also extremely liquid, so even though as a percentage of Maelstrom’s portfolio it will be a large trade, I can get out of the position in minutes. Finally, I will also sell out of the money puts to earn extra yield and be comfortable with the risk that Ether trades through my strike and I have to buy it at bargain prices.

The AI bubble stole liquidity from crypto, but no longer. As the narrative slowly shifts from “AI at any cost” to “what’s my return ON investment?” and finally to “when is my return OF investment?”, the authorities in Pax Americana and Pax Sinicia who staked their entire economic policy on “AI” will worry that maybe just maybe the bubble could crack, and to forestall this eventuality so that they do not have to admit their mistakes, will misallocate capital on a scale necessary to create a crypto bull market like we haven’t seen since 2021.

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^[1] Thank you to Groundbreaker for an excellent Substack post which provided the inspiration for this thesis.

^[2] AGI - Artificial General Intelligence aka God

^[3] RMP - Reserve Management Purchases

^[4] Too Big to Fail

^[5] QE - Quantitative Easing; The Treasury General Account (TGA) is the government’s checking account held at the Federal Reserve.

^[6] SPV - Special Purpose Vehicle

^[7] ESF - Exchange Stabilization Fund

^[8] Let’s Go America

^[9] Reverse Repo Program

^[10] DAT - Digital Asset Treasury

^[11] RWA - Real World Asset

(Any views expressed here are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)

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Am I dreaming - or is AI investing as easy as buying a subscription to Citrini Research and buying every stonk they write about?

Am I dreaming - or does the price of oil not matter to economics or politics and that is why Trump and the IRGC can continue trading rhetorical barbs over social media while ships languish in the Strait of Hormuz?

Am I dreaming - or does the 2-year US treasury yield trading 0.5% over the effective funds rate not lead to the Fed raising rates at an upcoming meeting?

Am I dreaming - or can the entire gains of AI to America accrue to a few tech bro douche nozzles?

To check whether I’m lucid dreaming about this FUBAR universe in which I inhabit, I must perform a reality test. And if this test fails, I know I am dreaming and must alter my portfolio. Let this essay be that test, and at the end of the cathartic experience that is tap-tapping on my word processor, my portfolio will have undergone immense changes or none at all.

My theory at the outset is that I am indeed dreaming. The most important variable that exerts a reflexive effect upon the whole investing complex is the price of oil and other hydrocarbons. Our ability to experience the universe hinges on the efficiency with which we convert energy into biological and or artificial intelligence. Nothing violates this truth. And while the markets may, for a blip in time, appear to negate this law, shit always comes back to bite you in the proverbial ass.

We start with oil and end with an election in Pax Americana. This story arc could produce a situation whereby the AI stock bubble pops and takes the entire crypto complex down with it. When the dust settles, then and only then, can Bitcoin rise from the ashes. Yes, I know I proclaimed we wouldn’t see $60,000 Bitcoin again, and obviously I erred, but that’s forecasting for you. But I deeply believe in having strong opinions loosely held.

Let’s begin.

Deal or No Deal - That is the Question

Politicians respond to incentives. US President Donald Trump launched a war of choice against Iran for some unknown reason. Only Trump knows why he did it; I certainly can’t discern the reason from the cacophony of justifications given every hour by him or one of his lackeys. It ultimately doesn’t matter why; we are here now, and the question is how, if at all, do Trump and the IRGC play their parts to end the conflict.^[1] This is Trump’s war now, and unfortunately for him and his Team Red Republicans, he decided to strike in an election year.

Tell me the change in price of gasoline and other essential goods like food, and I will tell you who wins an election in Pax Americana. Trump and his Team Red Republicans are up against high and rising food and energy inflation, primarily driven by the closure of the Strait of Hormuz, which directly results from a war they launched against Iran with no consultation of the American public. If you are dumb, you might believe that Israel made them do it … lolz just lolz. If you think a WASP takes orders from a Jew, please read more American history. Americans are bloodthirsty, war-loving people as long as it doesn’t affect their daily lives and none of their family members return home in body bags. Trump routinely touts that ONLY thirteen brave American soldiers perished in this special military operation. That is why America wages video game war using high precision extremely expensive stand-off munitions. As much as Trump betrayed his base by launching another Middle East war with no coherent theory of victory, they have stuck by the party because it’s cool to kill some non-Christian towel heads. If you don’t think that is the case, Trump primary’d several disloyal Republican legislators, and these traitors to the party lost. The problem isn’t that his base won’t come out and support the team in November; it is that undecided voters facing higher food and energy prices because of the Iran war, decide to vote for the Team Blue Democrats. Therefore, “affordability” is Trump’s worst issue.

To bamboozle undecided voters, Trump needs to at a minimum maintain oil prices at these levels. Squashing inflation in its tracks is almost impossible at this point because supply chains are just beginning to reflect the rise in energy and other input costs. All Trump can do now is manage the perception of inflation, not the reality. This means that Trump’s motivation to accept a deal with Iran depends on the price of oil. As the oil price rises, Trump’s rhetoric shifts conciliatory. But then, if the market delivers lower oil prices in anticipation of a deal, Trump backs off because there is no reason to accept what objectively will be a worse geopolitical situation between Iran, the US, and the broader Middle East than before the war. The Trump-Iran deal is almost certain to be worse than the Obama-Iran deal, and a large part of the electorate will punish the Republicans at the ballot box for “losing” the war in their minds.

It takes two to TACO, and the IRGC is under a similar decision matrix. If the oil price rises too high, their main economic trading partner, China, puts pressure on them to make concessions to the Americans. But as soon as the IRGC signals they are ready to deal, the oil price sells off and Chinese pressure subsides.

Both the US and Iran have no incentive to meet in the middle while the price of oil is at this level. Yes, it’s up materially from pre-war levels, but it ain’t that bad yet. Regarding the rest of the commodity complex, there aren’t any large populations starving, ‌and many countries have been able to secure supplies of critical industrial commodities from other parts of the world. This fucked up Goldilocks scenario cannot continue forever. You cannot remove 10s of percentage points of supply of a global commodity and prices remain moribund. Once excess capacity is exhausted, the system will ration supplies by ramping up spot prices. This is the doom and gloom many commodity analysts espouse. The reason the mangled chickens haven’t come home to roost ‌is that the excess supply was quite substantial going into the war. If the US-Iran war muddle-through continues deep into the second quarter, the setup for the third quarter is ballooning spot prices for hydrocarbons and other essential commodities.

I’m going to bastardize a Winston Churchill quote, “You can always count on [politicians] to do the right thing, after they have exhausted all other possibilities.” Only when shit is truly fucked, will Trump and Iran do a deal. Which, in my mind, means this severely reduced Strait of Hormuz traffic situation will persist, possibly into early Q3.

For this thought experiment, let’s assume the price of oil slowly grinds higher with intense volatility around the trend-line. What then? How do rising oil prices and Trump’s Team Red Republican re-election campaign rhetoric move reflexively?

November Kickoff: Team Red vs. Team Blue

If the price of oil slowly rises, but not enough to force Trump and the IRGC to deal, how else can Trump snatch victory from the jaws of defeat?

These Polymarket odds indicate that the Republicans, as it stands now, will retain control of the Senate by the hairs of their chinny chin chins. But they will receive a walloping in the House.

While it looks like a foregone conclusion that the Republicans will lose control of the House, I want to challenge this view. I believe Trump still has a path to victory, and it goes through a change in his rhetoric towards data centers and AI regulation/taxation.

To set the stage, currently, the distribution between parties is the below (218 votes needed to pass a piece of legislation):

Based on current Polymarket odds, here is the projected party composition after the election:

That looks super-duper bad for Team Red. But the empire struck back with redistricting measures. When the rules of the game point to defeat, you’ve gotta change the rules. This is politics, degen. Let’s assume that Polymarket is correct, then the Republicans need to make up 19 seats. Redistricting can reduce that number.

Here is a table of the likely impact of redistricting:

Now we are down to 11 seats the Republicans must make up. Let’s move onto which races are a toss-up, and within the band of statistical error based on current polling could lean Red.

There are 35 races which could go either way. I already spoke about affordability and the limited things Trump can do to shift the narrative on the disastrous impact of inflation on undecided voters. The other issue that animates the entire electorate on both sides is the construction of data centers and AI’s impact on employment. Unless you are uber-wealthy, everyone is worried about data center inflation and AI taking their jobs. This fear manifests itself in many local moratoriums on the construction of data centers and a crescendo of talk about taxes on AI companies to fund welfare payments to the 99.99% of the population that aren’t CEOs of AI-related companies and their highly paid employees.

For electoral maths consider a few local initiatives in contested districts regarding data centers (Perplexity generated tables):

Trump can capture the remaining 11 seats needed by selling the AI tech bros down the river. All that is required at this stage is rhetoric, not concrete legislative action. The point is to convince plebes that if you vote for my party, we will deal with AI after the election. As a consummate politician, Trump can promise the world and never or partially deliver post-November. Just look at his handling of the Epstein files. Maximalist campaign rhetoric about exposing the alleged pedos, but once in office a minimalist release of materials; you might say that Pam Bondi dressed herself in black face “REDACTED”. In a similar vein, Trump could declare while campaigning that he will sign legislation to slow down data center build-up and impose an excessive profits tax on AI companies to fund another round of stimulus checks, then backtrack once the election concludes and Team Red’s rule remains.

For those of you who recoil in horror that Trump would adopt measures championed by disgusting pinko commie Democrats like AOC and Elizabeth Warren, please remember that Trump conducted the largest government handout to Americans since the New Deal.^[2] He even gave welfare kings and queens in the hood a few thousand dollars and didn’t prevent them from buyin’ 40’s at the corner store. Now tell me he won’t turn on Elon and Jensen, at least for a few months, profess his desire to level the playing field between AI and humans, to save his political hide.

If Trump executes this AI pirouette, the market will not be intellectually flexible enough to consider this purely an expedient electoral caper but believe that Trump actually will curtail AI capex build-out and tax the AI bros. Almost immediately, the market will convulse, and this will pop the AI bubble. For those who do not appreciate how skittish the market could be when Trump turns on the AI bros, remember the made for social media spat between Elon and Trump?

Elon left his DOGE department and started throwing shade at Trump.^[3] Trump hit back, threatening to cancel government contracts given to various pieces of Elon’s business empire. $TSLA traded down 18%‌ intraday. What politics giveth, it can taketh away.

Obviously, this was a psyop. Elon made up with daddy, got back into his good graces, and even received an invitation to the recent Trump-Xi summit in Beijing.

Don’t worry, Elon. Daddy still loves you.

The market took the feud at face value and panic-sold. This is small potatoes to Trump signaling his Team Red Republicans would support massive taxation on AI models and agents. When a Korean politician suggested something similar, the Kospi went almost limit down the next day.

The Korean government quickly walked back the statements, and it was back to Up Only.

The broader AI story assumes corporations will grow revenues at an accelerated exponential rate in perpetuity and will face no popular backlash against the societal disruption this technology and wealth accumulation will create. Only when one is dreaming can these delusions persist. Trump can provide a reality check, but his desire to do so depends on the price of oil.

The higher the price of oil goes because of the Iran special military operation, the more limited Trump’s electoral messaging options become on how to extricate the Team Red Republicans out of the hole they dug for themselves.

But why does Trump care about whether the Democrats control the House? Because with control of the house the Democrats have the power of subpoena, and they can make life a living hell for Trump, his family, and his lieutenants by asking many uncomfortable questions under oath. With that information, assuming a Team Blue president in 2028, the newly weaponized DOJ in the opposite direction could seek retribution upon the Trump Organization, possibly using information gleaned during testimony.

To reiterate, the inability to come to a deal immediately between Trump and the IRGC ultimately leads to higher oil prices. The higher oil prices anger voters because shit is more expensive. At that point, the only hot-button issue Trump has agency over is data center build-out and AI regulation/taxation. Therefore, the only path to victory is turning on the AI tech bros. If the market falls 50% between now and November, that is a small price to pay not to face an endless stream of House Democrat subpoena requests. Trump knows that once the election is over, he can walk back any of the anti-data center build-out and AI rhetoric, and it’s back to business as usual … and hopefully S&P 500 to 10,000! The problem for your portfolio is that things are path dependent, and watching one’s portfolio dump will permanently change future expectations for AI stock returns. You can never unsee the impact progressive taxation and regulation has on the AI complex; and as such, you will not invest with such insouciance as before.

California Dreaming

Before I explain the impact of the three mega AI IPOs (SpaceX, Anthropic, and OpenAI) on the global financial markets, I must present my argument for why Bitcoin failed to rally even as the pace of dollar liquidity expansion accelerated starting in late Q3 last year.

The commercial release of ChatGPT on November 30, 2022, started the great AI bubble. Around the same time, the brazen theft of customer funds by the right kind of white boy fake vegan Sam Bankman-Fried became known as fact. Bitcoin bottomed at ~$15,000 and then 7x’d to $125,000 by October 2025. However, over the same time frame, Nvidia grew 11x, and a plethora of other smaller-cap names integral to the conversion of electricity to intelligence recorded sick gainz as well. AI stocks left crypto in the dust. And AI’s outperformance sped up from late 2024 to the present.

Even when Bitcoin (white) hit an all-time high, Nvidia’s (gold) returns were still superior.

Bitcoin (white) fared even worse post hitting its all-time high as it is down 50% since then. Nvidia (gold) even as the largest company in the world by market cap rose a respectable 10% since late 2025.

Given my underlying theory of crypto markets based on fiat liquidity, Bitcoin should be much higher. But it ain’t. What did I get wrong?

Because I’m a lazy human, I only observe and model the headline amount of fiat creation. But I do not study where it goes in great detail. I assume that eventually enough of the liquidity will find its way into Bitcoin and create Up Only. But this time I got it wrong, so back to basics.

My initial hunch is that AI sucked up all available fiat liquidity, especially of the US dollar flavor. AI, as we know it, is very capital-intensive. We must build data centers that convert electricity into intelligence. Hydrocarbons, nuclear, and renewable energy push turbines that create electricity. That electricity travels to data centers where it passes over specialized silicon chips that train models and conduct inference.

As the above chart depicts, data center CAPEX spending went ape shit starting in 2024 and ramped up big time in 2025. And as such, the capital needs increased as well. In terms of the AI CAPEX spends effect on dollar liquidity, we only care about the borrowed amount. Perplexity came up with these estimates from public disclosures:

$1.5 trillion of issued debt of various types between November 2022 and the present is a huge amount, but how does that compare to the amount of dollars created? The rough and easy way to estimate the amount of dollars created is by observing M2 over the same timeline. M2 rose by $1.5 trillion. And that, ladies and germs, is a wrap. AI sucked up all created dollars. Bitcoin never had a chance. The only reason Bitcoin rallied strongly off the Nov 2022 FTX-bankruptcy low is that the AI debt binge really kicked into gear starting in 2025. $1.3 out of the total $1.5 trillion of issued debt occurred from 2025 to the present. And low and behold, Bitcoin peaked in October 2025 right as AI CAPEX spend reached previously unimaginable heights.

This matters because if AI stocks crater, there will be no excess capital with which to invest in Bitcoin. Banks will pull back on lending, and some will find that their loans were based on fugazi cash flows. The bank loan officers will only fret about a potential lack of cash flow generation to repay their debts when the hyperscalers’ stock prices decline by -50% or more. The credit destruction is real, and it will tighten liquidity. And if the politics is negative towards AI, there will be no immediate rescue. Eventually, the government will bail out the banksters, but in my model, Trump must talk tough towards the AI tech bros and their financial enablers to hoodwink the public into believing he is serious about creating an equitable distribution of the wealth generated by the AI productivity miracle. A rescue is only politically feasible after the election in November.

The connection between Bitcoin and AI stonk prices means we must have a view on whether AI stock prices are in a bubble and when it is likely to pop, and why.

The AI Lead Balloon

There are three darts that will pierce the AI bubble. They are: higher energy costs, the inability of the market to absorb the three mega IPOs (SpaceX, Anthropic, and OpenAI), and Trump’s anti-AI rhetoric.

The goal of this whole escapade is to convert energy into intelligence as efficiently as possible. Humanity is a biological vessel to convert calories into intelligence and allow the universe to experience itself. AI is no different, but instead of Nodoguro nigiri, it converts electricity into intelligence. The electricity that powers AI data centers on the margin comes from hydrocarbons like natural gas. If the price of energy rises, it raises the cost of intelligence or token production. That directly reduces the margins of AI model companies like Google, Anthropic, and OpenAI. At a certain point, they raise the price to customers, and token usage growth decelerates. Therefore, the war waltz danced by Trump and the IRGC affects AI companies, and ultimately, if either side steps on the other’s foot and causes a spike higher in oil prices, eventually profits because of AI will materially fall.

If token usage drops alongside earnings, it calls into question the continuation of planned data center CAPEX spending. When the market questions that, it’s game over. The forward earnings multiples contract, and Rrrrrraaawww, the grizzly bear tears your head off.

Source: Goldman Sachs

Combined, SpaceX, Anthropic, OpenAI, and other tech shares expiring lockups will raise more money than ‌all dot-com IPOs in total. It’s fucking nuts. Can the market absorb all this supply? Every AI name that has pumped over the last few years can only continue going higher if investors believe earnings growth will accelerate into the future. As no one has a crystal ball, if ‌faith in the AI story falters, investors will pay a lower multiple for future earnings. Therefore, if these IPOs don’t pop, investors will take that as a cue that the market topped and begin selling.

I want to look deeper into the SpaceX IPO, as we have more details about the mechanics and timing than the other two. Always remember, he who sells first, sells best. Elon is the best marketer on the planet. Going first will allow him and his shareholders to extract the most capital from gullible muppets. Crypto degens will be familiar with the IPO allocation setup. Essentially, it is a low-float, high-FDV shitcoin.^[4]

Per the SpaceX S-1 filed with the SEC, investors in this IPO will pay ~100x sales. ARE YOU FUCKING OUT OF YOUR FUCKING HUMAN MIND! If that’s not bad enough, the company will only float 4-5% of shares initially. Given the red-hot AI market, it almost ensures that the stock will pop. But there is a downside to this: the expectations are so high that the law of large numbers suggests it will be almost impossible to satisfy the market. SpaceX will instantly be a $1.8 trillion ‌company and the seventh largest globally by market cap. To go up 50% would put it as the fifth largest company in the world just eking out Amazon, with nowhere near the earnings to justify membership in that rarified club. I know I’m shitting on the AI story, but Nvidia deserves to be valued so high given the insane gross margins of the business and the amount of revenue it generates. SpaceX is a speculative bet on data centers in space, which, if Semi Analysis is correct, are 4x more expensive than terrestrial data centers, with cost parity to be reached in the next decade. If he had chosen a much lower valuation, it would have been easier to paint the chart green. And crypto degens know this story well: if you cannot create the situation for secondary market punters to make money, then it’s Down Only, as the insiders have no motivated buyers to dump their newly vested shares upon.

That brings me to the vesting schedule. Between now and early September, the float will increase by 5x. This creates a tough environment for the stock to rally, as all this supply comes to market. Worse yet for stonk punters, Anthropic and OpenAI both indicated a potential listing date in September. They also will issue stock at trillion-dollar valuations.

SpaceX can do well from June until September … maybe … but when all three companies are simultaneously selling shares ‌at insanely high multiples, it guarantees market disappointment. Merely grinding higher is not enough; the expectation is of an explosion higher in the stock price.

Finally, if the oil price refuses to fall, and the plebes blame Trump and the team Red Republicans for inflation in necessities because of the Iran war, Trump will have no choice but to adopt an anti-AI stance to win over voters. The politics of data center build-out and AI will become quite nasty starting in Q3 as American politicians jostle to win votes.

If the three darts hit true to mark, none of these IPOs will do as well as expected. And once the market believes in the unlikelihood of exponential earnings growth for all things related to AI, it will demand lower multiples for many stonks resulting in lower prices. Given the explosion of stock margin loans and lending to AI CAPEX, the banking system will take massive losses on the credit extended to the industry.

Bitcoin cannot rally in the short term if the entire world takes serious losses from the deflation of the AI bubble globally. Eventually, it will bottom, then rise as Bitcoin forecasts an increase in liquidity to put Humpty Dumpty back together again. But right now, it’s about protecting one’s crypto capital.

Before I move on to how I’m positioning Maelstrom’s equity and crypto portfolio, I want to touch on whether the Fed will loosen or tighten monetary policy.

Warsh the ?

Should newly appointed Fed chairperson Kevin Warsh’s nickname connote strength/courage or weakness/pliability? It all depends on how he navigates the contradictory position in which his august institution finds itself.

2-year treasury yield minus effective fed funds rate (shaded, white), WTI front month oil futures contract (blue)

Warsh’s pickle is simple. Trump appointed him to cut rates, and he hinted he could look through this “transitory” war-created inflation straight to the AI productivity miracle. This would allow the Fed to cut rates. Unfortunately, the market requires higher rates. The 2-year treasury yield’s spread versus the effective fed funds rate indicates whether the market believes the Fed should hike (positive spread) or cut (negative spread). At over 0.5%, the market believes the Fed, because of high and rising inflation, should hike rather than cut rates at its June 16-17 meeting.

The most likely outcome is a hold. But then the market will focus on Warsh’s press conference rhetoric, and any changes to the RMP program.^[5] The market will view the hold as hawkish or dovish. A hawkish hold is just as bad as a hike because the market will discount a future of higher rates at the same time oil prices rise because of a lack of resolution in the US-Iran war, and the indigestibility of three mega AI IPOs. This toxic cocktail screams for a slight or significant correction in all risky assets.

The absolutely worst outcome for risky assets is if Trump instructs Warsh to do what the market suggests and immediately hike rates to help improve affordability for the plebes. Unfortunately, unless Warsh raises rates by percentage points immediately and sells bonds from the Fed’s balance sheet in the open market, then the Fed will remain behind the curve. This is a replay of the 1970s in that the Fed hiked aggressively but not enough to squelch inflation.

It is extremely unlikely that Warsh cuts in this environment, and with that off the table, odds are the market interprets the Fed’s actions as tightening future liquidity. This will act as another anchor to drown the AI bulls.

My view that oil will rise morphs into a bearish stance on all risk assets because of the logic presented above. Let me finish this essay with a discussion on the direction I took Maelstrom’s portfolio.

Portfolio Positions

If every piece of our existence is a derivative of energy, then I must buy energy if I believe it will get more expensive in the future. As it stands now, Trump and the IRGC still believe each can wait the other out. The amount of lost barrels of oil and cubic feet of‌ natural gas because of the war continues to climb day after day. This is even in the face of the limited amount of shipping traffic through the strait. While the market is sanguine today, should the muddle through continue, the spike higher in energy prices becomes mathematically predestined.

There are many similar charts making the rounds, but the message is clear: inventories are at the lowest levels in recent history and declining day by day as the war persists. At a certain level the system breaks, and we don’t want to experience what that means in terms of higher energy prices.

In the best-case scenario, the war ends immediately and traffic via the Strait of Hormuz rebounds to pre-war levels. Once that happens, ‌hydrocarbon inventory replenishing and just-in-case hoarding by sovereign nations will push up prices.

Both scenarios point to higher oil and natural gas prices three to six months out, even if in the short-term energy prices fall after the signing of a peace agreement. Therefore, the play is to go long companies that produce these essential commodities. Maelstrom’s stonk portfolio holds large positions in US-listed energy producers.

Going long energy pays off in almost all scenarios, and it is trading relatively cheap vs. the companies that require it to exist. Now I must focus on the assets whose valuations depend on cheap energy.

Can the AI complex continue to rip at $150 oil? Doubtful. Therefore, à la poubelle with my AI stonks.

If all marginal capital busted their proverbial nut into the gaping hole of AI stocks, then when these stocks fall rapidly, investors cannot purchase crypto even if it outperforms in a relative sense on the way down. Therefore, à la poubelle with any crypto that is not a structural core position. I dumped $HYPE, $NEAR, and $WLD last week. I also dumped $ZEC because of the Orchard Pool bug. I wish I didn’t have to do that, but capital preservation is more important than capital appreciation.

That leaves Bitcoin and Ether. Ether is dead but functional. I have no immediate large capital demands that require liquidation of my Ether, so it shall stay unmolested. Because ultimately, I believe that once the AI bubble pops, it will cause a financial crisis that will usher forth the Big Print, I am confident that Bitcoin will dump then pump. I shall hold through the tempest but take some cheeky tactical short positions using derivatives in order to satiate my desire to trade. I’m still a certified degen.

Finally, if I awaken from my dream and find reality much the same, then I just took profit before my pilgrimage to Mediterranean house dance clubs. I can revisit the markets and the outcomes of my predictions in early September and buy back in at higher levels. Without the pressure from LPs to generate arithmetic returns annually, Maelstrom can focus on geometrically compounding capital over the long-term. As such, we have the luxury of investing in both the dream and the real world.

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^[1] IRGC - Islamic Revolutionary Guard Corps

^[2] AOC - Alexandria Ocasio-Cortez

^[3] DOGE - Department of Government Efficiency

^[4] FDV - Fully Diluted Valuation

^[5] RMP - Reserves Management Program aka Stealth Quantitative Easing

(Any views expressed here are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)

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The seductive sensation of expectation permeates my body as the incipient bull market gently caresses my soul. As I jubilantly press the buy button, I know speculative excesses will propel my portfolio to new heights … at least until the maddening crowd awakens from its drunken reverie to reel in its optimism of a more glorious future and the physics of gravity reasserts itself over human financial markets.

The future, as foretold by the gaggle of cheerleaders this time around, is replete with AI agents running amok, producing a thought to be unlimited economic bounty. The new masters of the universe, American and Chinese tech bros, build a substrate from which AI emerges into existence. Ensconced in their silicon encrusted palaces in San Francisco and Hangzhou their companies hoover up all available capital to build heaven on earth, at least for their shareholders and The Party, and when capital becomes scarce berate the political class of this era to support the printing of dollars and yuan to further extend their prowess.

An orgy of construction focused on creating an AI utopia is not the only raging party. Another type of bro revels in the erection of a global edifice of death. Why should Pax Americana be the only purveyor of pain? Their glorious nation requires the most badass means to exterminate the enemies of the state because one cannot rely upon the mercurial permanently tanned emperor to rush to the assistance of his supposed allies. Therefore, it is essential to build bombs using printed money and conscript young men to face death for the glory of … I don’t know what.

And we are those unfortunate souls who under-invested in the production of the necessities of life but gorged instead on the debt and equity of the empire. Their dollar savings were ‌of dubious value when the arteries of trade became clogged as the dark durka towel heads misbehaved. The decision to outsource the production of life’s necessities will produce possible famine and social unrest. The plebeians shall seek redress in the streets by placing the heads of pompous politicians on spikes.

The politicians and their wanker banker lackeys have three valid, in their minds, reasons to support unrestrained money printing either by the central or commercial banks. Catalyzing the decision to allow credit to flow faster than before is the ongoing war between America and Iran. The war, apart from being yet another sad episode of death and destruction between old men who have different ideas on how to rule their plebes, clearly shows that the use of AI and drones are the future of warfare and no nation can depend on the goodwill Pax Americana to defend the free flow of essential commodities around the world. Regarding AI, the view inside both America and China is that their nation-state must “win” the race to host the most machine intelligence within their borders or face a permanent defeat. Therefore, AI supremacy directly relates to national security. For everyone else, the ability to obtain food and energy under any circumstance requires the construction of redundant pipelines and other infrastructure paired with the stockpiling of fertilizer, food, and energy, not US treasuries and equities. The intersection of these themes, at least until the next US presidential election in 2028, will produce the political will to allow unchecked fiat credit creation. The bull market began in earnest when the US attacked Iran on February 28th.

Let this essay permit the bull in your soul to emerge out of its cocoon and fly towards a profitable future, even as many untouchables in the global south, because of the wartime disruption in the flow of essential commodities, starve to death in the shadows where mainstream media refuses to shine a light on.

AI Optimism

The CAPEX built out to support the training and inference of AI models and agents is unprecedented in civilized human history. Many argue that this investment in intelligence is different in terms of the value it will create for humanity than all other technological build-outs. I agree; however, as humans, we always overdo it. In this universe, infinity and perfection are unobtainable. Therefore, we can build too much in ‌anticipation of a future powered by machine intelligence.

AI-promoters invoke nationalism as a justification for spending insane amounts of money to build out AI capabilities by using the nation-state as a clever way to obfuscate the level of capital wastage. Patriotism should never have a price tag … oy vey. The presidents of America and China (Trump and Xi) both believe that AI and tech supremacy are integral to the survival of their fiefdoms. The tech bros in each squiggly line territory are more than happy to sell them a horror story of what happens to the glorious nation should the other side gain supremacy over machine intelligence. Objectively, both leaders witnessed how the proliferation of AI and drones can lead to victory on the battlefield, and bought into this fairytale hook, line, and sinker. As such, they will ensure that the number one goal of each country economically and militarily is to further the build-out of the most efficient machine intelligence instances within their nation-states. That means any backtalk from monetary policy makers about the inflationary effects of a massive expansion of dollar or yuan credit is verboten. Central or commercial banks will provide the capital the tech bros require.

In America, to date, most AI CAPEX has come from cash flow from operations of the most profitable software companies.

But the scale of current and future CAPEX spending now requires a growth in funding via the credit channel.

In China, Xi forced banks to stop funding the building of real estate and start funding tech.

Besides CAPEX related to data centers, both America and China continue to pump money into an increase in electricity generation.

This is not just a story of commercial banks doing their patriotic duty to lend to anything related to AI and data center build-out. Both the Fed and PBOC are creating more units of fiat, loosening financial conditions.^[1]

The combination of the political will to win the AI race and the financial will to fund the build-out with printed money and bank loans produces the perfect environment for crypto. There will be vastly more units of fiat tomorrow than today, and the rate of change is accelerating due to rapidly increasing yearly AI and electrification CAPEX expenditures. As the cost per unit of intelligence declines, the complexity of models and tasks performed by AI agents increases. Which means the consumption of compute increases exponentially; this is the essence of Jovan’s Paradox. Add to that, the Red Queen Effect, which describes how AI CAPEX spent by one company depreciates rapidly as the model efficiency and complexity of their rivals increases.^[2] This results in a race to further increase CAPEX to create better frontier models to beat your competition, which renders their hundreds of billions and soon to be trillions of dollars spent obsolete as well. Because of these reasons, AI CAPEX spending will expand indefinitely unless checked by an exogenous market event.

When does the orgy end?

There are two events that I believe will occur almost simultaneously and produce a change in opinion about the necessity of spending trillions of dollars on an AI build-out. The first is an IPO or mega merger in the US or China related to tech and AI that is so big and financially irresponsible that the market cannot digest it. This will snap the market out of its manic phase. Folks will finally start asking whether greater machine intelligence is worth the amount of money being spent developing it. Once enough humans ask questions, the jig is up. The second event will be the rhetoric of the Team Blue Democrat challenger in the 2028 US presidential election. The inflation that this mega AI build-out causes in raw materials, labor, and most importantly electricity is not very popular in many parts of America. Also, 90% of Americans don’t own a lot of stocks, so they will not benefit from the surging share prices of AI and AI-adjacent companies. Politically, it is easy to run on an anti-AI platform focused on bringing back value to human labor and curtailing the inflationary impacts of the AI CAPEX build-out. Whether a Democrat wins is irrelevant; the popularity of this message will make capital allocators ponder a future where ‌credit stops flowing to AI by government mandate and regulations on AI dampen the future profitability of companies in the space.

But in the here and now, dollar and yuan liquidity will continue to rise. And Bitcoin and crypto will benefit.

Every Nation-State for Itself

Trump bombed Iran with no care for the impact the war would have on the global economy. Maybe he does care, but the assumption of a speedy victory over Iran in this year’s special military operation proved wildly optimistic. America possesses a Christian god given bounty of dead dinos and fertile farmland. Stuff might get more expensive, but no American will starve if months from now the Strait of Hormuz remains partially shut. They’ll starve if the politicians decide to spend more in Fallujah than on food stamps. The plebes in Europe, Africa, and most of Asia ain’t so lucky. But unfortunately for these nation-states, their political elites erroneously believed that American politicians would take their food and energy poor predicaments into consideration when deciding whether to start yet another middle eastern war which threatened to stymie the flow of essential commodities from the region to their global customers.

These nations, trusting America had their back, made investment decisions that meant they saved their surplus in dollar financial assets rather than build pipelines, trade routes, or stock essential commodities for a rainy day.

Marco Papic from BCA Research put it best:

This is a big problem for the rest of the world as the entire planet is – quite literally – wired for American hegemony. Let’s look around the world:

Why is German defense against Russia inadequate? Because… America.

Why do most GCC countries have barely any energy transportation infrastructure with which to avoid shipping barrels of crude through Hormuz? Because… America.

Why is so much of global manufacturing centered on China? Because… America.

Why does Australia get its kerosene from South Korea? Because… America.

Why does so much of Canadian infrastructure rely on US demand? Because… America.

The physical infrastructure of the planet – energy, defense, transportation, manufacturing, etc. – is quite literally built with American geopolitical hegemony in mind. And this is not just about the US maintaining its massive current account deficit – a vestige of its Imperial magnanimity, which treated Canada’s, China’s, and Costa Rica’s imports the same (Chart 12). It is also built on the assumption that US defense spending is enormous because it underpins the globe’s geomacro context (Chart 13). In other words, the world is as it is because America desires it and will fight to defend it.

That Bangladeshis are going to starve to death because of a smaller harvest because of lack of fertilizer shipped to them from the Persian Gulf, or the Australian Prime Minister had to get his eagle on in Singapore to obtain jet fuel after their only supplier, China, stopped exports, or Euro-poor-eans now import expensive US refined petroleum products and LNG rather than cheaper Russian or Qatari hydrocarbons, means that sovereign investment decisions will change drastically. There is no point in owning a US treasury or S&P 500 ETF when you cannot obtain food and energy because of a war you didn’t start and with which you disagree. To rectify these inadequacies, in the future sovereign nations will, on the margin, liquidate dollar assets to spend their capital on infrastructure, defense, and the stockpiling of essential commodities.

Pax Americana requires financial tribute from foreigners to balance its books.

This is a problem for Pax Americana financial markets because of the large foreign ownership. Left unchecked, the slow liquidation of dollar assets will cause markets to fall. And given that the empire finances its gargantuan current account deficit with foreign capital, it creates the possibility of an acute financial crisis.

US Treasury Secretary Buffalo Bill Bessent and other monetary policy makers understand this. The two popular policy options to ameliorate the situation are to encourage the use of dollar swap lines and or alter banking regulations to nudge them into holding more treasuries on their balance sheets.

If a friendly nation requires cash to invest in the necessities I described earlier, the Fed or Treasury can lend it to them via a dollar swap line. Now, said nation doesn’t have to actually sell any dollar assets and dampen the market; they just borrow against them. The UAE used these arguments why it deserves a dollar swap line. These lines of credit, when used, expand the amount of dollars in existence.

Bad Australia - They sell treasuries to buy jet fuel.

Good Australia - They borrow dollars from the Fed and buy jet fuel.

If the US markets require more juice to counter the persistent selling of sovereigns, banking regulations can be altered so that they can hold larger balances of treasuries and US stocks for a given amount of equity capital. The relaxation of capital charges on various types of financial securities pursuant to the eSLR is a step in this direction.

The best practice of saving economic surpluses in dollar assets began in the 1970s with the petrodollar arrangement between the US and Saudi Arabia^[3] and moved into hyperdrive after the Asian Financial Crisis in 1997-1998.^[4] But today, owning a dollar asset doesn’t ensure you can obtain a shipment of fertilizer or oil. You had better have invested in production at home, or financed the construction of infrastructure in neighboring countries to obtain the essential commodities of civilization. Just-in-time logistics is dead, long live just-in-case. This is a structural secular trend that will be with us for decades. Which means that whoever is in charge of Pax Americana’s monetary policy must on the margin leave financial conditions looser than they otherwise would have to plug the hole of foreigners ploughing their savings into physical infrastructure and commodities rather than fugazi dollar financial assets.

Higher for Longer

War is inflationary, and the US-Iran special military operation is no different. AI CAPEX and just-in-case infrastructure buildout and commodity stockpiling is the excuse for increased central and commercial bank lending. The politicians support this money printing out of real and perceived necessity. That is why Bitcoin post-February 28th is outperforming the other major risky assets such as gold and US tech stocks.

Post-war performance of Bitcoin (gold), Nasdaq 100 Index (magenta), IGV US (white), gold (orange)

Bitcoin bottomed earlier this year at $60,000, and with a tailwind of trillions of dollars and yuan yet to be created at its back, retaking the $126,000 is a foregone conclusion. Many haters will refuse to participate in this Bitcoin rally because it underperformed tech and gold substantially over the last twenty-four months. Many cannot fathom why Bitcoin is even relevant anymore as a hedge against wanton money printing. But it will demonstrate its sensitivity to an expansion of fiat liquidity. I expect the rally to intensify and the haters to cower in the corner as Bitcoin’s upward price trajectory turns explosive after punching through $90,000 where many call over-writers will rush to cover as their strike gets taken out. I have no fucking idea how high Bitcoin can go, but I will take Maelstrom’s portfolio to maximum risk ‌unless anything drastically changes. The politics in the US will turn very nasty towards AI and inflation going into the November mid-term elections. This might be a slight speed bump in the rally. But riddle me this: higher oil prices don’t hurt Trump as much as people think. MAGA was always going to lose in California where their fucked-up energy policies create some of the highest gasoline prices in the nation. But $100 crude oil and the rebuilding of infrastructure in the Venezuelan and ‌Middle Eastern suzerainties benefit the oil and gas sector in states where Trump’s base resides. Polymarket puts a Democrat sweep of control of both houses of Congress at 50%, but even with a nonsensical war against Iran, Trump still has time to win over the median American to vote Team Red Republican if more money is going into their pockets. So drill, baby, drill, and S&P 500 to 10,000!

It’s time to shitcoin. Apart from Hyperliquid ($HYPE) and Zcash ($ZEC) where our position is large enough, my next favorite shitcoin is $NEAR. My next essay will explain our thesis on why the privacy narrative combined with Near intents will create a positive cash flow situation for the protocol. This will flip the script on the disastrous price performance of the token and create an opportunity to bag some serious pump to the upside as the token quickly marches towards its all-time high from many years ago.

It’s a bull market; close your eyes and press the button. There will be a time to sell, but it ain’t right now. Don’t fuck this up. Let’s degen.

^[1] Fed - Federal Reserve; PBOC - People’s Bank of China

^[2] A research paper entitled The Economics of Digital Intelligence Capital by two researchers at Chinese University of Hong Kong and the University of Macau discusses this phenomenon in great detail.

^[3] In exchange for a security guarantee from America, Saudi Arabia promised to price its oil in dollars and recycle its savings in dollar securities.

^[4] The lesson from this crisis was that nations must stockpile dollar assets so that they can defend their currencies against sharp depreciations and purchase goods priced in dollars in times of stress.

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Because Maelstrom’s trading went quiet in the first quarter, many of our brokers occasionally ping me asking my thoughts on the market and if there is anything they can do for us. I reply, “It’s a no-trade zone”. Apart from slowly increasing our long position in Hyperliquid, we did fuck all trading in the first quarter. Two developments combined to produce a trading dead zone, at least for our long-only positioning. The proliferation of agentic AI’s or claws, will destroy the career prospects of the average knowledge worker in flexible-labor advanced western economies (mainly Pax Americana), which will cause a deflationary financial collapse. I wrote about this in my essay, “This Is Fine”. Since the publication of that essay, to turn Iran into the latest Trashcanistan, Emperor/Entertainer in Chief US President Donald J. Trump launched a war of choice against Iran with support from his belligerent bedraggled backup singer Israeli Prime Minister Benjamin “The Bedouin Butcher” Netanyahu. Almost seven weeks into the war and the only question that matters are what arrangements will prevail regarding commodity and goods flows through the Strait of Hormuz.

I always preface my opinions on war or geopolitics with the statement that I am a simple ski bum and house music two-steppin’, crypto bro. I don’t know shit about war fighting or have any insider knowledge about what global leaders will or won’t do. But I can read the dominant propaganda narratives and employ my AI agents to conduct simple maths using publicly available information. I try to abstract away the noise and focus on what is important for my portfolio. Thankfully, I don’t live in the Levant ‌or the Middle East; therefore, my life and liberty aren’t at risk.

In my simplistic worldview, there are three scenarios to consider; actually, there are four, but the fourth; nuclear Armageddon is un-investable and therefore there is no point writing about it. I will present each, and then dive into, at a high level, how they could affect the price of Bitcoin. I do not know how probable each situation is. But what I want to understand is whether there is a portfolio construction that outperforms in the best case the price of hydrocarbons and their first derivatives like food and fuel prices absolutely, and in the worst case underperforms the price of hydrocarbons but outperforms relative to every major asset class.

Scenario One: Back to Normal

In this scenario, the war ends immediately, and the pre-war status quo returns. However, the secular trend to replace expensive digital symbol-manipulating knowledge workers with cheaper and more efficient AI agents continues unabated. The American economy is the most exposed because its GDP is ~70% driven by consumer spending. Consumers finance their materialism using bank credit, and these loans become assets on banks’ balance sheets. Should the ability to service debt by the average knowledge worker evaporate, these banks will become functionally insolvent, requiring a large dose of central wanker banker printed money.

Scenario Two: The Tehran Toll Booth

In this scenario, the US military is unwilling or unable to stop Iran from restricting the flow of ships through the Strait of Hormuz. Iran makes good on its promise to allow “friendly” ships to transit the Strait by paying a $2 million toll in Chinese yuan, crypto, sanctioned dollars, or other diplomatic arrangements. In the worst case for Pax Americana’s financial hegemony, nations must now come up with yuan. Given that most countries run a trade deficit with China, the only way to raise yuan in significant size is to sell dollar assets (e.g. US Treasuries and or US big tech stonks), buy physical gold, and sell the gold via the Shanghai or Hong Kong gold markets for yuan. Of the top ten largest economies by GDP, only Brazil and Russia run a trade surplus against China, and these are the ninth and tenth largest economies.^[1] In contrast, Pax Americana runs the largest trade deficit of any economy, which is financed by an equally gargantuan capital account surplus. However, as countries sell down their dollar assets to raise yuan and or cover commodity shortfalls in the spot market at egregiously high prices, the empire’s capital surplus must mathematically fall. The financialized American economy requires foreign capital to finance its government spending; without it, the maths don’t add up. Eventually falling bond prices or rising yields, and falling equity prices will require an injection of printed dollars to fund the government.

Scenario Two Point Five: The Star-Spangled Blockade

In an interesting turn of events, after the failure of the American and Iranian negotiators to come to a deal that would cement a permanent ceasefire, on Sunday, April 12th, Trump announced the US Navy would block all ships entering or leaving the strait. Maybe this blockade will develop into the Robber Baron Toll, where ships must tithe twice followed by chanting Allu Akbar and Halleluiah to the Iranian and American wise guys. Or maybe there are so many ex-post exemptions issued to this or that nation that the blockade is merely a piece of moldy swiss cheese. The point above still stands, if holding dollars cannot guarantee pirates won’t tank your shit, why hold them at all?

Scenario Three: The Empire Strikes Back

In this scenario, the US Airforce & Navy do what they are supposed to do and destroy the ability for the IRGC to interdict shipping in the Strait of Hormuz via a punitive stand-off bombing campaign.^[2] The Strait re-opens and any ship can safely transit for no additional fee. The restoration of the supremacy of the mighty empire removes the need for countries to use any other currency except the dollar, nor bid for expensive commodities in the spot market, at least for a few days. The problem is that ending Iranian control of the strait most likely means the complete destruction of the country. Or, as Trump puts it, “sending them back to the Stone age”. Many blood thirsty Americans who grew up from birth being fed propaganda that Iran is the most evil country on earth, cheer this macho posture towards enemy numero uno. However, destroying Iran in this fashion means in Iran’s last gasp, they will make good on the promise to take the rest of the Gulf region’s commodity and energy production to the grave with it. The spice definitely won’t flow and global central banks will have no choice but to print money into a general commodity spike to save the global financial system.

If you live in certain shithole countries, the domestic currency will hyper-inflate against the dollar or ruble. America and Russia will be the only large swing producers left who can fill the gap left by a smoldering Middle East. There will be famine and general social unrest. So, while your Bitcoin might be worth infinite units of some toilet paper fiat currency, your wellbeing is at serious risk if you cannot flee in time.

Before I move on to how Bitcoin fares in each scenario, let’s quickly step through some chart porn to provide pictorial evidence to corroborate my prose.

Scenario Chart Porn

Back to Normal

Given that I wrote about this scenario at length in my essay “This Is Fine” let me repost some charts and tables I provided in that essay:

In summary, the AI agentic deflationary bust is up there in severity with the 2008 US subprime mortgage crisis.

Consumer credit delinquencies are already rising, and the pink slip party hasn’t even started in earnest yet.

The Tehran Toll Booth

Essentially, if this scenario occurs, it is the end of the petrodollar and the rise of a new global reserve currency or a basket of them. Currently, the IRGC is very flexible on payment terms. But if they cement their power over the strait, why would they continue to accept a toll in dollars given that the US is doing everything it can to restrict their ability to spend them? Ultimately, I believe they will not allow payment in dollars. The yuan and gold will most likely become the two primary currencies of sovereign trade.

Why would any nation save in dollars if they cannot ship goods without paying a toll in yuan obtained by purchasing gold? Given that most major economies run trade deficits with China, the only way to raise yuan is to sell dollars, buy gold, and then purchase yuan. From now on, nations must save trade surpluses in gold, not US treasuries or equities.

To highlight how the yuan’s use in trade is growing, I want to focus on a few charts posted by Luke Gromen that show how a pseudo yuan-gold standard is quietly emerging.

Step 1: Sell dollar assets (treasuries) and buy gold

Since the war began, on a net basis, foreign securities holdings with the Fed fell $63 billion. I’m using this as a proxy for the directionality of foreign holdings of treasuries and other dollar securities like stocks.

What did sellers do with these dollars?

Non-monetary gold is the biggest US export for the fourth month out of the last 5 months, up 342% YoY.

They used these dollars ‌to buy gold and ship it out of America. So much for the resurgence of American manufacturing; the only thing leaving America is a barbaric relic. Soz to all the Trump supporters who thought they would get their highly paid factory jobs back. Yet another US Presidential cycle resulted in blue-collar workers receiving a non-consensual ass-fucking sans lube.

Step 2: Sell gold for yuan

Swiss refineries receive US gold to recast into bars suitable for delivery to China.

Step 3: Pay the Tehran toll

Buffalo Bill Bessent is deadly serious when he says, “It puts the dollars on its skin or it gets the sanctions again”. Because of US-imposed sanctions from almost fifteen years ago, Iran cannot use the SWIFT payment messaging network. To move yuan into the IRGC’s dirty paws requires the usage of the Chinese fiat CIPS messaging system. As you can see, volumes materially increased after the war began.

This series of charts shows a flow of dollar asset sales leading to gold purchases, which ultimately fund yuan payments to Tehran or other suppliers. It doesn’t matter that the dollar is still the dominant currency used in trade. Markets are forward-looking, and therefore the acceleration of the yuan’s use in global trade is more important than the low absolute usage amounts versus the dollar. By shunning dollar assets before the consensus accepts that a new currency regime exists, investors protect their portfolios. The Great British Pound technically was the global reserve currency until the Bretton Woods Agreement in 1944, but the dollar realistically supplanted the pound as the global reserve currency in the early 20^th century as the American economy became the most productive globally. In 2026, America runs a trade deficit with the most productive economies: China, Japan, South Korea, Germany, Taiwan, etc. And most nations run a trade deficit with China. I say again more emphatically, what’s the fucking point of saving in dollars if you gotta pay those stone-aged towel heads yuan to receive your shit?

The Star-Spangled Blockade & The Empire Strikes Back

To answer the question of whether the strait is open or closed, look at the above or a version of this chart you can produce using your favorite charting service. On the top panel, the chart shows the May (CL1, white) versus October (CL6, gold) 2026 WTI futures prices. I used WTI because this benchmark is most relevant to American consumers of gasoline. Trump will only materially deescalate if gas prices remain high for voters going into the November midterm elections. The bottom panel is the spread between the two contracts (back minus front month); the curve is in backwardation. Because back-month oil prices haven’t risen as high as the front-month, the market believes enough oil flows through the strait will materially increase. If this happens, the spread will rise because front month prices collapse. But if the spread narrows because back month prices rise, then all hell will break loose in the global economy. Ignore all of the back and forth trolling between Trump and the IRGC, and focus on this chart.

Quantity versus Price of Money

The two-year treasury bill yield (white) spiked much higher than the effective fed funds rate (gold) right after the start of the war. This showed the market believed the Fed would raise rates to counter rising energy inflation.

It’s time to pick a side. Do you believe the quantity or the price of money is more important when valuing Bitcoin? I believe the quantity of money determines the price of Bitcoin, not its price. Bitcoin has no cash flows, so the discount rate derived from central bank policy rates is irrelevant to valuing the magic internet money. But given Bitcoin’s fixed supply, its value in fiat terms depends on the total amount of fiat in existence.

It’s important to take a view on this because I believe we may enter a situation where the largest central banks, including even the Fed, might raise interest rates but simultaneously print money either directly or via the commercial banking system. As food and energy prices spike because of the war, politicians who can afford it will subsidize the prices of the primary input costs to their economies. Failure to do so could cause social unrest or famine. But so that inflation does not take hold across all goods and services, central banks must destroy demand by raising interest rates to curtail activity in credit-sensitive parts of the economy. Any entity that borrows money to spend on goods and services will spend less if the cost of credit rises.

If central banks stopped there, then my Bitcoin prediction would be straightforward. In an environment where people spend less on everything other than food and energy, Bitcoin prices fall. But every nation state whether friend or foe of Pax Americana, must increase defense spending and stockpile all important commodities. Do you want your country to be like Australia, which imports almost 100% of its refined hydrocarbons from China? China stopped all exports at the beginning of the war, and Australia possessed less than a month’s worth of reserves. They had to beg Singapore, and pay, I’m sure, an exorbitant amount, for jet fuel; otherwise, all those bogans would remain down under … indefinitely! I know some of you would rejoice in that outcome, especially Japanese skiers.

Building bombs, especially nuclear ones, to protect yourself from becoming a Trashcanistan at the hands of the Skinny Tie Prophet, and stockpiling commodities will require a dramatic increase in government borrowing. If ‌domestic private investors cannot or will not buy these dog shit government bonds, the central bank and or the commercial banking system will print money and buy the bonds instead, which increases the supply of fiat.

This dynamic of rising central bank policy rates coupled with an expanding supply of money will create disparate risky asset price outcomes. Assets valued on discounted cash flows will slump as the price of money rises. Fixed or near-fixed supply assets like Bitcoin and gold will rally because central and commercial bank credit increases to fund ‌government war and commodity stockpiling efforts.

Keep this dynamic in mind as you read my prognosis for Bitcoin under the various scenarios. You must form a view on whether the quantity or the price of money is more important. Otherwise, you won’t be able to make sense of what appears to be incongruous price action of different risky assets.

Back to Normal

Bitcoin might bounce a bit after the situation reverts to the pre-war status quo. However, the AI agentic deflation bomb still ticks below the surface. Until the Fed provides the liquidity needed to plug the black hole in banks’ balance sheets caused by consumer credit defaults, Bitcoin will not meaningfully rise. That’s not to say it couldn’t spike to $80,000 to $90,000, but for me putting new units of fiat at risk requires an all-clear from the Fed. Given I’m giga long already because I operate a long-only book, I’ll feel better looking at a higher net worth number on the screen but the risk reward is not there to back up the fucking truck and shift the portfolio to maximum risk levels.

I don’t know how long it will take for the banking system to crumble. But every week I read stories about this or that firm firing a material number of knowledge workers because AI agents are more productive than the average human, and other stories about rising consumer credit delinquencies.

Here is an anecdotal story. I recently caught up with a fellow entrepreneur who runs a successful crypto-gaming company. He is an OG. We began talking about how AI affects his business. A computer engineer by training, over the 2025 Christmas holidays, he sat down with the newest Claude model and tried to create something. He was so surprised by how quickly he could churn out shippable code that he brought his best engineers to a company offsite to discuss how AI will affect the business a few months later. He tasked them with creating an agentic workflow that allowed agents to code 24/7. They automated everything down to code-review so that when they woke up each morning, there was usable, tested code ready for the senior engineer to review. One person shipped his six-month roadmap in four days all by himself, supported by a team of AI agents. My friend decided after this offsite that his company had to change its workflow immediately. As a result, 50% of his staff will go the way of the dodo in the next few weeks. In the AI agentic age, the average engineer is superfluous, but using AI agents, the rock stars will get 10-100x more productive.

As the models obtain more specific domain expertise, all mediocre knowledge workers are at risk of losing their jobs. Unfortunately, even though there is unemployment insurance, the median US state maximum annualized payout for workers is ~$28,000, which pales compared to the median knowledge worker wage of $85,000 to $90,000 according to the BLS and St. Louis Fed. There is no other choice but to fall behind on consumer credit payments to banks. It’s game over for the fugazi fiat fractionalized banking system.

Bitcoin (gold) versus US Software SaaS ETF IGV US (white)

With all that being said, post the ceasefire, US SaaS software stocks resumed their down-only swoon, but Bitcoin held the line and rallied. This is a welcome break in the correlation, but for me, it is too early to declare that Bitcoin looked through the AI-related knowledge worker deflation and forecasts a big print.

Tehran Toll Booth

As nations sell down dollar assets to raise yuan and pay the toll, treasury and stock prices will fall. This might be a slow process because, as of right now, there are other payment options other than yuan. But because of the leverage embedded in the system, a small snowflake falling can cause a financial avalanche as selling begets more selling, volatility rises and markets freeze. Then the monetary mandarins must step in with printed money. The key index to watch in the MOVE Index, which measures US bond market volatility. When the index rises above 130, some form of money printing will occur.

As volatility rises, big US tech stock prices fall, and Bitcoin will have a hard time meaningfully rallying. As investors de-risk their portfolios because of higher volatility and lower prices, investors sell Bitcoin to meet margin calls. Only when things get bad enough will Bitcoin rise, as expectations of a bailout become the consensus.

Wait for Bessent and or whoever is the Fed chairperson to press the Brrrr button. The risk-reward for attempting to front-run this situation isn’t worth it. I hope that during any generalized TradMarket financial crash Bitcoin can hold $60,000. If Bitcoin tests and holds this level for the second time, then on balance I would favor adding risk.

The Star-Spangled Blockade & The Empire Strikes Back

As back-end oil futures prices rise quickly, catching up with spot or front month prices, the global economy will suffer. At some point, ‌demand destruction will spank treasury and US stonk prices. Just like in the previous scenario, the initial reaction is for Bitcoin to fall. And once the over-leveraged Western financial system implodes, money printer go Brrrrr. If the blockade ultimately ends via a punitive bombing campaign of Iran followed by an Iranian destruction of all Persian Gulf energy production, this could lead to the destruction of the Iranian state. The rally in Bitcoin, inspired by money printing, might be short-lived because the destruction of the Iranian state materially raises the prospect of WW3.

Portfolio Construction

As an un-levered long-only investor, Maelstrom can let time and compound interest do their thang. The slight outperformance of Bitcoin over IGV US over the past few days is very encouraging. It will inspire me to reevaluate my bearishness on the price of Bitcoin as the AI knowledge work created financial deflation accelerates. The only asset I’m comfortable adding risk to at the current moment is gold and $HYPE (Hyperliquid’s governance token). HIP-4 will launch in a few weeks, and I predict this will take significant market share from Polymarket and Kalshi in the prediction market vertical.

Other than that, I shall pray daily to Lord Satoshi that they can infect the minds of our global class of political elites and convince them to drop acid, not bombs.

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^[1] Trade data used from 2024 to 2025.

^[2] IRGC - Iran Revolutionary Guard Corps

(Any views expressed here are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)

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Lift, glide, step.

Lift, glide, step.

Time to switch back, plant, pivot, raise, kick, plant …

Lift, glide, step.

Into the frozen forest and up the steep volcano we go. It’s just another day of ski touring meditation. Encased in the quiet of a snowy forest, my thoughts roam free. It’s amazing what you can create when your conscious focus is on putting one ski in front of the other thousands of times as you slowly ascend a volcano. I love three months of quiet.

The body and mind crave rest and recovery, which during the ski season means trips to an actual resort. On a resort day, I trade sticky skins for a mechanized chair that ferries one up hundreds of vertical meters in mere minutes. Chairlifts and gondolas are great, but sometimes I must share my silence with others.

I’m not very talkative inside a gondola. I sit quietly in the corner, but invariably there are many ski resort yahoos that enjoy striking up conversations with random strangers to pass the time.

The questions are innocuous but allow my interlocutor to place me somewhere on their social hierarchy schema. Invariably we get to the question of what I do, because it seems quite odd that I’m a ski bum who isn’t a professional guide or instructor. I respond politely but offer no meaningful information to that question with, “I do computers.” The great thing about tech jobs is everyone assumes you made some money somehow but can’t delve deeper because they barely understand how electricity works; let alone all the crazy things one can do with a “computer”. The conversation naturally tapers off from that point, and thank Lord Satoshi that it’s time to dismount and shred.

What do I or we at Maelstrom actually do? We are hype men that monetize attention. Monetization occurs by profiting from mostly long and rarely short positions in Bitcoin and various shitcoins. By bringing attention to our point of view, we believe that, on average over time, the market will validate our thesis. Right now, focus your attention on Hyperliquid (token: $HYPE).

I don’t like going short because your maximum gain is 100% unlevered and maximum loss is infinite. I strive at all times to be long convexity, not short; therefore, I’m always net long the market. In these tough times, with Bitcoin breaking decisively through its previous all-time high, is there a high-quality shitcoin that can rise in absolute terms? Yes, because in every crypto sideways or bear market, the best performing shitcoins are exchanges. Exchanges continue earning fees when prices are down, sometimes more than when prices are rising, especially if they participate in the secular growth of DEX trading volumes.^[1]

The exchange shitcoin darling of the last sideways to down market in early 2023 was GMX. GMX hit an all-time high of $90 in April 2023. Why? Because at the time it dominated the perp DEX volume leaderboards. OI and trading volumes grew rapidly, which propelled protocol revenue higher, and most importantly, a large portion of said revenue flowed to GMX token holders.^[2]

While the consensus outlook for fiat credit creation shifts from growth to contraction, what exchange token can pump?

Taken from DefiLlama on March 7th, 2026.

Hyperliquid, the dominant perp DEX, is the largest revenue-generating project that isn’t a stablecoin.^[3] 97% of this revenue is used to buy back $HYPE tokens from the market. No other project in all of crypto hands as much money back to token holders as Hyperliquid. There isn’t a Tether or Circle shitcoin that one can hold and receive a portion of their net interest margin, unfortunately. Therefore, if the market believes that $HYPE can continue syphoning volumes away from CEXs and add new features to accelerate revenue growth, then $HYPE can pump in absolute terms. My August 2026 target price for $HYPE is $150, which is roughly 5x higher than its current price of ~$30 at the time of writing this essay.

To get from Hell to Valhalla requires Hyperliquid to grow 30-day revenues to an annualized run rate of $1.4bn which it hit previously in August of last year. In order to contextualize the rest of the essay, I will start by posting the financial model below.

The key assumptions that I must validate are the P/E ratio and the monthly $HYPE team token distribution.

P/E (Price / Earnings) = (Circulating Supply * Price) / (30-day Annualized Revenue * Buyback Rate)

My model calls for an increase in revenues from HIP-3 and non-HIP-3 sources from a March total of $843m to an August total of $1.4bn. I will explain how Hyperliquid can regain its all-time high 30day annualized revenue run rate in the face of increased perp DEX competition. The last piece comes down to estimating how many $HYPE tokens the team will receive each month, using the past three months’ history of such transactions as a guide.

Sanity-checking the model under different scenarios is always useful to increase confidence that my assumptions are reasonable. I will stress a few of my assumptions to the downside to ascertain how much Kool-Aid one has to drink to believe in my $150 July price target.

CEX vs. DEX

The best thing about Hyperliquid is that to grow trading volumes doesn’t require an increase in the global trading volume of crypto perps. If a few percentage points of CEX perp volumes migrate to Hyperliquid, Hyperliquid can easily double its 30-day annualized revenue run rate in a matter of months. A 3.97% market share increase allows Hyperliquid to hit its $1.4bn 30day annualized revenue run rate. That is entirely doable, given that less than three years ago Hyperliquid didn’t exist.

It’s great that Hyperliquid can steal volume from CEXs, but what crypto derivative products will lead customers into Jeff’s loving arms?

Came for equity perps and binaries, stayed for Bitcoin, Ether, and Solana trading.

HIP-3 is the protocol that allows for permissionless listings of perps. If you stake 500,000 $HYPE tokens, you can create your own markets on whatever you like using the Hyperliquid matching and margining engine. TradeXYZ did just that, and their flagship products are perps on silver, gold, the Nasdaq 100, and the S&P 500. By the way, the silver and gold markets are less than three months old and are already trading hundreds, if not billions, of dollars per day. This is where price discovery will occur as the filthy fiat financial system changes the rules on the fly to smother the will of the people to be free of tyrannical statist money.

Screenshot taken 5 February 2026 at 11:20:00 UTC

In only four months, HIP-3 volumes account for close to 10% of total Hyperliquid revenues. Permissionless listings were always the holy grail of DEXs, and the rapid growth in trading volumes proves this is how Hyperliquid will differentiate itself from the pack. To grow Hyperliquid revenues by 66% from March to August will require HIP-3 to do the heavy lifting. This is especially true if the broader crypto market cap stays at these depressed levels. Hyperliquid must give traders something new and shiny to trade on-chain. Precious metals, AI stonks, and oil are what the plebes desire to trade. And now, using perps, anyone from around the world can trade 24/7 with higher leverage than TradFi exchanges offer. For these reasons, my model assumes HIP-3 revenue will rise 160% in six months.

The cherry on-top are prediction markets. Hyperliquid recently announced that HIP-4 will enable permissionless listing of prediction markets. I expect HIP-4 to launch within the next three months. The prediction markets that degens will turn to Hyperliquid for will be binary options and zero-day options (0DTE). It’s hard to predict how quickly revenues will ramp up pre-launch, which is why I didn’t include it in my model. Call it a bonus if the Hyperliquid team ships deliciously amazing code, as they have done in the past, that materially boosts revenues almost immediately.

Unfortunately, Hyperliquid is not the only game in town for perp DEXs. Competition is fierce because this is the next frontier of trading. The onslaught of low to no-fee perp DEXs reduced my forward multiple on Hyperliquid’s earnings late last year. What has changed since then to renew my belief that Hyperliquid’s dominance is unassailable?

真的吗? (Is it real?)

It is trivial to fake volume for a crypto CEX or DEX. At BitMEX, we used to joke about the volumizer; a program an exchange would turn on to generate fake trades to boost engagement. Many of the leading exchanges today routinely used the volumizer to claim they were the “largest” so that traders would assume that real liquidity was present. For DEXs, creating wallets to wash trade is trivial and the source of volumizing.

Liquidity farming is also a tried-and-true strategy to generate trader engagement. The DEX offers points or platform tokens based on a trader’s volume. Traders farm the token by engaging in wash trading between wallets.

Volumizing and liquidity farming do not deepen ‌real liquidity. Assessing with certainty the percentage of trading volume attributable to these activities is impossible. The only objective measure to rank exchanges against one another is to calculate the ADV/OI ratio.^[4] Because a trader must put up actual capital to margin an open position, OI tells us the degree to which real traders use the platform. ADV is easily inflated by volumizing and liquidity farming, but by deflating it by OI we arrive at a measure of organic volume driven by risk-taking traders. Therefore, the lower the ADV/OI ratio, the better.

Hyperliquid’s volumes are the most real out of the top 5 perp DEXs because its ADV/OI ratio is the lowest. As traders realize that the liquidity on these competing platforms is sometimes fugazi or the points/token farm is over, they will migrate back to Hyperliquid. Over time, Hyperliquid’s visible share of ADV will increase. This helps the narrative on $HYPE as a token impervious to competition. As many of you remember, one reason for my tactical short-term bearish stance on $HYPE was competition from low to no-fee perp DEXs. Hyperliquid is best in class in “real” volumes and as such I am no longer concerned about the competition, at least for the next six months.

The next thing to consider regarding competition is which DEX is actually the most liquid, considering execution slippage? I took a snapshot of the order books for Bitcoin/USD perps on all five platforms and calculated the slippage to execute a market buy and sell of notional $100k, $1m, and $10m.

As you can see, executing size on Hyperliquid most times is the cheapest. Therefore, even if the headline taker fee is one or two basis points lower on a competing platform, real traders will still flock to Hyperliquid as they can trade in larger sizes with minimal market impact.

I’m Rich Bitch!

The eleven-person Hyperliquid team shipped the best DEX product ever. Riches should flow to them via their ownership of locked $HYPE tokens. When Maelstrom wrote its bearish piece on $HYPE late last year, it mentioned fear surrounding the uncertainty of the total amount of tokens the team would dump into the market each month. Because Hyperliquid took no VC funding, it is really an internal political decision between Jeff and his team whether they will voluntarily decide not to sell recently vested tokens. They limited token sales.

After distributing close to 20% of awarded tokens in November and December of last year, the team distributed ~1% of awarded tokens in January and February. I imagine the high initial distributions were driven by the payment of taxes and upgrading team member’s lifestyles. With that out of the way, the team drastically reduced distributions in order to help $HYPE rebound. This is just my speculation. History doesn’t always repeat; it rhymes. In that spirit, I assumed the monthly distribution would match the average of the four months, which is 815,750.

Forward Looking

Markets are forward-looking. What will degens pay for future Hyperliquid earnings? Currently $HYPE trades at ~12 P/E. How does this stack up to TradFi exchanges:

To level set what is reasonable, I looked at the current P/E multiples for one of the largest exchanges in the world (Chicago Mercantile Exchange “CME”), the new-school cool TradFi degen broker to males with toxic masculinity (Robinhood), and the US state-captured crypto exchange (Coinbase). The P/E range is wide, from roughly 26 to 40. $HYPE trading at a 12 P/E is a steal. Part of that cheapness is because Hyperliquid is not a publicly listed stonk and therefore trades at a lower multiple because of smart contract and counterparty risk. Also, most major spot CEXs do not allow the trading of $HYPE tokens, so it is quite difficult for most to purchase. Therefore, it cannot reach asymptotic valuations like many shitcoins out there. But a P/E of 12 is ludicrously low. In a matter of a few months, Hyperliquid’s HIP-3 markets on stonk indices and precious metals became the price discovery mechanism for the weekends when TradFi exchanges like the CME are closed. I didn’t know computers needed to go to the golf course on the weekends. At a minimum, given the tides of change, $HYPE should sport a P/E roughly equal to that of the CME. Because I wanted my price target to be a number ending in a 0 or 5, I goal seeked the P/E given all my other assumptions to 25.2. The market will give $HYPE a higher P/E multiple as the platform revenue retakes its all-time high in the midst of broader crypto price weakness.

A note on market capitalization vs. FDV.^[5] I use the market capitalization which is lower than FDV because of the different circulating supplies. Market capitalizations use the currently circulating tokens, not some future end state like FDV. Given that this is a six-month trade, using the current market capitalization is appropriate. Yes, Hyperliquid could announce another airdrop, which could increase the circulating supply. Given that the Hyperliquid team hasn’t intimated an airdrop is imminent, I will ignore this risk and supply shock.

Sanity Check

Let’s stress the model to incorporate situations that terrify us.

What if the team receives 9,910,000 $HYPE tokens each month, the market only pays 12x for forward earnings, but Hyperliquid regains its all-time high of $1.4bn 30day annualized revenues?

The target price drops to $58 which is ~75% above the current price of $30. Not bad.

The reason I didn’t stress revenues downwards is that if Hyperliquid cannot grow revenues from here, the token won’t rise. If that’s your view, don’t buy $HYPE under any scenario.

$HYPE Man

Source: CoinGecko

I charted $HYPE/BTC because I want to show that the market woke up to the token’s value. As we all painfully know, unless you were short, Bitcoin fell dramatically since September of last year when $HYPE reached its ATH of almost $60. $HYPE reached a local low of ~$20 a few weeks ago. I believe the catalyst for the resumption of $HYPE’s ascent is the reduction of team token distributions from a headline 9,910,000 for the month of January to a paltry 140,000. In addition, as various points and token incentives sunset at competing perp DEXs, their attractiveness to traders quickly waned. What remains may or may not be real volume, but as I showed earlier, Hyperliquid is the cheapest place to trade based on orderbook liquidity.

At Maelstrom, we dipped our toes in the water in the mid $20’s. On the skin track, I thought to myself if the macro is figgity fucked for a while, what can I buy? What is the highest quality project that has real users, paying real money, and giving that money back to token holders? Hyperliquid is the highest quality project in all of crypto across these metrics. The act of researching and writing this essay increased my conviction. As the macro god himself Druckenmiller says, “Invest first, investigate later”. Therefore, $HYPE quickly became our largest liquid shitcoin position, and we intend to continue selling all other inferior projects to own more $HYPE while within this trading range.

Pay attention, bitches, to the $HYPE man!

P.S. Don’t be a bitch boi Kyle Samani and let’s bet!

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^[1] DEX - Decentralized Exchange

^[2] OI - Open Interest

^[3] Perp - Perpetual Swap, read my essay “Adapt or Die” about the genesis of this ground breaking financial innovation

^[4] ADV/OI - Average Daily Trading Volume / Open Interest

^[5] FDV - Fully Diluted Valuation

(Any views expressed here are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)

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At the behest of the most peaceful president in US history, Donald J. Trump, the US Department of War and OpenAI launched their offensive agentic AI weapon, a deadly new Apple iOS. This operating system, once uploaded to a nation’s cyber infrastructure, attempts regime change. Regime change most often comes complete with indiscriminate bombing of military and civilian infrastructure, causing widespread casualties, at the minimum cost of hundreds of billions, if not trillions, of dollars. The destruction of the partisan resistance allows the new US-controlled political elite to siphon money from ‌American taxpayers and their indigenous population, and deposit said funds into their JP Morgan private wealth accounts. Popular discontent builds against the American Middle Eastern Vichy-esque regime, culminating in the violent installation of a reactionary, usually repressive and blood thirsty, home-grown political structure. The sales cycle is complete, and OpenAI can flog off the next version. Aren’t you pumped for the OpenAI IPO priced at a forward P/E of infinity?

Pax Americana’s righteous crusade against Middle Eastern oil producers and or way-stations for geostrategic gas or oil pipelines has been going strong since my consciousness awoke and began imprinting experiences onto the quantum continuum in the human year of 1985. Feast your eyes on this beauty of a chart prepared using Perplexity’s new Computer model:

At a high level, it depicts the human cost of war, represented by the percentage of the US federal budget spent on Veterans Affairs (VA), the aggregate nominal level of federal spending, and the effective Fed Funds Rate. It is annotated with an illustrative, not exhaustive, list of US missile strikes or full-scale wars against Middle Eastern countries. As you can see, the cost to care for military personnel increased twice as fast as the federal budget, and most importantly to this essay, the Fed reduced the price of money right after a major Pax Americana initiated a Middle Eastern war of choice. As much as every US President that ruled during my lifetime tries to hoodwink the American public that their Middle East video game wars played out on evening television do not create misery for the only humans that matter in the Universe, American soldiers, the data clearly shows this obsession with military adventures in the Middle East destroys American lives in a costly manner.

My ovarian lottery ticket consigned me to emerge in the fictitious, squiggly line-defined landmass we humans call America. And over my forty years of existence, every single Team Red Republican and Team Blue Democrat President launched a missile strike or full-fledged war against some deserving shithole country in the Middle East. It’s as if once you become President high-ranking bureaucrats lead you into a super-duper secret room, put your testicles in a vice, and make you swear that at least one Middle Eastern country will feel the searing heat of democracy during your reign … or else.

Whether you believe the conspiracy theory du jour explaining why America is bombing such-and-such country, in my lifetime at least, the graphic shows that every US president since 1985 has engaged militarily with one or more Middle Eastern countries. Therefore, as President Trump coos about the apparent assassination of Iranian Supreme Leader Ayatollah Khamenei and endorsement of a popular revolution against the theocratic state, we investors must ponder what happens to our portfolios as Trump embarks on the rite of passage for every US president before him.

Given I’m just a simple-minded crypto bro infected with toxic masculinity, I adopt a very simple heuristic to determine whether Bitcoin number go up or down.

The longer Trump engages in the extremely costly activity of Iranian nation-building, the higher the likelihood the Fed lowers the price and increases the quantity of money to support Pax Americana’s latest bout of Middle Eastern adventurism.

To validate my hypothesis, let’s examine the history of Fed actions post a major Middle Eastern war from 1985 to the present.

1990 Gulf War - The Father (President George H.W. Bush)

The Fed held interest rates steady in the first meeting after the onset of the war, but intimated that if the war dragged on, monetary easing would likely be necessary.

I will quote directly from FOMC statements, which Perplexity fetched for me.

August 21, 1990:

“The heightened uncertainties and the prospectively less satisfactory performance of the economy stemming from events in the Middle East had greatly complicated the formulation of an effective monetary policy.”

“In the opinion of several members, events appeared likely to unfold in a direction that would require an easing of policy at some point to counter weakening tendencies in the economy that had been in train before the oil price increase.”

The Fed subsequently cut rates at its November and December 1990 meetings, citing the war euphemistically as a confounding factor affecting its decision. The war ended in March ‌1991.

“The substantial decline that had occurred in business and consumer confidence likely reflected not only the course of events in the Middle East, but perhaps also uncertainty about developments in that area and their implications for oil prices.”

The Fed eased in the face of inflation caused by a spike in the oil price.

2001 Global War on Terror (GWOT) - The Son (President George W. Bush)

The GWOT began directly after the World Trade Center towers in New York fell. Almost immediately Iraq and Afghanistan were put to the question by the cruise missile inquisition. The Fed wasted no time in accelerating rate cuts to help confidence in the economy recover.

At the emergency meeting post the attacks, the maestro himself, Chairperson Alan Greenspan, proclaimed:

“It’s clear that the events of last week, at a minimum, have created a heightened degree of fear and uncertainty that is placing considerable downward pressure on asset prices, increasing the probability of an asset price deflation, with its obvious impact on the economy. Therefore, I propose a 50-basis point cut in the federal funds rate target.”

Essentially, if flagging confidence in Pax Americana’s economy causes asset prices to fall, the Fed must spring into action. The cure, as always, is cheaper and more plentiful money.

Another interesting statement by the Fed points to the fact that when called upon, the Fed will do its duty to help the government finance the war machine.

November 6, 2001 — FOMC Statement

“Although the necessary reallocation of resources to enhance security may restrain advances in productivity for a time, the long-term prospects for productivity growth and the economy remain favorable.”

2009 The Surge - The Holy Ghost (President Barack Obama)

The unfortunate plebes in Iraq, Syria, and Afghanistan might have assumed a Nobel Peace prize winning President would not rain hell fire down upon their countries. But they would be sorely mistaken; false hope is indeed a killer. While Obama didn’t start any major Middle Eastern wars, he did up size troop deployment (the surge) in the Afghanistan War, which he believed was a just war.

Given that the Fed reduced interest rates to zero and began money printing via QE in late 2008, there wasn’t anything for them to do in response to Obama’s surge of troop deployments to the Middle Eastern theatre. Money was free and supplied in infinite quantities. The US war machine and its contractors feasted.

Iran 2026 - The Messiah (President Donald Trump)

In a perverse twist of fate, Trump practically rose from the dead after an assassination attempt during the 2024 presidential campaign. As Kanye says, Jesus walks. I can talk about Kanye now cause he bent the knee, right …?

Trump’s presidency and the November re-election odds of his Team Red Republican legislators will depend ‌on success or failure defined by rising or falling financial asset markets and or falling or rising oil prices, respectively. Given that since the Shah fell in 1979 Iranian regime change has been the wet dream of elite Pax Americana politicians from both Team Red and Blue, the Fed possesses political cover to ease monetary policy significantly. To shirk their duty as the enabler of cheaper and more plentiful money to finance the reconstruction of Iran into an American vassal state is unpatriotic.

Trading Tactics

Sitting here today, we do not know how long Trump will remain interested in spending billions, if not trillions, of dollars reshaping Iran’s politics to his liking, nor how much geopolitical and financial markets pain he can politically tolerate before he cuts and runs. The prudent action is to wait and see. The time to back up the truck and buy Bitcoin and high-quality shitcoins like $HYPE is immediately after the Fed cuts rates and or prints money to support the government’s goals in Iran.

Stay safe, fam.

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When the fire alarm rings in your apartment or office building, you usually dismiss it. But sometimes death comes swiftly to those who ignore obvious warnings. Given the amount of noise swirling throughout our daily lives, understanding what alarms to heed could save your life or your portfolio.

Bitcoin is the global fiat liquidity fire alarm. It is the most responsive freely traded asset to the fiat credit supply. The divergence recently between Bitcoin and the Nasdaq 100 Index (“Nasdaq”) sounds the alarm that a massive credit destruction event is nigh. Many investors perceive Bitcoin, because of its past correlation with US big tech stonks, as a leveraged play on the Nasdaq. Therefore, when they diverge in performance, it warrants further investigation into any trigger that could cause a destruction of fiat, but mostly dollar, credit, aka DEFLATION!

Deflation is bad, but ultimately good for fiat credit-sensitive assets like Bitcoin. First, the market prices the impact of severe impairment on debt assets on financial institutions’ balance sheets. Then a few of the worst-managed or highest levered financial institutions become insolvent based on their stock price. Finally, the monetary mandarins panic and press that Brrrr button harder than I shred pow the morning after a one-meter dump. The surge in fiat credit creation pumps Bitcoin decisively off its lows, and the future expectation of increased fiat creation to save the banking system propels Bitcoin to a new all-time high.

This process can take years or months. The most severe credit deflationary event of this century was the 2008 GFC.^[1] At a high level, the market priced in delinquencies on subprime mortgages offered to the increasing number of poor American folks who lost and would lose their jobs because of the rising Chinese manufacturing juggernaut. China formally entered the WTO in 2001.^[2] It took seven years for this policy to bankrupt the over leveraged US banking system mainly because the decision to offshore a manufacturing facility and rejig one’s supply chain takes time.

This time around the market will discount the impact on consumer credit and mortgage debt because of the inability of white-collar knowledge worker debt donkeys to meet their monthly payments. These deadbeats lack the ability to pay because AI took der jobs!

That’s a bold statement to call for a financial crisis because of job losses caused by AI adoption. The official narrative is that creative destruction will lead to higher productivity, people will retrain to do who knows what, and utopia will reign in Pax Americana. This is the economic dogma guiding the Trump administration. They believe AI will drive productivity growth so high that they can simultaneously lower interest rates and reduce the debt load paid for by taxes from corporate profits due to 15% real GDP growth per year. Yes, 15 fucking percent, that’s what the big man Trump proclaimed. However, before this glorious American future handed down by a Caucasian male Christian god can occur, millions of high-earning, debt-laden, white-collar plebes will lose their jobs. The banking system will buckle under the assumed losses on its holdings of consumer credit loans and mortgages.

First, I will step through my simple model that predicts in broad strokes the quantum of credit losses in store for US commercial banks. Next, I will present the early warning signs offered by Bitcoin and software SaaS stonk price action. Finally, I can speak to the political sclerosis at the Fed that will cause them to dither until shit gets really bad. The worse the fall, the harder the central wanker bankers press that Brr button. This AI financial crisis will restart the money printing machine for realz. But don’t get it twisted. There are two scenarios for Bitcoin and shitcoins. Either Bitcoin’s dump from $126,000 to $60,000 was the entire downward move and stonks will catch up, or Bitcoin will dump further as stocks meet their maker. It behooves punters to limit the use of leverage and wait for the all-clear from the Fed that it’s time to dump filthy fiat and ape into risky assets with wanton abandon.

Anatomy of Default

The model’s objective is to predict, using valid assumptions, the total approximate amount of consumer credit and mortgage defaults attributed to white-collar knowledge workers being replaced by AI tools like Claude.

According to the US BLS, there are currently 72.1 million knowledge workers out of a total working population of 164.5 million. ^[3]

These knowledge workers earn more on average than other Americans and thus power the empire’s consumer-led economy. I am interested in estimating on average how much consumer credit (e.g. credit card balances, auto loans etc.) they shoulder. According to the Fed, the total amount of consumer credit is $5.1 trillion. Because I’m only interested in loans the banking system holds as assets on its balance sheet, I must strip out student loans, which are usually underwritten by the government. Doing this brings the total down to $3.76 trillion.

These high flyers also borrow money to purchase their dwelling. The average annual income of a knowledge worker is $85,000, which places them around the 70th percentile of income earners. Folks in this decile have a homeownership rate of 74% and on average 42% of homeowners have a mortgage. Knowledge workers carry an approximate average mortgage balance of $250,000.^[4]

With these inputs, the next step is to calculate the losses to banks if 20% of knowledge workers vanished because of AI. I know that CEOs or lead researchers at various prominent AI companies call for an almost complete eradication of most knowledge work performed by humans within the next two years. While that may be true in the longer term, I want to know if even a modest culling of these folks would cause a financial crisis. For example, China’s entry into the WTO deaded 35% of Americans working in the manufacturing industry over the next few decades. Blue-collar workers manipulate atoms, which are harder to move from one place to another than bits. Knowledge workers manipulate bits, which can move at the speed of light. Therefore, because AI similarly manipulates digital symbols faster than a human,‌ the pace of white vs. blue-collar job losses will be much faster. The labor market in the US is very flexible and employers can fire folks at will with little to no financial consequences, unlike more socialist countries in Europe or Asia, e.g. Japan. Therefore, a profit maximizing corporation will quickly fire a sizable chunk of its knowledge workers if the AI tools are 10 or 100 times faster than a qualified human.

The market will assume unemployed workers cannot meet their monthly payments on consumer credit and mortgages. Then the banks that survive will severely restrict the amount of consumer and mortgage lending because they do not know how the previously wealthiest workers will earn a living in the age of AI. Without the flow of credit, demand for real goods collapses. This is how a banking crisis completely grinds Pax Americana’s economy to a halt.

Consumer Credit Losses

The market will price in $330bn of losses to banks consumer credit portfolios.

Mortgage Debt Losses

The market will price in $227bn of losses to banks mortgage debt portfolios.

The Result

Banks reserve part of profits each quarter against losses on their loan books. The FDIC publishes the industry-wide total loan loss reserves quarterly.^[5] Subtracting that from the consumer credit and mortgage debt losses tells us how large of a hit to their equity this AI deflationary event causes. When viewed against the total US commercial bank equity capitalization, this event would cause a 13% write-down.

13% might not seem like a big deal, but not all banks are created equal. There are thousands of banks, and only eight (Too Big to Fail, “TBTF”) have a government guarantee because of the post-2008 GFC banking regulations put into place. The TBTF banks will be fine as they are the best capitalized and run banks in the empire. But there will be many cockroach banks that took more risk with the types of folks they lent to or employ much higher balance sheet leverage. The market will sniff out these weak banks and destroy their stock prices. The banks will breach their regulatory capital adequacy ratios, and depositors will flee. This will be a rerun of the regional bank crisis in early 2023 that destroyed three banks in a fortnight. But this time it will be much worse, as the genesis of the crisis is the unstoppable nature of AI, a narrative the market believes and is terrified by. Sell and withdraw first; investigate later. This is how investors and depositors will approach this situation as soon as everyone knows that everyone knows that all white-collar workers will lose out to AI tools and thus cannot pay their bills.

To put this into context, here are the same numbers for the 2008 GFC.

Assuming a 20% almost immediate decline in knowledge workers is about half as deadly as the 2008 GFC. The Fed printed money for over a decade to repair the financial system in response to the 2008 GFC. I expect a similar thrust higher in Fed monetary shenanigans in 2026 once ‌a wide swath of non-TBTF banks will go under if they don’t solve their internal political squabbles and print dat money.

AI Destruction Chart Porn

As always, my guiding light in investing is fiat credit creation. Let’s start with my USD liquidity index.

As you can see, falling liquidity forces the market on the dwindling prospects for certain tech businesses because of AI adoption.

If AI tools like Anthropic’s Claude Cowork can reliably complete tasks in minutes, that would take a human hours or days, why do you need all those SaaS productivity subscriptions? The market came after the tools of knowledge workers first. That is why the iShares Software ETF IGV (white) which represents listed software SaaS businesses, tanked vs. the broader Nasdaq (gold).

Then the market attacked those non-bank lenders who lent to these SaaS businesses. Blue Owl (white), the former market darling in the private credit space, got owned alongside IGV (gold).

Now that the market believes fewer sales of SaaS tools to knowledge workers, it is time to discount the impact to various sectors if the users of those tools find themselves irrelevant as well.

First, let’s observe what’s happening at the base of the credit pyramid; as some workers lose their jobs, delinquencies rise.

If the consumer cannot meet their monthly credit card payments, the next sector hit is consumer discretionary stocks.

The above chart is the ratio of the SPDR Consumer Staples ETF (XLP US) to the SPDR Consumer Discretionary ETF (XLY US). As you can see by the rising ratio as of late, XLP is massively outperforming XLY. This means the plebes shop more at discount retailers like Walmart than mindlessly ordering knick-knacks on Amazon or overpaying for Tesla EVs. Walmart and Amazon/Tesla are the largest weightings in XLP and XLY, respectively.

The financial institutions that cater to the soon to be broke as fuck white-collar workers like American Express (AXP US in white) held serve while the employers of their borrowers (IGV US in gold) got punished by the markets. But lenders’ outperformance will wane as the market fully prices in the future culling of knowledge workers.

When in doubt about whether USD liquidity is ample, turn to Bitcoin.

Nasdaq (gold) is flat whilst Bitcoin (white) plunged since Bitcoin hit its all-time high in October 2025.

A surging gold (gold) versus a slumping Bitcoin (white) clearly tells us that a deflationary risk-off credit event within Pax Americana is brewing.

A Dithering Fed

If we all know empirically that eventually the Fed prints money to save the banking system from credit loss created deflation, then why isn’t Bitcoin soaring as AI-related knowledge worker job losses accelerate? Because in order to act bigly, the Fed always needs a crisis.

In the lead-up to the 2008 GFC, the mantra was that “US housing prices never fall”. If they never fall, then there is nothing to worry about if two random Bear Stern hedge funds bit the dust because of subprime mortgage losses in 2007. Similarly, today the mantra is that “AI will lead the highest productivity growth ever”. Again, why should the Fed act if some fugazi magic internet money token crashed or a few high-flying shadow banks got their comeuppance for lax underwriting standards?

To add to the inertia preventing the Fed from acting is the political crisis that engulfs it. US President Trump crossed the Rubicon and launched a criminal investigation into the Fed chairperson beta cuck towel bitch boy Powell. Like any institution made up of human cells, when you threaten the ideological glue that defines folks and their supposed broader mission, they band together. Those within the Fed truly believe they are independent and above politics, even though the historical record is very clear that the Fed always delivers the monetary policy the president desires, eventually. By criminally investigating Powell ostensibly because he refused to lower interest rates and print money fast enough, Powell’s pride might seriously compel him to remain on the Fed board of governors when his chair term is up in May. At that point, assuming Trump can get his pick for chairperson to be confirmed by the Senate, which is not a given, Kevin Warsh will preside over a hostile Fed.

Warsh is supposedly in favor of a smaller Fed balance sheet and wants to institute many other “radical” changes to how the Fed operates and regulates the banking industry. Whether these are sound policies in the minds of other governors isn’t relevant; Warsh is Trump’s chairperson. And if Powell remains and carries at least five other voting governors in his camp, he can obstruct Trump’s agenda and preserve the Fed’s political independence through inaction.

While the Fed is fighting windmills, AI-related job losses will destroy the balance sheets of American banks. And then, finally, the non-TBTF banking stocks will start crashing, depositors will flee to safety in JP Morgan CEO Jamie Dimon’s arms, and credit markets will seize up. The market will frantically ask which credit sector is next to experience the wrath of AI optimization? And because scared traders optimize for immediate liquidity, they will dump everything. The stock market collapses and Bitcoin trades sideways, or Bitcoin slices through $60,000 and continues going until the Fed gins up the money printer.

What About the Discount Window?

In theory, if a US-regulated bank or bank branch runs into trouble where it needs to sell assets quickly to meet depositor withdrawals, it can access the Fed’s discount window. The problem with the discount window is that it assumes that the problem is purely one of duration mismatch and liquidity. However, in this circumstance, the loans on the balance sheet are ‌ worth zero because of an inability to pay by the borrower.

Once AI takes your accountancy, legal, investment banking, etc. jobs, they ain’t coming back. Maybe after a few years of retraining, you can get another job in whatever newfangled employment sector emerges because of AI, but that will take many years if it happens at all. You cannot service your debts in the meantime, and the market will price that collateralized auto loan debt obligation as ‌zero. This would violate the Fed’s underwriting standards, and to provide a blank amount of printed money to banks to coerce them to lend again to deadbeat former masters of the universe will take a complete overhaul of how the discount window operates. And unfortunately, that sort of change will require new policies that the governors must vote upon.

Print Baby Print!

Everyone knows that everyone knows that AI is the most transformative general-purpose technology in human history. The consensus also believes that once AI comes for the arrogant college educated paper pushing lawyer, Lord Elon or more likely his Chinese competitors, will launch AI-powered robots that reduce the price of labor to near zero. Faced with these “truths”, the Fed must print bigger than it’s ever printed before. And the best part is that the politicians are so afraid of AI-sponsored credit deflation, they will gladly support another round of QE infinity. ^[6]

There are many ways to print money; I will not speculate on how. But just like on ‌Sunday, 12 March 2023, after Signature Bank collapsed, there will be an emergency announcement. Buffalo Bill Bessent and whoever the Fed chairperson is at the time will announce some joint program that in effect prints money.^[7] And then wham bam thank you ma’am it’s time to back up the fucking truck and buy Bitcoin and shitcoins like it’s 2020.

Stay Nimble

Because AI models now build their next iteration, the pace of improvement occurs non-linearly. This means that if you operate on the assumption that AI isn’t accurate enough to do some knowledge-related tasks because you tried last year, your opinion is out of date. Shit is getting real, and millions of knowledge workers will swallow their pride and apply for a government handout like a welfare king or queen from the hood.

I don’t believe Bitcoin traders will see through to the eventual Fed banking bailout until consumer credit-sensitive stocks experience serious pain. I won’t short the market, but long selling to raise cash if one hasn’t done so might be prudent. If an asset’s price drops from 10 to 5, a short makes 50%, but when the price rebounds from 5 to 10, a long doubles their money. Therefore, the game is to be liquid, nimble, and play for the rebound. Shorting is a mug’s game. Always Be Longing Convexity!

The top two shitcoins that Maelstrom will deploy excess stables into once the Fed blinks are $ZEC (Zcash) and $HYPE (Hyperliquid). In my next essay, I will present my model for why $HYPE will trade to $150 by July, which is ~5x higher than current levels. Obviously, we are already long $ZEC and $HYPE, but I want moar, and if my AI financial crisis thesis is correct, there will be another opportunity to acquire more of these high-quality shitcoins on sale.

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^[1] GFC - Global Financial Crisis

^[2] WTO - World Trade Organization

^[3] BLS - Bureau of Labor Statistics

^[4] Source - St. Louis Fed

^[5] US Federal Deposit and Insurance Corporation

^[6] QE - Quantitative Easing

^[7] Buffalo Bill Bessent is US Treasury Secretary Scott Bessent.

(Any views expressed here are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)

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The mountain go “Woomph”.

Me: Did you hear that?

In the valley of powder, certain sounds cause an immediate need to stop, listen, and adapt.

The mountain go “Woomph”.

My friend: The snow pack is failing.

Skinning on as if nothing happened could result in death. Listen to the mountain when it speaks.

The mountain go “Woomph”.

Our guide: Guess we are skiing low-angle stuff today.

My group of intrepid powder hounds stops at the mouth of a snowed-in road at the bottom of the valley. Our guide retrieves his snow saw and shovel from his pack. He then digs a 1.5m deep pit. We all huddle around the mouth of the pit to investigate the snowpack.

Our guide: See the crust there. It formed right before the last storm when it rained. Then, because of the clear nights, the snow faceted and formed a weak layer. Wow, that’s super unusual for this region.

Next, he performs an extended column test to ascertain how much energy it would take to cause the column to fail and slide. After a few taps on his shovel, the snow cracks right above the crust, and he easily slides out a block of snow 80cm tall. We all gasp because we know one skier could cause a whole face to slide on a 35-to-40-degree slope. And that’s that. We won’t be skiing anything steep, and if as we zigzag up the mountain trigger failure in the snowpack, we will exit stage left because of safety concerns.

The mountain woomph sounded the alarm to danger underneath a beautiful layer of powder. The financial markets went woomph as the yen weakened and JGB prices collapsed.^[1] Quite a coincidence that both occurred in Japan. Many macro commentators smarter than I proclaimed Japan will be the match that lights the filthy fiat system ablaze. I don’t believe our betters who inhabit the relevant organs of power around the globe will allow said collapse to occur without trying to print their way out of it. Therefore, analyzing the fragility that the yen and JGB injects into global markets at this juncture is extremely important. Will a meltdown of the yen and JGB markets cause some sort of money printing by the BOJ or the Fed?^[2] The answer is yes, and this essay will explain the mechanics of the said intervention that was foreshadowed last Friday.

This discussion of Japanese financial markets is important because for Bitcoin to exit its sideways funk it needs a healthy dose of money printing. What I will present is a theory which the actual flow of money through the corroded veins of the global monetary system doesn’t support yet. As time progresses, I will monitor the changes in certain line items on the Fed’s balance sheet in order to validate my hypothesis. But most importantly, I will listen for the “Woomph”. Our masters want us to trade based on their manipulations. Therefore, I must be vigilant and listen to what is said and not said by the likes of US Treasury Secretary Buffalo Bill Bessent and BOJ Governor Ueda-domo.

Before I provide the context that will trigger pressure on the Brrrr button, let me present this graphic to describe how the Fed will print money to expand its balance sheet and intervene in the dollar-yen currency and JGB markets.

Here are step-by-step instructions on how to manipulate the foreign currency and bond markets:

1. The New York Fed creates a bank reserves liability, which are dollars, with a primary dealer bank like JP Morgan.

2. JP Morgan sells dollars and receives yen in the FX market on behalf of the NY Fed. The yen appreciates against the dollar.

3. The New York Fed may invest its yen into suitable securities, of which JGBs qualify. The NY Fed instructs JP Morgan to purchase JGBs with its yen for its SOMA.^[3] JGB yields fall.

The Fed’s balance sheet line item “Foreign Currency Denominated Assets” grows because of the purchased JGBs, and the bank reserves liability line item increases in the same size. The NY Fed printed dollars to buy JGBs, which reduced bond yields in Japan. As a result, the NY Fed onboards dollar-yen currency risk and JGB interest rate risk to its balance sheet. If the yen weakens or JGB yields rise / prices fall, it causes an unrealized loss to the Fed.

Why is the Fed engaging in this manipulation? What forced them to accept this currency and interest rate risk?

Japan go Woomph!

Japanese authorities lost control of the long-end of their government bond yield curve. Specifically, the yen weakened against the dollar at the same time bond yields rose. This shouldn’t happen if investors have confidence in the government’s ability to maintain the purchasing power of their filthy fiat currency and stop deficit spending. A weak yen imports inflation as Japan is a net energy importer. High JGB yields make government borrowing unaffordable. And finally, falling bond prices rack up massive unrealized losses for the BOJ, as it is the market’s largest JGB holder.

USDJPY (white), JGB 30-yr Bond yield (gold)

Why is it in US President Trump and Buffalo Bill Bessent’s interest to help? Pax Americana finances itself in the treasury market. Collectively, Japanese private investors are one of the largest holders of these bonds. Japan’s foreign debt portfolio assets total $2.4 trillion, with a majority invested in treasuries. If Japan Inc. can earn sufficient income by purchasing JGBs, then it will sell treasuries and repatriate the funds to Japan. A large, motivated marginal seller of this size would cause treasury prices to fall / yields to rise. As the US government runs the largest peacetime deficits in the country’s history, the interest costs to finance the deficit would grow faster than the number of tinder matches for recently released Caroline Ellison. Besides ballooning interest costs, if the yen weakens against the dollar, it hurts the global export competitiveness of US manufacturers.

The Fed delivered 1.75% of cuts since it began easing in September 2024 (white line). Unfortunately for Buffalo Bill Bessent, the 10-yr treasury yield (yellow line) rose slightly instead of dropping faster than ICE protestors in Minnesota. Part of this is because of sticky inflation and partly ‌due to supply issues. As 10-year and beyond JGB yields rise (green line), Japan Inc. invests more at home rather than abroad.

How Now Brown Cow

I presented a beautiful box and arrow chart on how the Fed could intervene. But what legal pretense permits the Fed to manipulate the yen and JGB markets? Readers, contain your eye roll. I know Trump doesn’t care much for legal inconveniences, and neither did any US President before him. But sometimes those pesky checks and balances present challenges to implementing presidential prerogative, so let’s evaluate if there are legal frameworks or accepted practices that permit this behavior. Buffalo Bill Bessent can intervene in the currency markets to maintain the value of the dollar as he deems appropriate using the Exchange Stabilization Fund. The Treasury taps the NY Fed to help manipulate the markets because of its supervisory role over major New York-headquartered financial institutions. The NY Fed’s participation in this caper is required because the Treasury Department cannot print money while the creature from Jekyll Island can.

The next question is what‌ assets can the NY Fed purchase with its yen? The NY Fed allows itself to purchase government debt securities. There is no credit risk in owning the obligation of a government in the currency it can print at will. That is the rationale that underpins the assertion that JGB holdings are high quality.

The Fed and Treasury have legal cover. The next thing we must look for evidence that confirms the existence of this yen and JGB Fed / Treasury manipulation.

The first sign post that corroborates my theory was the announcement this last Friday that the NY Fed checked prices with several Wall St dealing deals. The Fed deliberately and publicly telegraphed its intentions so that the market would front-run a potential future intervention.

On Friday, 23 January 2026 the BOJ held rates constant when by all measures they should have raised rates to defend the currency and the bond market. I’m assuming Ueda-domo called his gaijin daddy across the Pacific for some help, which kicked off the Fed-Treasury intervention talk.

The next signpost in the journey is the changes to the Fed’s balance sheet viewed through its weekly H.4.1 report. The line item to monitor is Foreign Currency Denominated Assets. They will not provide a detailed breakdown of exactly which assets it owns. We must infer from JGB price action whether the Fed is present. Even if they obfuscate what they hold officially, I bet that the Fed whisperer reporter Nick Timaros from the Wall Street Journal will receive a “leak” from a Fed insider that the institution is actively buying JGBs. The Fed will confirm these purchases because it wants us traders to invest alongside. The more investors buy, the less the Fed has to, and because these schemes create significant FX and interest rate risk for the Fed, less is more.

We know the legal fiction that permits ‌manipulation and where to observe the evidence of its existence. What effects will this policy have upon various important financial asset prices and foreign currencies?

Beautifully Effective

This yen and JGB market manipulation by the Fed solves many financial problems for the Trump administration.

Strengthen the Yen

This will strengthen the yen against the dollar, which will help US export competitiveness.

Lower JGB Yields

Lower JGB yields will dissuade Japan Inc. from selling treasuries to buy JGBs. Japanese Prime Minister Takaichi can roll out a massive stimulus program funded by increased bond sales to placate Japanese plebes. Understandably, the average voter doesn’t relish the fact that their nation got nuked and then turned into an American colony. Prime Minister Takaichi can also increase defense spending and purchase more American-made weapons of mass destruction.

Increase Dollar Liquidity

The Fed can expand its balance sheet by printing money and with a straight face claim it’s not QE.^[4] Asset prices will rise and keep the wealthy American political donors happy.

Strengthen the Euro

If you couldn’t tell, Trump and his lieutenants have no love for the Europooreans. To fully cuck Europe requires a strong euro. The dollar will mechanically weaken against most currencies, especially the euro, as the Fed prints billions of dollars to fund the purchase of yen and JGBs. A stronger euro castrates German and French exports, handing more global business to American firms.

Strengthen the Yuan

The yuan will strengthen against the dollar for the same reasons as the euro. If the yuan appreciates too quickly for Chinese President Xi Jinping’s liking, the PBOC will expand domestic credit to arrest the yuan’s rise.^[5] An increase of yuan credit helps global asset prices. Some of this credit will leak into US stonks as the Chinese state and private sector are among the largest holders of US equities.

This Fed intervention is just what the filthy fiat system needs to limp along a little longer. The only problem is that the pace of yen strengthening must be gradual. It cannot appreciate too quickly, otherwise it would cause catastrophic losses for investors who borrowed yen to fund other asset purchases as volatility rose. If the Fed can smush yen volatility, a gradually strengthening yen will not cause a financial crisis.

Who gives a flying fuck that our monetary masters benefit from the Fed yen / JGB intervention. What’s in it for Satoshi’s faithful hodlers of Bitcoin and crypto?

Bitcoin (white) will pump alongside a growing Fed balance sheet (gold). It might not happen on your timeframe if you are 100x leveraged trading 1m candles on some shitcoin perp, but Bitcoin and quality shitcoins will mechanically levitate in fiat terms as the quantity of paper money rises.

Trading Tactics

A rapidly strengthening yen usually portends ‌risk-off as yen-funded traders reduce their positions.

Bitcoin fell as the yen strengthened against the dollar. I will not increase risk before I confirm the Fed is printing money to intervene in the yen and JGB markets. If the Foreign Currency Denominated Assets line item on the Fed’s balance sheet rises w-o-w then it’s time to increase my holdings of Bitcoin. I stopped myself out of my long Strategy (MSTR US) and Metaplanet (3350 JP) trades before the yen moves thankfully. I will re-enter these levered Bitcoin proxies if my hypothesis is correct.

While I wait, Maelstrom continues to add to its Zcash ($ZEC) position. Our other quality DeFi shitcoin positions remain unchanged. And again, if the Fed is growing its balance sheet to manipulate the yen and JGB markets, we will add to our DeFi bags ($ENA, $ETHFI, $PENDLE, and $LDO).

Over and out degens, it is yet another powder day, and it’s time to shred till my legs fall off.

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^[1] JGB - Japanese Government Bond

^[2] BOJ - Bank of Japan, Fed - US Federal Reserve

^[3] SOMA - System Open Market Account. This is where the Fed holds financial assets it owns.

^[4] QE - Quantitative Easing

^[5] PBOC - People’s Bank of China

(Any views expressed here are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)

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The personifications of my gods take the form of cuddly plush toys. During the Hokkaido peak ski season of January and February, I pray to Frowny Cloud, the goddess of snow. The weather patterns that dominate the region ensure that in a good season, when snow is dumping almost non-stop, you never see the sun. Thankfully, I also pray to the god of vitamins, a cuddly horse ;), who, among other things, provides vitamin D3 tablets.

While I love snow, not all snow is good and safe snow. The type of carefree, hard-charging, shredding that I enjoy requires ‌a particular type of snow. Overnight periods of low wind, with temperatures between -5 and -10 Celsius, are the prerequisites. The new snow can then bond effectively to the old and create the conditions for bottomless powder. During the day, Frowny Cloud obstructs certain wavelengths of sunlight, preventing certain aspects, like south-facing pitches, from getting cooked and possibly sliding.

Sometimes Frowny Cloud deserts us intrepid skiers at night. And a cold, clear night creates facets after a warming and then cooling of the snowpack, which produces a persistent weak layer. This phenomenon persists in the snowpack for some time, and can cause deadly avalanches when it collapses because of the energy transfer from the weight of skiers.

As always, the only way to know what type of snow pack Frowny Cloud created is to study history. On the slopes, we do this by digging massive pits and analyzing the different types of snow that fell over time. But as this is not an essay on avalanche theory, the way we do this in markets is by studying charts and the interplay between historical events and price movements.

The relationship I wish to study throughout this essay is between Bitcoin, gold, stonks (specifically big US technology stocks that comprise the Nasdaq 100), and dollar liquidity. The crypto naysayers who are gold bugs or Hermes noose, red bottom wearing members of the financial establishment that believe in “Stocks for the long run” (I didn’t have a high enough GPA to get into Seigel’s class at Wharton), are ecstatic that Bitcoin was the worst performing major asset class of 2025. These gold bugs tut-tut at the crypto fam because if Bitcoin was supposed to be this vote against the established order, then why then did it not match or exceed the performance of gold? The filthy fiat stonk pushers tut-tut at the crypto fam that Bitcoin is just a high beta play on the Nasdaq except it wasn’t in 2025; why then is crypto worth considering at all in any portfolio?

This essay will present a cornucopia of chart porn annotated with my thoughts to contextualize the co-movement of these assets. I believe Bitcoin did exactly what it was supposed to do. It rode the wave of fiat liquidity lower, specifically dollar liquidity, as Pax Americana’s credit impulse was the most important force in 2025. Gold surged as price-insensitive sovereign nations hoovered it up because they were afraid to remain in US treasuries lest Pax Americana steal their wealth like it did to Russia in 2022. The act of war committed upon Venezuela by Pax Americana most recently only intensifies the desire for nations to save in gold rather than US treasuries. Finally, the AI bubble and all the ancillary industries that benefit, are not going anywhere. In fact, US President Trump must double down on state support for all things AI because it is the largest contributor to GDP growth in the empire. This means that even if the pace of dollar creation slows, the Nasdaq can continue to rise because Trump effectively nationalized it. For those of you who study Chinese capital markets, you know stonks do very well in the early period of nationalization, but then underperform massively as political goals take precedence over return on equity for unpatriotic capitalists.

If the 2025 price action of Bitcoin, gold, and stonks validated my market schema, then I can continue focusing on the vicissitudes of dollar liquidity. To remind readers, my prognosis is that Trump will pump credit to run the economy fucking hot. A rip-roaring economy helps the re-election chances for Team Red Republicans this November. Dollar credit will expand as the central bank balance sheet grows, commercial banks lend more to “strategic industries”, and mortgage rates decline because of printed money.

When we put all of this historical analysis together, does it mean I can continue to shred carefree, by that I mean aggressively deploy new units of fiat I earn, and maintain my maximal risk exposure? You be the judge.

One Chart that Rules Them All

To set the stage, let’s compare the returns of Bitcoin, gold, and the Nasdaq in the first year of Trump’s second reign. How did these assets perform against the change in dollar liquidity?

I will go into more detail later in the essay, but the assumption is that if dollar liquidity falls, these assets should as well. However, gold and stonks rose. Bitcoin performed as to be expected, like utter dog shit. Next, I will explain why gold and stonks outperformed given that dollar liquidity fell.

Bitcoin (red), Gold (gold), Nasdaq 100 (green), and Dollar Liquidity (magenta)

All That Glitters

I started my journey into crypto through gold. As Fed-sponsored QE ramped up in 2010 and 2011, I began buying physical gold coins in Hong Kong.^[1] My size in absolute terms was pitiful, but as a percentage of my then net worth, enormous. Ultimately, I learned a hard lesson about position sizing as I had to sell my gold coins at a loss to buy Bitcoin to conduct cash and carry trades on ICBIT starting in 2013. It all worked out in the end, thankfully. After all of that, I still hold a significant amount of physical gold coins and bars in vaults around the world, and gold and silver mining equities dominate my stonk portfolio. Readers may wonder why I still own gold given I am a loyal disciple of Lord Satoshi?

I own gold because we are in the beginning stages of a global trend where central banks sell US treasuries and purchase gold. In addition, ‌counties now settle trade imbalances in gold. This is even true when we analyze Pax Americana’s trade deficit.

In short, I buy gold because central banks buy gold. Gold has a 10,000-year history as the true money of civilization. As such, no major central bank reserves manager will save in Bitcoin if they distrust the current dollar-led filthy fiat financial system. They will and are buying gold. If gold’s percentage of total central bank reserves reverts to where it was in the 1980s, the price would rise to ~$12,000. Before you believe my pie in the sky prediction, let me prove it to you visually.

The orthodox view of gold within a fiat system is that it is an inflation hedge. Therefore, it should roughly track the empire’s manipulated CPI inflation index. The chart above shows that since the 1930s, gold has roughly tracked the index. However, since 2008 and then accelerating after 2022, gold’s price rapidly ascended faster than inflation. Is gold in a bubble poised to decimate punters like me?

If gold is in a bubble, retail would pile in. The most popular way to trade gold is via ETFs, of which GLD US is the largest.^[2] When retail YOLO’s into gold, the GLD shares outstanding increase. In order to compare this phenomenon across time and different gold price regimes, we must divide GLD’s shares outstanding by the price of physical gold. The chart below shows that the ratio is falling, not rising, which means a genuine gold speculative mania has not taken hold yet.

GLD US shares outstanding divided by the spot price of gold

If retail schmucks aren’t pamping gold, who is the price-insensitive buyer? Central bankers all across the globe. There were two seminal moments within the last two decades that convinced the high monetary priests that Pax Americana’s currency is only fit to wipe one’s ass with.

In 2008, Pax Americana’s financial masters of the universe created a global deflationary financial panic. Unlike the 1929 episode, where credit destruction occurred relatively unmolested by the Fed. This time around, the Fed defaulted on its obligation to maintain the dollar’s purchasing power and printed money to “save” certain large financial players. This marked the apex and nadir of sovereign nations’ holdings of US treasuries and gold, respectively.

In 2022, US President Biden stunned the world when he froze the treasury holdings of a nation that holds the largest stockpile of nuclear weapons and is the world’s biggest commodity exporter. That nation is Russia. If the US is willing to abrogate the property rights of Russia, then they could do it to any less powerful or naturally rich nation. Predictably, other nations could not in good faith increase their exposure to expropriation by holding treasuries. They began accelerating their purchases of gold. The central banks are ‌price-insensitive buyers of gold. If the US president steals your money, it’s an instant zero. Does it then matter what price you buy gold at if it removes your counterparty risk?

The ultimate reason ‌there is an insatiable appetite from sovereigns for the barbaric relic is that settlement of net trade imbalances happens increasingly in gold. The record contraction of the US trade deficit in December 2025 is proof that gold is reestablishing itself as the true global reserve currency. Greater than 100% of the change in the net trade balance of America is because of exports of gold.

The gap between exports and imports of goods fell by 11 per cent from the previous month to $52.8bn, according to data released by the US Department of Commerce on Thursday. That shrank the deficit to its smallest since June 2020 and was also narrower than the $63.3bn gap that economists polled by Reuters had predicted. The 3 per cent increase in exports from August to $289.3bn was mostly fueled by non-monetary gold. Imports climbed 0.6 per cent.

– Source: FT

The gold flow: America exports gold to Switzerland, which refines and recasts it into different denominations, and then shipped to other nations. The charts below show that mostly China, India and other emerging economies that make real stuff or export commodities purchased the gold. That stuff ultimately ends up in America, and gold flows out to the more productive parts of the world. By productive I don’t mean that these places are better at filling out bullshit TPS reports and their email signatures feature the appropriate pronouns, but that they export energy and other crucial industrial commodities, and their plebes create real stuff like steel and refined rare earths. Gold rose when dollar liquidity fell because sovereign nations are increasing the pace of the reinstatement of the global gold standard.

Long Duration Loves Liquidity

In every era there are high-flying technology stonks. During the roaring 1920s US bull market, RCA - the radio manufacturer - was the hot tech stock of the day. In the 1960s and 1970s, it was IBM that made the newfangled mainframe computers. Today, AI hyper-scalers and chip makers are en fuego.

Humans are natural optimists. We love to forecast a glorious future where the money spent today by tech companies results in a societal utopia. For those fortunate enough to own the future through equity in said businesses, riches will rain down from the heavens. To eventuate this certain future in the minds of investors, companies burn cash and take on debt. When liquidity is cheap, it becomes easy to bet on the future because in the future copious cash flows will accrue to these intrepid entrepreneurs. As such, investors are happy to splooge worthless cash today on tech stonks for a chance to own much larger future cash flows, which pumps up their price to earnings multiples. Therefore, technology growth stocks rise exponentially during periods of excess liquidity.

Bitcoin is monetary technology. The technology is valuable only in relation to the amount of fiat debasement. The invention of the proof-of-work blockchain, which achieves a form of Byzantine fault tolerance, is stupendous. 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. Bitcoin’s asymptotic rise directly results from an explosion in the supply of dollars post the 2008 Global Financial Crisis.

Therefore, I say:

Bitcoin and the Nasdaq rise when dollar liquidity expands.

The only problem with that statement is the recent divergence of the Bitcoin price from the Nasdaq.

My theory of why the Nasdaq has not corrected in line with the decline in dollar liquidity in 2025 is that AI became nationalized by both China and America.

The AI tech bros sold the two leaders of the world’s largest nation states the idea that AI solves everything. AI reduces the cost of labor to zero, cures cancer, increases productivity, democratizes creativity, and, most importantly, allows for military domination of the planet. Therefore, whichever nation “wins” at AI, and there is no clear definition of winning, rules the world. China bought into this techno future long ago, and it fits squarely into how the Politburo sets top-down goals in successive five-year plans. Chinese equity investors routinely scour each five-year plan and its yearly revisions to discern which industries and their respective stonks the government will favor with cheap credit and the permission to compete in a ruthless capitalistic fashion. In America, such analysis is a new thing, at least in this epoch. Industrial policy is just as American as it is Chinese, although the marketing is different. Trump drank the AI Kool-Aid, and now “winning” AI is part of his economic platform. The US government de facto nationalized any components that are assumed to go hand in hand with “winning”. 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. That is why the Nasdaq decoupled from Bitcoin and the decline of dollar liquidity in 2025.

Bubble or not, growth in spending to “win” AI drives the US economy. Trump campaigned on running the economy hot, so he can’t stop now just because when we look back in a few years hence the return on equity for all this spending fell short of the cost of capital.

US tech investors should be careful what they wish for. US industrial policy aimed at “winning” AI is a surefire way to scorch one’s capital. Trump’s, or whoever comes next, political goals will diverge from what is in the best interest of shareholders of firms that are deemed strategic. This is a lesson Chinese stonk investors learned the hard way. Confucius says, “Learn from thy ancestors”. That lesson is obviously not being internalized given the Nasdaq’s outperformance.

A reading below 50 indicates contraction. All that GDP growth is not creating a resurgence in manufacturing.

I thought Trump was for the working white man? Nah, Jimbo, US President Clinton sold your job to China, then Trump got the factories to come back, but the floor is now populated by AI-enabled robot arms owned by Elon. Sorry, you got cucked again, but ICE is hiring!^[3]

These charts clearly show that Nasdaq Number Go Up is US state-sponsored. As such, as an industry, even if overall dollar credit growth is anemic or contracting, AI will receive all the capital it needs to “win”. Therefore, the Nasdaq decoupled from my dollar liquidity index and outperformed Bitcoin in 2025. I do not believe the AI bubble is ready to pop. This outperformance will be a feature of global capital markets until it ain’t, or most likely until the Team Blue Democrats take over the House of Representatives in 2026, as Polymarket predicts, and possibly the presidency in 2028. If the Republicans are the party of the Jetsons, the Democrats are the party of the Flintstones.

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. Obviously, I believe it will in 2026, so let’s discuss how.

Run it Fucking Hot

At the outset, I said there are three pillars supporting a drastic increase in dollar liquidity this year:

1. The Fed balance sheet will grow because of money printing.

2. Commercial banks will lend to strategic industries.

3. Mortgage rates will drop because of money printing.

The Fed’s balance sheet, pictured above, fell throughout 2025 because of QT.^[4] QT ended in December, and at that month’s meeting the Fed launched its newest money-printing caper called Reserve Management Purchases (RMP). I discussed the mechanics of RMP in depth in my essay “Love Language”. The chart clearly shows that the balance sheet bottomed in December. RMP at a minimum, pumps the balance sheet by $40 billion per month. RMP purchases will increase as more money is required to fund the US government.

The above chart is a weekly measure published by the Fed of the US banking system’s loan growth called Other Deposits and Liabilities (ODL). Reading Lacy Hunt put me onto this one. Starting in 4Q25, banks issued more loans. When a bank issues a loan, it creates a deposit, which creates money ex nihilo. Banks like JP Morgan are happy to lend to businesses directly supported by the US government. JP Morgan launched a $1.5 trillion loan facility for that purpose. It goes like this. The US government invests equity into a business or provides an offtake agreement, then that business will apply for a loan from JP Morgan or another large commercial bank to expand production. The government backstop reduces the risk of default by guaranteeing demand, and therefore the bank is happy to create money to finance the strategic industry. This is exactly what China does. Credit creation moves away from the central bank and into the commercial banking system where, at least in the beginning, the velocity of money is much higher. This creates above-trend nominal GDP growth.

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. That is why bank credit growth will enjoy a secular rise throughout 2026.

Trump is a real estate man. He knows how to find financing for the construction of property. The newest proclamation from Augustus Trump is that the Government Sponsored Entities named Fannie Mae and Freddie Mac shall use capital on their balance sheet to purchase $200 billion worth of MBS.^[5] This is an increase in dollar liquidity as before Trump’s order, this capital sat inert on Fannie and Freddie’s balance sheets. If he is successful, Trump won’t stop there. Pumping the housing market through lower mortgage rates will allow many Americans to borrow against the record high equity value of their homes. This increase in wealth effect will make the 99% feel good on election day and vote Team Red Republican. And most importantly for us risk asset holders, create more credit with which to buy financial baubles.

Bitcoin (gold) and dollar liquidity (white) bottomed around the same time. As dollar liquidity rapidly increases for the reasons described above, Bitcoin will follow. Forget about 2025 and Bitcoin’s underperformance; the liquidity didn’t support our crypto portfolios. But let’s not draw the wrong conclusions from Bitcoin’s 2025 underperformance. It was as it always is, a liquidity story.

Trading Tactics

I’m a degen speculator. Even though Maelstrom is nearly fully invested, I want to add on MOAR risk because I am so bullish on the growth of dollar liquidity. Therefore, I put on long Strategy (MSTR US) and Metaplanet (3350 JT) positions to get levered exposure to Bitcoin without trading a perp or options derivative.

I divided each DAT by the price of Bitcoin in yen for Metaplanet (white) and dollars for Strategy (gold). They are at the low end of the range over the past two years, and from their peaks in mid-2025 are down substantially. If Bitcoin can retake $110,000, investors will get the itch to go long Bitcoin through these vehicles. Given the leverage embedded in the capital structure of these businesses, they will outperform Bitcoin on the upside.

In other news, we continue to add to our Zcash position. The departure of the devs at ECC is not bearish. I firmly believe they will ship better, more impactful products within their own for-profit entity. I’m thankful for the opportunity to buy discounted ZEC from weak hands.

Onward and upward, degens. Be safe out there; it’s a dangerous world. Peace be with you, and all hail Frowny Cloud.

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^[1] QE - Quantitative Easing. This is the process by which a central bank prints money to buy financial assets and in the process its balance sheet grows.

^[2] ETF - Exchange Traded Fund

^[3] ICE - Immigration and Customs Enforcement

^[4] QT - Quantitative Tightening. This is where a central bank sells assets on its balance sheet thus destroying money which leads to a contraction in fiat liquidity.

^[5] MBS - Mortgage-Backed Security

(Any views expressed here are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)

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Conversation overheard between US President Donald Trump video conferencing into the plane flying Venezuelan President Pepe Maduro from Caracas to New York City.

Trump: Pepe Maduro, you are one bad hombre. Your nation’s oil is mine now. USA USA USA!!!

Pepe Maduro: Puta Madre! Eres un gringo loco.

I imagine that a certain cohort of the Venezuelan diaspora is letting it rip right now in the narco-finance capital of the Western Hemisphere … Miami, USA; dancing to bangers like Elvis Crespo’s Suavemente. Like any good armchair macroeconomic punter, I must offer my thoughts on this historic, game-changing, despotic, militaristic … fill in your superlative or pejorative descriptor of America’s abduction/lawful arrest of a sovereign leader. I’m sure countless AI assisted essayists will churn out millions of tokens worth of word salad to frame these events and offer predictions of the future. They will offer moralistic views of the actions, and what other nations should do in response. I shall do none of that. The question is, does the American colonization of Venezuela make Bitcoin/crypto number go up or down?

I’m a ski bum who requires a simple framework with which to understand a chaotic universe. To reiterate, all democratically elected politicians are at all times solely focused on re-election. Glory to God, country, or whatever is second to winning at the ballot box. You can’t affect change if you are not in a seat of power, so on some level this obsession with re-election is rational. There are two elections that concern US President Trump: the November mid-term elections, and the 2028 presidential election.^[1] While he himself is not up for re-election in 2026 and cannot run for a third presidential term in 2028, the loyalty and obedience of his phalanx of political supporters depends on their chances of re-election. All the defections from the MAGA tattered tent are because of souring views on future electability should they continue to do what Trump demands. What can Trump do to ensure that the median voter, who hasn’t yet decided whether they are Team Blue Democrats or Team Red Republicans, will show up in November 2026 and 2028 and vote the “right way”?

As of right now, ‌Team Blue would retake the House of Representatives. Trump needs to get his shit together if he wants to be a winner; there is not much time for a policy change-up to cause voters to switch sides.

Above all else, and I will present some statistical evidence and charts to prove my point, the only issue that the median voter cares about is the economy. All that other cultural shit Trump haters and lovers obsess about on social media (the memes are good though) doesn’t hold a candle to whether or not an undecided voter feels rich and poor when they step under the curtain. It is easy to pump the economy, and by that, I mean nominal GDP. That is just a question of how much credit Trump can create. A rise in nominal GDP boosts financial asset prices, and rich folks will dutifully pay their bribes - cough cough, campaign donations to Team Red to giveth thanks. But in America, it’s one human, one vote, and the plebes can easily derail the party if a rise in inflation accompanies a rise in nominal GDP. Trump and US Treasury Secretary Buffalo Bill Bessent said they would run the economy hot, and I believe them, but how will they keep inflation in check? The inflation that torpedoes re-election odds is of the food and energy variety. The key metric for Americans is the price of gasoline, as there is scant usable, affordable public transportation available for most folks. You cannot exist as a proletariat worker in America without a set of wheels, unfortunately. And therefore, Trump and his lieutenants colonized Venezuela for its oil.

When talking about Venezuelan oil, many are quick to point out that the country has the world’s largest proven reserves. But who cares how much oil you have in the ground. The question is, can one extract the oil from the ground profitably? I don’t know the answer to this question, but Trump obviously believes that if he turns on the tap, oil will gush forth from Venezuela into the Gulf of Mexico refineries, and cheap gasoline will placate the plebes by tamping down energy inflation. I can’t opine whether Trump is correct, but the WTI and Brent crude oil markets will be the truth serum. As nominal GDP and dollar credit supply rise, do oil prices rise or fall? Team Blue Democrats will win if GDP and oil prices rise together, and Team Red Republicans will win if GDP rises but oil prices flatline or fall.

The best thing about this framework is that the price of oil will reflect all actions by other oil-producing and military powers (most importantly Saudi Arabia, Russia, and China) in reaction to the US colonization of Venezuela. Another favorable aspect is that markets are reflexive. We know Trump adjusts policy based on the price of stonks, US treasuries, and oil prices. He will continue printing money and colonizing in pursuit of oil so long as stonks continue rising and oil prices stay low. We as investors can react in the same time frame as Trump, which is the best that we can ever hope for. This reduces the need to predict the outcome of a complex geopolitical system. Just read the charts and adjust, degen.

Below are some chart porn and statistics that clearly show why Trump must pump nominal GDP and crush oil prices in order to win elections.

Team Red and Team Blue are evenly matched.

A small percentage of Americans decides which team controls the government.

The economy and inflation are the two most important issues for voters. Nothing else matters.

The 10% rule: when the national average price of gasoline rises 10% or more in the three months preceding an election versus the average price in January of the same calendar year, control of one or more branches of government switches teams.^[2]

Team Red has the highest chance of winning the 2028 presidential election if there is no recession.

These charts and tables clearly show that Trump must run the economy hot without causing gasoline prices to rise.

We have two scenarios: nominal GDP/credit and oil price up, or GDP/credit up and oil price down. What is Bitcoin’s response?

Bitcoin Mooning

Because of the energy used running computers engaged in proof of work mining, Bitcoin is the purest monetary abstraction there is. Therefore, the price of energy is irrelevant to the price of Bitcoin as all miners will face a parallel shift up or down in the price at the same time. The price of oil only matters regarding its ability to force politicians to stop printing money. If the price of oil rises too quickly and too high because of an expansion of economic activity, which is itself a derivative of energy, a politician must get the price lower somehow (e.g. stealing oil from other nations or slow down credit creation), or face expulsion from office. The 10-year treasury yield and MOVE Index, which measures US bond market volatility, will tell us when the oil price is too high.

Investors face a hard choice: invest in financial or real assets. Investing in financial assets like government bonds makes sense when energy costs are low and stable. But if energy costs are high and volatile, saving in energy commodities is prudent. Therefore, at a certain price of oil, investors will demand a much higher yield on government bonds, most importantly the 10-year US Treasury note. US politicians cannot stop deficit spending because free shit always wins elections. When oil prices rise and 10-year yields reach close to 5% they must alter their behavior. Because of the insane amount of leverage embedded in the filthy fiat financial system as 10-year yields approach 5%, market volatility as measured by the MOVE Index spikes. The entire fiat system is a highly leveraged carry trade, and when volatility rises, investors must sell assets lest they lose their Savile Row tailored shirts. For example, the most recent example of the change-up was last year’s Liberation Day on April 2nd and the subsequent Trump TACO seven days later on April 9th.^[3] If you remember, Trump threatened tariffs so high they would have actually reduced the global trade and financial flows imbalances, and as such they would have been very deflationary. The markets tanked, and the MOVE Index spiked to an intraday high of 172. The next day after the spike, Trump TACO’d, “paused” the tariffs, and markets bottomed then recovered violently.

MOVE Index (white) vs. NASDAQ 100 Index (yellow)

There is no point in attempting to use past data to discern what levels of oil prices and 10-year yields cause Trump to rein in the Fed’s money printer. We will know it when we see it, and if oil prices and yields trend sharply higher, then it’s time to become less constructive on risk. The base case is oil prices remain subsided if not outright fall and Trump and Buffalo Bill Bessent print money like it’s 2020. This is because the market will initially believe US control of Venezuelan oil will cause a massive increase in the daily amount of pumped crude oil. Who knows whether the initial bullish crude oil supply predictions will bear fruit as engineers begin the hard work of bringing millions of barrels per day online from Venezuela. But don’t worry about that; just focus on the fact that Trump is going to run the money printer faster than Israeli Prime Minister Benjamin “The Bedouin Butcher” Netanyahu changes the goal posts on why Iran deserves additional military strikes. If none of this logic convinces you it’s time to go long all risky assets because of aggressive money printing emanating from America, please remember that Trump is the most socialist president since FDR.^[4] He printed trillions of dollars and, unlike past presidents, handed money directly to everyone in 2020. You best believe he will not lose an election for lack of printing money. Mamdani and Trump are both New Yorkers, don’t cha know. Birds of a feather flock together. Real traders must stop attaching emotions to words like socialism, communism, capitalism, etc. No government practices these “isms” in pure form. Every one bastardized them for their own political uses. Don’t be a schmuck, just BUY!

Taking Trump and his lieutenants at their word, we know credit will expand. The Team Red Republican legislators will deficit spend, Buffalo Bill Bessent’s Treasury Department will issue debt to fund it, and beta cuck towel bitch boy Jerome Powell and his successor’s Fed will print money to buy the bonds. This circle jerk started in earnest in 2008, and as Lyn Alden says, “Nothing stops this train”. As the amount of dollars expands, the price of Bitcoin and certain cryptos will sky rocket.

Bitcoin’s (gold) rise directly results from money printing as evidenced by my USD Liquidity Conditions Index (.USDLIQ U Index on Bloomie).

Trading Tactics

Before I talk about Maelstrom’s positioning, I want to do a quick post mortem on my trading performance last year. My, and by that, I mean I made all trading decisions, liquid directional book was up last year. My goal is to cover my expenses with my trading profits, and I have done so many times over. Although I made money, I pissed away a lot of PNL on a few bad trades. My biggest loss was trading PUMP immediately post the token launch. Also, I need to stay away from memecoins; I only made money trading TRUMP. On the bright side, I made the most money trading HYPE, BTC, PENDLE, and ETHFI. Only 33% of my trades were profitable, but my sizing was on point; the profit from winning trades on average was 8.5x the average loss on a loser. I will improve this year by focusing on what I’m good at, taking large medium-term positions based on a clear macro liquidity thesis that supports a credible shitcoin narrative. When I degen on complete shitters and or memecoins because it is fun, I will reduce the size of my positions. Looking into the future, this year’s dominant narrative will surround privacy. ZEC will become the privacy beta, and we are already long a fuck ton of that at excellent prices obtained in 3Q25. The Maelstrom team’s focus is to find at least one shitcoin that can lead the way and generate outsized returns to our portfolio over the next few years within the privacy meta.

Maelstrom entered 2026 with almost maximum risk. While we will continue to invest spare cash generated from various financing trades into Bitcoin, our dollar stables position is very low. To obtain outperformance versus BTC and ETH, I will sell BTC to fund privacy positions and sell ETH to fund DeFi. In both cases, if I pick well, as fiat credit expands, my selection of shitcoins should outperform. When / if the price of oil rises and causes a slowdown in credit creation, I will hopefully take profit and stack more sats, and buy some mETH.

What a day. I wrote this essay on my day off from backcountry skiing. Now it’s time to hit the gym and lift some heavy weights to ‌ensure when I emerge from hibernation in March, I’m still swoll as fuck.

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^[1] All members of the US House of Representatives and some members of the Senate are up for re-election.

^[2] The prompt to Gemini AI: looking at election results (house, senate, and presidential) in the US from 1990 to 2024, tell me what the national average price of gasoline was three months preceding any change in control from the incumbent party to the opposition party.

^[3] TACO - Trump Always Chickens Out

^[4] FDR or Franklin Delano Roosevelt enacted the New Deal, which began the creation of the modern American socialist welfare state in earnest.

(Any views expressed here are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)

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If I had an online dating profile, it would sound something like this:

Love Language:

Euphemistic terms and acronyms created by politicians and central bankers describing money printing.

The two most apropos examples that this essay shall discuss:

QE - Quantitative Easing

RMP - Reserve Management Purchases

RMP is a new acronym that entered my Love Language dictionary on December 10th, the day of the most recent Fed meeting.^[1] Immediately, I recognized it, understood its meaning, and treasured it like my long-lost love, QE. I love QE because it means money printing, and thankfully I own financial assets like gold, gold/silver mining stocks, and Bitcoin that rise faster than the pace of fiat money creation. But it’s not all about me. If money printing in all its forms drives the price and adoption of Bitcoin and decentralized public blockchains higher, then hopefully one day we can discard this filthy fiat fractional reserve system and replace it with one powered by honest money.

We aren’t there yet. But the rapture quickens with every unit of fiat created.

Unfortunately, in the here and now for most of humanity, money printing destroys their dignity as productive humans. When the government intentionally debases the currency, it destroys the link between energy inputs and economic outputs. Knowing no fancy economic theories that explain why they feel like they are running in quicksand, those wage cucking plebes understand that money printing is no bueno. In democratic systems of one human, one vote, the plebes vote out the incumbent party when inflation surges. In autocratic systems, the plebes enter the streets and topple the regime. Therefore, politicians know that ruling in an inflationary environment is a death sentence for their careers. However, the only politically palatable way to pay for the massive amount of global debt is to inflate it away. Given that inflation destroys political careers and dynasties, the skill is hoodwinking plebes into believing that the inflation they feel isn’t inflation at all. Therefore, central bankers and finance ministers roll out a cauldron of bubbling ghoulish acronyms to obfuscate the inflation they hoist upon the public in order to forestall the inevitable systemic deflationary collapse.

If you want to understand what aggressive credit deflation and destruction looks like, remember how you felt from US President Trump’s self-proclaimed “Liberation Day” April 2nd to April 9th when he TACO’d on tariffs.^[2] It wasn’t pleasant for the rich, because stonks dumped, or for everyone else because if global trade slowed to rectify a multi-decade buildup of economic, trade, and political imbalances, many would lose their jobs. Allowing rapid deflation is a sure way to spark a revolution and end your career or your life as a politician.

All this subterfuge, given time, because of the expansion of knowledge, always results in the plebes associating the acronym de-jour with money printing. Like any good drug dealer, the monetary mandarins must change up when the plebes get hip to the new slang. This linguistic dance excites me because when they change up, it means the situation is dire and the Brrrrr button shall be slammed with a force necessary to levitate my portfolio to new dimensions.

Currently, the establishment wishes to convince us that RMP ≠ QE, because QE is associated with money printing and inflation. In order for readers to fully understand why RMP = QE, I created several annotated accounting T-charts.

Why does this all matter?

Since the post-2008 Global Financial Crisis March 2009 lows, risky assets like stonks (S&P 500 and the Nasdaq 100 indices), gold, and Bitcoin flew out of the deflationary river Styx and notched up insane returns.

This is the same chart but normalized to a starting index value of 100 in March 2009. Lord Satoshi’s Bitcoin’s percentage appreciation is so magnificent that it deserves its own panel for readability against other traditional inflation hedges, i.e. stocks and gold.

If you wanted to be rich in the age of Pax Americana QE, you needed to own financial assets. If there is another age of QE or RMP or whatever the fuck they call it, hold the assets you have, and do whatever it takes to convert your shitty salary into more.

Now that you care whether RMP = QE, let’s do some money markets accounting.

Understanding QE and RMP

It’s time for accounting T-chart porn. Assets are on the left side of the ledger and liabilities on the right. The easiest way to understand how money moves is to depict it. I will illustrate the answer to the question of how and why QE and RMP create money that causes financial and goods/services inflation.

QE Step 1

[1]: JP Morgan is a primary dealer with an account at the Fed, and it holds treasury bonds.

[2]: The Fed conducts a round of QE by purchasing bonds from JP Morgan.

[3]: The Fed creates money out of thin air and pays for the bonds by crediting JP Morgan with reserves.

[EB - Ending Balance]: The Fed created reserves and purchased bonds from JP Morgan. What does JP Morgan do with those reserves?

QE Step 2

[1]: The Fed created money out of thin air, which are reserves. This money becomes stimulative once JP Morgan does something with it. JP Morgan will purchase another bond to replace the one sold to the Fed only if the new bond is attractive from an interest rate and credit risk perspective.

[2]: The US Treasury issues new bonds at auction, which JP Morgan buys. Treasuries are risk-free, and because in this example bonds yield more than reserves, JP Morgan will purchase the newly issued bonds.

[3]: JP Morgan pays for the bonds with reserves.

[4]: The Treasury receives the reserves into its Treasury General Account (TGA) which is its checking account with the Fed.

[5]: JP Morgan receives its bonds.

[EB]: The Fed’s money printer financed the increase in the supply of bonds (Fed + JP Morgan’s holdings).

QE Step 3

[1]: Money printing allowed the Treasury to issue more bonds at a cheaper price. This is purely financial asset inflation. Lower treasury bond yields will increase the net present value of assets with streams of future cash flows like stocks. Goods/services inflation occurs once the Treasury hands out goodies.

[2]: The Tim Walz Somali Daycare Center for Kids Who Can’t Read Good and Who Wanna Learn to Do Other Stuff Good Too receives a federal grant. The Treasury debts the TGA and credits the center’s JP Morgan account.

[EB]: The TGA funds government handouts, which creates demand for goods and services. This is how QE creates inflation in the real economy.

Bills vs. Bonds

A bill has a maturity of less than one year. The most traded treasury with a coupon is a 10-year bond, which is technically called a 10-year note. Bills yield slightly more than cash deposited at the Fed as reserves. Let’s go back to Step 1 and replace bonds with bills.

[EB]: The only difference is that the Fed exchanged reserves for bills. The QE money flow stops here because JP Morgan is less incentivized to purchase additional bills because the interest on reserves is greater than the bills yield.

The above chart is the IORB minus the 3-month T-bill yield, which is positive. A profit maximizing bank will keep money at the Fed rather than buying a T-bill with a lower yield. ^[3] Therefore, the type of debt security purchased with reserves matters. If the interest rate risk or duration is too small, the Fed’s printed money remains on its balance sheet, accomplishing nothing. Analysts argue that technically speaking, $1 of RMP purchases of bills is way less stimulative than $1 of QE purchases of bonds.

But what if the banks aren’t the ones holding the bills, but it’s another financial player? Money market funds (MMF) currently own 40% of T-bills outstanding, while banks only own 10%. Again, why would a bank purchase bills when it earns more money lending to the Fed at IORB? To understand the potential impact of RMP, we must analyze the decisions an MMF will make when the Fed purchases its holdings of bills. I will conduct the same analysis for RMP as I did with QE.

RMP Step 1

[1]: Vanguard is a licensed money market fund with an account at the Fed, and it holds treasury bills.

[2]: The Fed conducts a round of RMP by purchasing bills from Vanguard.

[3]: The Fed creates money out of thin air and pays for the bills by crediting Vanguard with funds held in the Reverse Repo Program (RRP). The RRP is an overnight facility with interest paid daily directly by the Fed.

[EB]: What else can Vanguard do with RRP balances?

RMP Step 2 (Vanguard buys more bills)

[1]: The Fed created money out of thin air, which became RRP balances. This money becomes stimulative once Vanguard does something with it. Vanguard will only buy another short-dated risk-free debt instrument if it yields higher than the RRP. That means Vanguard will only purchase another newly issued T-bill. As an MMF, Vanguard has various restrictions on the type and tenor of debt it may purchase with its investors’ money. Because of these restrictions, Vanguard typically will only purchase T-bills.

[2]: The US Treasury issues a new bill at auction, which Vanguard will ultimately purchase.

[3]: Vanguard pays for the bills by spending cash in the RRP.

[4]: The Treasury receives the RRP cash into its TGA.

[5]: Vanguard receives its bills.

[EB]: The Fed’s creation of money financed the purchase of newly issued Treasury bills.

The T-bill yield will never go below that of RRP because MMFs, as the marginal buyer of T-bills, will leave money in RRP if the yield is equal to that of a T-bill. Technically speaking, because the Fed can print money unilaterally to pay interest on RRP balances, it is a slightly better credit risk than the US Treasury, which must have congressional approval to issue debt. Therefore, MMFs prefer to keep cash in the RRP unless there are greater yields on T-bills. The reason this is important is that the T-bills’ lack of duration means that lowering the yield a few basis points because the Fed conducts RMP will not have much effect on financial asset inflation. Only if the Treasury spends the money it raised on goods and services will inflation show up in financial assets and goods and services.

RMP Step 2 (Vanguard lends to the repo market)

If newly issued T-bill ≦ RRP yields or the supply of newly issued T-bills is insufficient, are there any other investments MMFs can make that potentially cause financial asset or goods/services inflation? Yes. MMFs can lend cash into the treasury repo market.

A repo is short for repurchase agreement. In this example, a bond repo is when a MMF provides an overnight cash loan collateralized by a newly issued treasury bond. When the markets behave, the repo yield should be at or slightly below the upper bound of Fed Funds. Currently, the RRP yield equals Fed Funds or 3.50%. The current three-month T-bill yields 3.60%. But the upper bound of Fed Funds is 3.75%. If repo trades close to the upper bound of Fed Funds, a MMF is getting almost a 0.25% yield pickup (3.75% minus RRP yield of 3.50%) by lending in the repo market vs. in the RRP.

[1]: The Fed created RRP balances by printing money and purchasing bills from Vanguard.

[2]: The US Treasury issues bonds.

[3]: LTCM, an RV hedge fund back from the dead, purchases the bonds at auction, but they don’t have the money to pay for them. They must borrow money in the repo market to pay the Treasury.

[4]: Bank of New York Mellon (BONY) facilitates tri-party repo transactions. They receive the bonds as collateral from LTCM.

[5]: BONY receives cash drawn from Vanguard’s RRP balance. That cash shows up as a deposit at BONY which is then given to LTCM.

[6]: LTCM uses its deposit to pay for the bonds. The deposit becomes a TGA balance that the US Treasury holds at the Fed.

[7]: Vanguard withdrew cash from the RRP and lent it in the repo market. Vanguard and LTCM will decide each day whether they would like to roll the repo.

[EB]: The Fed’s printed money bought bills from Vanguard, which facilitated LTCM’s financing of its bond purchases. The Treasury can issue debt of long or short duration, and LTCM will purchase it at any price because repo rates are predictable and affordable. Vanguard will always lend at “appropriate” rates because the Fed printed money and purchased its bills. The RMP is a thinly disguised way for the Fed to cash the government’s checks. This is highly inflationary from both a financial and real goods/services perspective.

RMP Politics

I gots some questions, and the answers will surprise you.

Why wasn’t the announcement of the RMP included in the formal FOMC statement like all previous QE programs were?

The Fed unilaterally decided that QE is a monetary policy tool that stimulates the economy by removing interest rate sensitive long-term bonds from the market. The Fed considers RMP a technical implementation tool that does not stimulate the economy because it removes T-bills from the market that are cash-like instruments.

Is the RMP subject to a formal FOMC vote?

Yes, and no. The FOMC instructed the New York Fed to implement RMP such that reserves remain “ample”. The New York Fed can unilaterally decide to increase or decrease the size of RMP T-bill purchases until the FOMC votes to end the program.

What is the level of “ample reserves”?

It is a nebulous concept with no fixed definition. The New York Fed decides when reserves are ample and when they are deficient. I will explain in the next section why Buffalo Bill Bessent controls the level of ample reserves. In effect, the Fed handed over control of the short-end of the yield curve to the Treasury Department.

Who is the New York Fed president and what are his views on QE versus RMP?

John Williams is the president of the New York Fed. His next five-year term begins in March 2026. He ain’t going nowhere. He has been a vocal proponent of the theory that the Fed’s balance sheet must expand to ensure there are “ample reserves”. His voting record on QE is very supportive, and publicly he is all for money printing. He believes RMP is not QE, and therefore not economically stimulative. This is great because when inflation inevitably rears its ugly head, he will proclaim, “It ain’t my fault,” and continue printing money using the RMP.

Unlimited Unchecked Money Printing

The sophistry surrounding what is QE and not QE and what level of reserves are “ample”, allows the Fed to cash the checks of the politicians. This ain’t QE, this is Money Printer Go Fucking Brrrrr! Every past QE program featured an end date and a maximum amount of bonds to be purchased each month. Extension of the program required a public vote. RMP can theoretically expand infinitely as long as John Williams wishes it so. And John Williams is not really in charge because his economic dogma doesn’t allow him to consider that his bank is directly fueling inflation.

Ample Reserves and RMP

The RMP exists because the free market cannot handle the too beaucoup Alabama black snake that is a surge in T-bill issuance. Reserves must grow in lockstep with T-bill issuance or else the market seizes up. I discussed this in my essay “Hallelujah”.

Here is a table of the total amount of marketable Treasury debt securities issued from fiscal year 2020 to 2025:

In short, the US Treasury’s addiction to cheap short-term funding continues to grow despite Buffalo Bill Bessent’s assertion that Bad Gurl Yellen refusal to term out the debt was a policy error of epic proportions. As it stands now, the market must absorb ~$500 billion per week of T-bills, which is up from ~$400 billion per week in 2024. The ascension of Trump, who campaigned on deficit reduction, did nothing to change the trajectory of increased gross T-bill issuance. And it doesn’t matter who is in charge because if Kamala Harris had won, the issuance schedule would be the same.

The driving force behind why gross T-bill issuance is large and growing is that the politicians will not stop handing out goodies.

The CBO and primary dealers both agree that deficits will be >$2 trillion for the next three years. Nothing stops this train of profligacy.^[4]

Before I discuss arguments put forward why RMP ≠ QE, I want to offer a prediction on how Buffalo Bill Bessent will use the RMP to juice the housing market.

RMP Funded Buy Backs

I know this is painful for some of you punters, but think back on the events in early April this year. Right after Trump TACO’d on tariffs, Buffalo Bill Bessent in a Bloomberg interview proclaimed he could use buy backs to calm the Treasury market. Since then, the gross notional of Treasury buy backs increased. Through the buyback program, the Treasury uses proceeds from T-bill issuance to buy back older off-the-run debt. If the Fed prints money to purchase T-bills, in effect directly financing the Treasury, then the Treasury can increase the gross issuance of T-bills and use part of those proceeds to buy back longer-dated Treasury notes and bonds. Specifically, I believe Bessent will use buy backs to purchase 10-year treasuries, thus reducing the yield. In this way, Bessent can magically remove interest rate risk from the market using the RMP. Actually, that is exactly what QE does!!!!!

The 10-year yield is very important for the 65% of US households that are homeowners and those poor first-time home buyers. Lower 10-year yields help US households take out home equity loans to fund greater consumption. In addition, the mortgage rate will decline, which helps housing affordability. Trump is very vocal about his belief that mortgage rates are too high, and if he can deliver on this, it will help the Team Red Republicans stay in power. Therefore, Bessent will use the RMP and buy backs to purchase 10-year treasuries and reduce mortgage rates.

Let’s quickly step through some US housing market chart porn.

There is plenty of home equity available to lever up.

The refinancing wave is just beginning.

The current levels of refinancing are nowhere near the 2008 housing bubble peak.

If Trump can deliver on housing affordability by reducing financing costs, the Team Red Republicans could defy the current odds and maintain their majority in both houses of the legislature.

Bessent hasn’t gone on record saying he would use buy backs to pump the housing market, but if I were him, I would use this new money-printing tool in the ways described above. Now let’s hear the arguments why RMP ≠ QE.

Haters Gonna Hate

Here are the barbs the haters throw at the RMP program regarding its ability to create financial and goods/services inflation:

- The Fed buys T-bills via RMP and longer-duration bonds via QE. Without the duration, T-bill purchases will have little to no effect on financial markets.^[5]

- RMP will end in April because that is when tax payments are due, after which the repo markets will normalize because of a less volatile TGA.

My accounting T-charts clearly show how the RMP’s T-bill purchases directly fund new Treasury debt issuance. The debt will fund spending, which causes inflation, and it might lower yields on longer-term debt via buy backs. Even though the RMP transmits easing via T-bills rather than bonds, it still gets the job done. Splitting hairs is a surefire way to underperform the market.

The growth in gross issuance of T-bills invalidates the notion that the RMP’s usefulness ends in April. There is a structural shift towards funding the US government with T-bills driven by necessity.

This essay knocks down those two criticisms and gives me the confidence that the four-year cycle is dead. Bitcoin clearly doesn’t agree with my arguments, gold thinks they are “meh”, but silver is going rock ‘em sock ‘em robots. All I can say to that is patience, degen, patience. The market continued puking after former Fed chairperson Ben Bernanke announced QE1 in late November 2008. The markets didn’t bottom until March 2009, but if you stayed on the sidelines, you missed a great buying opportunity.

Bitcoin (white) is down 6% since the launch of RMP, while gold is up 2%.

Another piece of liquidity that the RMP will change is the correct observation that many of the world’s major central banks (e.g. ECB and BOJ) are reducing the size of their balance sheets. Balance sheet reduction is not compatible with crypto Up Only. As time passes and the RMP creates billions of dollars of new liquidity, the dollar’s exchange rate versus other fiat currencies will plummet. While a falling dollar is great for Trump’s America-first re-industrialization plans, it is terrible for global exporters who face not only tariffs but a rising domestic currency versus the dollar. China, Germany, and Japan will use the PBOC, ECB, and BOJ respectively to create more domestic credit to arrest the rise of the yuan, euro, and yen against the dollar. With their powers combined, in 2026 the Fed, PBOC, ECB, and BOJ will accelerate the destruction of fiat money. Hallelujah!

Trading Outlook

$40 billion per month is great, but as a percentage of dollars outstanding, it’s much less in 2025 than in 2009. Therefore, we cannot expect its credit impulse at current financial asset prices to be as impactful. For this reason, the current misguided belief that RMP < QE in terms of credit creation, and the uncertainty of RMP’s existence post-April 2026, will cause Bitcoin to chop between $80,000 and $100,000 until the new year begins. As the market equates RMP to QE, Bitcoin will quickly retake $124,000 and punch quickly towards $200,000. March will mark peak expectations for the power of the RMP to ramp asset prices, and Bitcoin will decline and form a local bottom well above $124,000 as John Williams keeps his grubby fingers firmly planted on the Brrrr button.

Shitcoins are sickly. The October 10th wipeout materially harmed many individuals and hedge fund liquid traders. I believe that many LPs of liquid funds saw their October NAV statements and said, “No Mas!”. The redemption requests flooded in, causing the persistent bid smacking. It will take time for the altcoin complex to heal, but for those who husbanded their precious capital and read the fucking documents about how exchanges operate, it’s time to dumpster dive.

In terms of shitcoins, my favorite is Ethena (token: $ENA). As the price of money falls because of Fed rate cuts, and the quantity grows because of RMP, Bitcoin rises and creates a demand for leverage supplied by synthetic dollars within the crypto capital markets. This boosts the cash and carry or basis yield, which causes folks to create USDe to lend at much higher rates. Most importantly, the spread between the T-bill and crypto perp basis yield widens in favor of crypto. The increase in the Ethena protocol interest income flows back to the ENA treasury, which ultimately will fuel buybacks of the ENA tokens. I expect the USDe circulating supply to rise, and this will be the leading indicator of a sharp rise in ENA. This is purely a TradFi vs. crypto USD rates play, and a similar setup presented itself when the Fed began its easing cycle in September 2024.

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^[1] The Fed is short for the US Federal Reserve.

^[2] TACO - Trump Always Chicken’s Out

^[3] IORB - Interest on Reserve Balances

^[4] CBO - Congressional Budget Office

^[5] Duration and interest rate risk are synonymous.

(Any views expressed here are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)

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Less than a decade ago, the elevated and distinguished TradFi scallywags heaped scorn and disdain ‌on the 100x leverage crypto derivatives market BitMEX created using this new derivatives contract called a perpetual swap. When I read missives from Jim Grant of Grant’s Interest Rate Observer and Dan Oliver of Myrmikan Capital highlighting the insanity that BitMEX offered such WMD’s for crypto, I smiled. But how things change. Suddenly TradExchanges, such as the SGX (Singapore) and CBOE (United States) will each launch perps or similar products by the end of 2025.^[1] In the Pax Americana retail arena, the calls to bestow upon plebes and patricians alike the privilege of trading perps sans VPN resulted in Coinbase listing a bastardized version of the perp, similar to the CBOE’s version, earlier this year. Other intrepid entrepreneurs within the declining empire who wish to have a crack at chopping down the dominance of the CME will have their chance in a proposed CFTC-administered regulatory sandbox.^[2] Supposedly after going after yours truly and others within the crypto derivatives space, the CFTC turned over a new leaf and is a friend of financial innovation once more.

What is it about the perp that created an “Adapt or Die” moment for TradFi? Why will derivatives trading volume across the world and across all financial assets migrate from dated futures and options contracts to never-expiring perps? To answer these questions, I will first provide a perp history lesson, which will explain why and how myself and BitMEX invented this new financial primitive. Then I will break down the fundamentals of perps and why they are a better derivative for an internet-connected world that operates 24/7, 365. Finally, I will provide my opinion on the likely trajectory of perp’s adoption outside of crypto and why TradExchanges will adapt their product offering to include perps and a socialized loss margin system or quickly die at the hands of both centralized (CEX) and decentralized (DEX) crypto exchanges.

Hyperliquid, the hottest new DEX on the block, launched a permissionless protocol, HIP-3, which allows a firm called XYZ to create a Nasdaq100 equity perp. The said contract now trades more than $100m per day and is one of the largest contracts by ADV listed on Hyperliquid.^[3] Equity perps will become the hottest product of 2026, all DEXs and CEXs, like my beloved BitMEX, will offer them by the end of next year. This product will completely upend the equities derivatives trading market, which so far has beaten back the tides of progress regarding market access and competition from a diverse set of venues. If you invest in the tokens or equity of exchanges, it behooves you to understand everything there is to know about perps.

Know Your History

If you want to subjugate a foreign population, rob them of their history. Back in my younger days, my parents always supplemented the official narrative taught in school with other reading on a particular subject. Not that they had a prescriptive alternative version of known facts; rather, they encouraged me to question the official narrative and fed me books with different viewpoints. Obviously, most of this scholarship emanates from the lack of positive and truthful narratives surrounding “blackness” within the American experience. And my parents wouldn’t permit me to grow ignant as intended by the public and private school system.

In that light, I offer this firsthand account of the history of the perpetual swap.

There are a lot of folks who came out of the woodwork recently opining on the importance and genesis of the crypto perpetual swap, often referred to as “perps”. Given that they are telling my and BitMEX’s story, usually incorrectly, let’s get the record straight. As with everything in life, the BitMEX team relied on the prior art of others to create perps and its supporting margin system. I take offence to anyone who diminishes the accomplishments of my team by stating it’s just Robert Schiller’s design from the 1990s that was popularized by BitMEX and the crypto industry. Fuck You! That is bullshit. Read on to understand why.

Let’s travel back to May 2016, when BitMEX was a company of five folks. Ben Delo and Sam Reed were my other two co-founders, and our first two employees were Greg Dwyer (business development) and Jinming Shao (trading engine engineer). The crypto derivatives landscape was in some ways similar and ‌different from what it is today.

OKCoin (now OKX) and Huobi (now HTX) dominated the crypto derivatives market. Between them, they controlled ~95% of the market by ADV. BitMEX was a distant third, and frankly irrelevant. While we had the highest leverage (100x) of any exchange, our futures contracts’ liquidity paled compared to OKCoin and Huobi. The most liquid contract at the time was a Bitcoin-margined quarterly expiring futures contract.^[4] At BitMEX, we tried many things to boost the liquidity on our contracts. Back then we had calendar spreads, daily, weekly, monthly, and quarterly futures contracts. In short, we spread liquidity out amongst our various XBT/USD futures contracts too thin.^[5] We routinely asked ourselves, is there a way to create one product with no expiry so we can concentrate liquidity onto one contract?

We also asked ourselves how to simplify derivatives trading to better appeal to folks who graduated from margin trading. Margin trading is intuitive to understand because a trader just borrows money and trades on the spot order book. Understanding expiry dates and the price difference or basis between futures and spot is unnecessary for a trader to grasp when margin trading. But when these traders graduated to trading futures, they were confused. Because Ben, Sam, and I answered every customer support question ourselves, we always endeavored to lessen our daily load so we could get onto other work. A product that looked and felt like margin trading would remove the need to answer many questions from confused clients.

The first iteration of the perp grew out of trying to solve these two issues. Ben and I reached out to a few folks who were avid BitMEX supporters in Hong Kong and very good financial engineers. We asked them (Joseph Wang & Bhavik Patel) for ideas on how to create such a product. What came back was something that looked a lot like Robert Shiller’s perpetual futures contract he wrote about in a paper published in 1993.

Our first perp swap was a product where longs and shorts exchanged future cash flows based on a USD and XBT funding rate that updated daily. The dominant crypto spot and margin trading exchange at the time was Bitfinex, which offered a liquid peer-to-peer lending market. Users could borrow and lend through these markets, and this directly influenced the interest rates margin traders paid. This was the design of the first perp we launched in May 2016. The margin system used an insurance fund combined with a socialized loss mechanism called Dynamic Profit Equalization; we jokingly referred to internally as the Double Penetration Experience. We rolled out the XBTUSD perpetual swap, delisted the Bitcoin/USD daily and monthly futures, but left the quarterly futures contracts. Confusion abounded among most clients, and our support ticket volume soared. One of the biggest mind fucks to traders was the funding rate. They didn’t understand the calculation. Customers berated us on the forums, in our TrollBox, and via support tickets. They demanded we remove the perp and be like OKCoin which offered the most liquid quarterly futures contract. Internally, a split emerged between those for keeping the product and those for going back to only offering futures contracts.

The confusion was bad enough, but the rapidly ascending price of Bitcoin presented another problem. The success of Schiller’s design requires the home and foreign currency interest rates to be dynamic enough to influence behavior. If these rates are not responsive enough to the market, the perp will trade at a big discount or premium vs. spot called the basis. With Bitcoin in 2016, the price was rising rapidly, so it was hard to find traders to short the market. Another way of putting it, is that synthetic dollars used to purchase spot and leveraged Bitcoin on exchanges were in short supply.^[6] Somehow, we needed to increase the supply of synthetic dollars on BitMEX. In Schiller’s design, the observed market USD to XBT interest rate differential does this. USD rates should be higher than XBT rates if Bitcoin is rising rapidly in dollar terms. On Bitfinex, USD yielded 1% per day and Bitcoin much less. That is a sizable difference, but when Bitcoin is pumping 10-25% a day, it isn’t high enough to entice arbitrageurs to synthetically lend dollars by selling the perp and buying Bitcoin in a market-neutral fashion. Given that an external platform provided the USD and XBT interest rates, we had no control over them at BitMEX. The result was that our swap traded at a high and rising premium to spot.

The issue with a large basis between the perp and spot is that it creates a problem for the margin system. To illustrate this, I will provide a stylized and extreme example.

XBTUSD (the perp swap) = $1,000
XBT (spot) = $500

Basis = $500

For traders, you can mark their position at the current perp or spot price. If we mark to spot, longs have an unrealized loss of $500 and shorts an unrealized gain of $500. In order to ensure that longs can meet their margin requirements, we must add an additional $500 margin charge. If we mark to the perp, there is no additional margin charge for longs, but if the perp quickly snaps back to the spot price, then the longs are underwater by $500 and the shorts cannot profit. In order to prevent socialized loss situations, we marked traders to spot.^[7] This resulted in higher margin requirements for longs. This is not ideal as it makes trading too expensive relative to our competitors that don’t require longs to post this extra margin. I recognized the problem we faced and began working on a solution, but it would be a while before market situations prompted its implementation.

For those internally who were skeptical about whether we should continue offering the perp, this market dysfunction validated their opinion. I believed this product was our future and salvation as an exchange, but I needed to come up with a solution to this problem otherwise the negative feedback would force us to revert to futures. My solution was to create a look back index that recorded the basis between the swap and spot. This basis, subject to some limits, becomes the next period’s funding rate. E.g. if the perp traded at an average 1% premium to spot over the last eight hours, if you held a position at the funding period timestamp, longs would pay 1% to shorts.

To prevent insta-liquidation at the funding timestamp (12:00 UTC, 20:00 UTC, 04:00 UTC), we auto-rebalanced unrealized and realized PNL and capped the funding rate using this function:

Min (Funding Rate, 75% * Maintenance Margin or 0.5%)

To dial up and down the sensitivity of the funding rate to the premium index, one just shortens and lengthens the time between funding periods, respectively. E.g. if you charged funding every hour, the maximum daily cumulative funding paid is 0.35% * 12 = 4.20% PER DAY.

Ben, Jinming, and I worked out how to implement this new funding calculation from a trading engine and markets structure perspective for a week. Ben and Jinming added the functionality to our trading engine quickly. The functionality was ready to go; it just took extreme market dysfunction to force us to roll it out.

Our fucked-up markets pissed clients off. Sam wanted to kill the swap, and I persuaded him that if we rolled out the premium index that within a few days the market would fix itself. For good and for bad, BitMEX was not an Arthur Hayes dictatorship but a triumvirate of Arthur, Ben, and Sam that ruled by consensus. I got a stay of execution for the perp and went about fixing the market in true Arthur Hayes style. Subtlety is not one of my virtues, and I decided that an abrupt change over a weekend in mid-June 2016 would be the most effective course of action.^[8]

I announced that 24-hour hence, the funding mechanism would change to the look back premium index. The perp was trading at a large premium, and post the announced changes it contracted immediately, as longs closed positions in anticipation of large funding payments. The funding payments would increase substantially because of the large perp price premium versus spot. By Monday morning, the perp was trading much closer to spot, lessening the market dysfunction. I told Sam to give it another day, and the basis would be minimal because of the power of high interest rates. The perp began behaving nicely by the time Ben, Jinming, and I arrived at our Lai Chi Kok office for dim sum on Monday. Thankfully, my hunch about creating a self-corrective mechanism to alter funding amounts based on a prior period’s basis worked, and internally the calls to remove the perp evaporated.

The only major subsequent change to the product design was the introduction of Automatic Deleveraging (ADL). We copied the Huobi ADL mechanism but made a few tweaks. The biggest issues with Huobi’s implementation of ADL were that traders couldn’t estimate their probability of their position being closed early in profit, and when ADL’d traders lost their entire position. Therefore, our innovation was to create a ranking system based on a few factors and allowing for partial ADL. The front-end presented traders with a heat bar that showed them the probability of their position being ADL’d. The partial ADL feature allowed the exchange to close out less than the entire position in order to balance the profit and loss from longs and shorts.

Over the next few months, we slowly phased out all dated futures contracts on Bitcoin and then altcoins. Day by day, traders became comfortable with how perps traded and grew to like the product. One day in late 2017, BitMEX overtook OKCoin as the most liquid derivatives exchange, and by the end of 2018, BitMEX was the largest crypto exchange by volume globally across spot and derivatives.

Everyone stands on the shoulders of others. I want to list the prior art that led to the creation of perps to give credit where credit is due.

ICBIT:

This was the first crypto derivatives exchange. They invented the inverse futures contract. That means that the margin & PNL currency, Bitcoin, was the same as the home currency. E.g. Each contract is worth $100 of Bitcoin at any price. The contract’s dollar exposure is $100 regardless of the price of Bitcoin. In Bitcoin terms, the exposure is 1/x. This is an exotic derivative, but it works because the exchange only accepts Bitcoin deposits. This was where I first traded Bitcoin futures, and I modelled the inverse contracts at BitMEX based on their design.

Robert Schiller:

As I explained earlier, he wrote a paper in 1993 about a perpetual futures contract. The interest payments exchanged between longs and shorts were determined by an exogenous pricing source. I never read his paper, but I imagine his ideas influenced the advice we received from Joseph Wang and Bhavik Patel.

Chinese Commodity Exchanges:

The concepts of socialized loss, ADL, and the insurance fund originated here. 796 was the first Chinese domiciled crypto derivatives exchange to use a socialized loss system. 796’s tech stack and understanding of exotic derivatives couldn’t cope with offering degen’s 50x leverage. Ultimately, because of its poor implementation, the high weekly socialized loss tax rates gave OKCoin and Huobi an opening to steal all their Chinese clients.

To be fair, back then most crypto traders couldn’t price a quanto and inverse Bitcoin futures contract correctly. When BitMEX started, we offered both types of futures. Our anchor market maker, which still is one of the largest crypto prop shops, got smoked by mis-pricing these contracts even after I told them their maths was wrong. Their revenge was to rage quit the exchange for three years after they essentially blew up.

OKCoin:

The first iteration of BitMEX’s margin system mimicked the socialized loss system of OKCoin.

Huobi:

Many features of Huobi’s inspired BitMEX’s ADL margin system.

Thanks for reading this perp history lesson. But who gives a fuck? Why did this invention from a no-name exchange in Hong Kong create a movement that will change the derivatives trading patterns of most financial assets? To understand that, I will step through why ‌perps appeal to retail traders.

The Perfect Retail Trading Product

Perps plus a socialized loss margin system solve for the two L’s: Leverage & Liquidity. Therefore, retail traders love perps. And because retail traders love perps, they threaten the TradExchanges’ rent-seeking behavior.

It is very difficult for retail traders to obtain high leverage because in most jurisdictions retail traders cannot access derivatives markets offered by TradExchanges. Therefore, they gravitate to shady bucket shops offering highly leveraged contracts for difference (CFD). When trading CFDs, punters face the bucket shop directly, whereas with perps and futures, clients trade on a transparent orderbook. If the bucket shop is dodgy, it will not allow clients to get in and out of positions at reasonable prices. If traders wish to avoid non-consensual ass-fucking by CFD bucket shops, their only way to get their leverage fix is to use options. This is why products like 0DTE options are so popular in many markets. The implicit leverage is insane on these products. The problem with options is that the contracts’ return doesn’t vary one to one with the underlying asset like a futures contract does. In industry speak, futures are “delta one” products. I was a delta one trader for my brief TradFi career. Back in the early days of perps, because of their understanding of delta one derivatives, some of BitMEX’s best traders were my former colleagues on delta one desks across Hong Kong. Some folks used to devote one of their many screens on the trading floor to trading BitMEX perps during work.

To really grasp why perps are so transformative, I need to delve deeper into how margin systems work in TradFi and in crypto.

One reason TradFi exchanges cannot offer high leverage to retail is that their clearinghouses guarantee settlement. If the losing side goes bankrupt, the clearinghouse must possess enough paid-in capital to pay out the winners. As a result, the exchange uses the courts to go after all assets of any bankrupt trader. But in crypto, the situation is completely different. The volatility of crypto is very high. Couple that volatility with high leverage, and it’s a recipe for mass liquidations. For us crypto exchange owners, it isn’t feasible to recover crypto using the courts because the cryptos we must recover are bearer assets. In TradFi, you don’t own your financial assets; an intermediary does. Thus, the courts can easily instruct a bank, which as an arm of the government will always follow the court’s decision, to send your assets to the TradExchange to settle your debts. A court cannot tell the Bitcoin blockchain to send Bitcoin from one address to another. As a result, crypto exchange margin systems can only count on the initial margin posted to satisfy liquidations. Therefore, the socialized loss system combined with an insurance fund is absolutely necessary to operate a crypto derivatives exchange.

Another reason TradExchanges cannot offer 100x leverage is that their clearinghouses are woefully under-collateralized. I did some research a few years back on the capitalization levels of the largest global clearinghouses. I learned some scary shit. Given that crypto is a 24/7 market that governments and central banks cannot manipulate like equities, bonds, and FX, a large price movement up or down in Bitcoin for example coupled with a large open interest in the derivatives market could destroy the largest exchanges globally. Therefore, the margin levels on crypto and other derivatives offered by TradExchanges are much lower than their native crypto competitors. This is an important point to understand when comparing the new equity perp products launched by Hyperliquid and BitMEX (coming soon) that feature high leverage (20x) versus the low levels of leverage offered on equity futures contracts listed on TradExchanges. Retail will eschew the TradExchange equity derivatives offering for the high-leveraged equity perp offerings of crypto exchanges. The only way for TradExchanges to compete is to alter the clearing model of the entire global derivatives market, which I don’t see happening anytime soon. The history of leverage at BitMEX offers an instructive case study.

BitMEX started out with a guaranteed settlement margin system. As a result, we could only offer 3x leverage. Our insufficient leverage as compared to our Chinese competitors was the major reason that for the first nine months of operation, we traded effectively $0 volume. To compete, I switched our system to a socialized loss one, which combined with our superior trading engine tech allowed us to increase leverage to 100x by October 2015. Quickly thereafter, our trading volumes mooned and brought the exchange to profitability.

The crypto derivatives exchange provides the client with the high leverage they cannot obtain in TradFi, but the cost is that if the price moves too quickly up or down, sometimes traders don’t realize their full profit. This is perfect for crypto because if we didn’t have perps, using options to obtain leverage would be too expensive. Nick Andrianov, Maelstrom’s head trader, who used to run exotic derivatives at Deutsche Bank Hong Kong, always points out how inefficient crypto options are vs. perps regarding leveraged trading. He told me that a 30 implied vol Bitcoin/USD call option with a month to maturity would only return 3.1x on equity if the price of Bitcoin moved up 10% in a day. Let’s contrast that with trading a perp on 100x leverage. The initial margin is 1%; e.g. you put down 1 BTC of margin for a position size of 100 BTC. BTC rises 10% in one day, which means your unrealized profit is 10 BTC or a 10x return on equity.

Being right trading options on a high-vol asset is less profitable than being right trading a highly leveraged perp. Therefore, traders use perps rather than options to obtain leveraged exposure.

Let’s move on to the next L - Liquidity.

Because perps never expire, it removes the need to split liquidity across a strip of futures contracts. The invention of perps allowed us at BitMEX to merge liquidity onto one contract. This gave us the critical liquidity mass to attack the leadership of OKCoin and Huobi, who split liquidity across several quarterly futures contracts. Another benefit of only having one contract per crypto is that it is easier to understand from a UI/UX perspective for a retail trader. The user doesn’t have to figure out which contract is the best one to trade given their objectives. There is only one option, and it’s very liquid.

When you discover the Lord, you must spread the gospel. And after the perp made BitMEX into the largest exchange in the world, it was time to attack other markets.

The Empire Strikes Back

The understatement of my life is that perps and TradFi were not a match made in heaven.

I wholeheartedly believe that perps are a better product than futures and options contracts for the vast majority of traders and, most importantly, for the exchange itself. This belief that I was selling a superior and safer product naively provided confidence that I could convince regulators of its merits. I wanted BitMEX to own the market for crypto-enabled trading of any asset class. That is how I thought we could destroy the CME. I came to this conclusion by evaluating perps vs. TradFi futures and options on these variables:

Collateral Usage & Safety:

Because perps allow for high leverage, clients don’t have to keep as much collateral on the exchange. For TradFi exchanges where banks custody fiat margin, this is not a concern. But for crypto exchanges, where hacks routinely happen, clients must be hypervigilant about where and how much collateral they leave on exchange.

If fiat stablecoins become the means by which clients fund their TradExchanges accounts in the future, security of bearer blockchain assets even for TradFi becomes a genuine issue, and they will appreciate why crypto exchanges prefer clients minimize the amount of capital left on exchange.

Financial Safety:

With a socialized loss margin system, the most a crypto trader can lose is their initial margin. No matter how terrible of a trader they are, cough cough James Wynn, losses on crypto exchanges cannot affect their off-platform finances. Contrast this with TradFi, where a James Wynn type degenerate could destroy his entire financial net worth because the exchange comes after all his financial assets to settle debts.

Exchange Safety & Competition:

The exchange can offer highly leveraged trading on high volatility assets because settlement isn’t guaranteed. The users accept that sometimes profitable traders do not receive all their winnings for the ability to trade using 100x leverage. Because it is not a prerequisite to have a fuck ton of paid-up capital to support guaranteed settlement of a conventional clearinghouse, the number of exchange offerings rises. Exchanges compete to offer differentiated products. In TradFi, most domiciles have one national derivatives exchange, and the combination of government support and a large capital base used to support a guaranteed settlement clearing house, prohibit any competition.

By mid-2018 because I believed perps supported by a socialized loss margin system were the safest way to offer a large retail trading public access to highly leveraged derivatives, I figured it was time to meet the CFTC in the US to grant us a license. My goal at the time was to make BitMEX bigger than the CME, which then, as it is now, is the largest derivative exchange globally. This required entering and dominating the US derivatives market. With our lawyers, ‌ Sullivan & Cromwell, we set up a meeting in Washington, D.C. with the CFTC Labs and CFTC markets divisions. The goal of the two meetings was to ascertain whether the CFTC was interested in accepting a DCM and DCO license application to bring BitMEX’s perps and our socialized loss margin system to the US market.^[9]

We spent the morning meeting with both teams. They asked very intelligent questions… I explained in-depth how BitMEX operated including the perps product and the socialized loss margin system. A few weeks later, I learned the CFTC was not interested in receiving our license application. And that was that until over two years later, the US Department of Justice and CFTC indicted us for criminal and civil violations of the Bank Secrecy Act and Commodities Exchange Act.

I was very naïve to think that the CFTC would appreciate my sound arguments. The CFTC, like all regulators, is in the business of protecting the status quo. No amount of logic is going to persuade them to allow competition if they believe the current market structure is adequate. Allowing true innovation into finance is something regulators globally are reluctant to do because it could cause the fall of their national financial champions. To his credit; and he doesn’t deserve much, Sam Bankman-Fried (SBF) capitalized on the mistake we made at BitMEX. He and his politically connected mommy and daddy attempted to accomplish the same thing, bringing perps to the US and going head-to-head with the CME, by doing it the American way… donating a fuck ton of money to politicians (mostly the Democratic Party).

When you ask folks why they invested in FTX, or believed SBF would be successful, they bring up the fact that SBF’s parents were Stanford professors with close ties to the Democratic Party. I don’t know about now, but they were some of the largest campaign finance bundlers for the party. When we talk about American campaign finance, the terms used connote a certain amount of legitimacy. We talk about “donations” and “bundling”; but when the West talks about other countries and their campaign finance regimes, it’s all about “bribery” and “corruption”. What Western investors duped by SBF were saying in polite terms was that SBF was legally bribing the right people.

Some of my detractors might counter that I’m just a sourpuss who lost and am throwing shade at a man who can’t reply so quickly because of his current incarceration. But one remembers that by mid-2022, FTX was on the cusp of obtaining a banking license to offer its own stablecoin, and a DCM and DCO license from the CFTC. Observe the photo library below, and you come away with the impression that SBF is a trusted pal of the establishment even as his business is attempting to destroy one of their largest corporate donors, the banking system. The right kind of white boy walks into the lion’s den and gets a hug; this nigger walks in and catches a charge. It is what it is; read my essay “White Boy” for a more in-depth discussion on how SBF used stereotypes to his advantage and to the detriment of his clients, investors, and global regulators. SBF and FTX.us handed out close to $100m in campaign donations, and if he hadn’t been a no-talent ass clown regarding risk management and trading, FTX would be bigger than Binance at this current moment.

Awe that’s cute. US House of Representatives Maxine Waters, to the right of SBF, was the Chairperson of the powerful House Committee of Financial Services from 2020 to 2022, the glory days of FTX. See, it’s not racial. This is the post-racial American future Dr. Martin Luther King envisioned when he gave his I Have a Dream speech in 1963.

Former US President Biden appointed Caroline Pham as a CFTC commissioner in early 2022. SBF sure knows how to schmooze with the right folks. The closest I ever got to a CFTC commissioner was at a CME-sponsored piss-up in Boca Raton, Florida, in 2018.

Money talks …

The acceptance of perps by regulators and TradFi in the US and abroad suffered a serious body blow after FTX/Alameda imploded. That is because the US Team Blue Democrats switched from ambivalent to outright hostile regarding crypto. Leading politicians trusted SBF because he was the right kind of white boy, who went to a prestigious university, and his parents were political heavyweights. To remove the stench of their complicity in SBF’s caper, they set out to prove that all along they had opposed scammy crypto. Therefore, the various US regulatory agencies went hard at US crypto folks from late 2022 to early 2025 when US President Trump retook the throne. Trump and his family’s change of heart from crypto detractors to cheerleaders bears some examination.

Trump’s pro-crypto stance is both smart politics and revenge. It’s smart politics because the Democrats alienated a rich, vocal, and growing constituency. The transformative nature of crypto allowed SBF and others to accumulate billions of dollars of wealth within only a few years. The American crypto nouveau riche eagerly supported any politician who deemed them worthy of their support. Trump and his ‌Team Red Republicans raised hundreds of millions from wealthy crypto individual donors, companies, and PACs.^[10] And in 2024 this money helped Trump win a landslide victory over Democrat presidential candidate Kamala Harris and for the Republicans to take the House of Representatives and the Senate. This was one of the most resounding victories in modern American political history.

It’s revenge because Trump’s opponents violated the rules of the game by debanking his family after he left office in 2020. Trump is part of the establishment. Just go through photos of him with the great and the good of New York City, the capital of the empire, over the past 40 years. There is a line that Trump’s opponents crossed by going after him criminally and financially. Usually when the elites disagree within the context of the kabuki theatre that is the four-year presidential election cycle, it’s for public consumption to show the plebes that the Team Blue Democrats and Team Red Republicans have different political platforms when in reality they are both about promoting the longevity of the elite. Whatever the deed, past presidents always get a pass from the next administration. Even Richard Nixon got a pardon. But not so with Trump. Civil and criminal convictions for a variety of offenses followed his loss in the 2020 elections. To rub in his defeat, the Team Blue Democrats debanked the Trump family from 2021 to 2025. From a man who was at best dismissive of crypto, he and his family now understood the pernicious power of banks. They also understood the necessity of non-political hard money like Bitcoin. Trump embraced Bitcoin and crypto out of necessity. If you listen to the rhetoric from his sons, they clearly state that one of the major reasons their family went all in on crypto is their experience with the banking system during the Biden administration. Now that Trump is back, it is time to dismantle the financial system that almost destroyed his family and his business empire by allowing crypto to compete against the TradFi. Therefore, in 2025, it’s time for the TradFi to adapt or die to perps and other crypto innovations.

The reason I went through this history of perps’ regulation in the US is twofold. First, most global TradFi regulators follow the US like lemmings. It’s a cover your ass situation. No regulator can lose their job because they followed the Empire’s financial regulations. But if a regulator acts differently, and suffers an adverse outcome, they will certainly get shown the door. Therefore, if the US is embracing perps for whatever reason, it gives regulators permission to embrace them too. SGX, for example, launched perps as soon as Trump made crypto acceptable again for TradFi regulators. Second, I want to offer this history as proof that the state of play won’t change at a minimum until 2029 when Trump’s reign concludes. By then, the largest S&P 500 and or Nasdaq 100 derivative will be an equity perp traded on a crypto exchange rather than a contract traded on the CME. By this point, perps will be too large in influence to destroy if the next Pax Americana emperor is anti-crypto.

Before I move on to how perps will completely upend stonk trading, I want to offer this perspective on their power based on the wealth creation of a few perps’ main characters. Chengpeng Zhao (CZ) co-founder of Binance, is, I believe, one of the top ten richest humans in the world who is not a political leader. He achieved this in under a decade. And I trace the rise of his wealth directly to when Binance took over from BitMEX as the largest exchange in the world in March 2020 off the back of the Bitcoin COVID price collapse. Binance took perps to another level in terms of adoption, which, coupled with their dominance in the altcoin trading space, created a crypto exchange juggernaut. SBF created FTX after trading perps for his hedge fund Alameda on BitMEX. SBF achieved dollar billionaire status the fastest ever in human history, at least on paper, through the growth of FTX, which essentially only offered perps. Jeff Yan from Hyperliquid is probably a dollar billionaire if not very close to it after creating the fastest-growing perp DEX and ultimately might become the largest exchange ever in human history if my stablecoin thesis plays out. The next crop of crypto billionaires in the exchange space will come from the intersection of perps and stonks.

Equity Perps

TradFi is clinging for dear life to its dominance of equities trading. The public stock markets are politically and financially very important to the establishment. It will be very interesting to observe how they react to equity perps quickly gaining traction. The first market perps will dominate is the offshore trading of US stock price risk.

US stocks, and all stocks for that matter, will eventually be tokenized. But equity perps don’t need equity tokenization to succeed. Perps on stocks already have the substrate to proliferate. The US stock market is the largest globally. The largest US tech stocks, like Nvidia, have market caps larger than most countries’ annual GDP. Globally, everyone uses their products. But most retail traders cannot trade these stocks. These retail traders are used to trading crypto 24/7 anywhere in the world with high leverage. If you gave a Jaewon in Seoul, the ability to punt NVDA perps on the subway home from his dead-end job at a Chaebol, in the same way he can trade Bitcoin, he would be all for it. This is the promise of equity perps.

Equity perps already trade over $100m per day. It will soon be billions of dollars per day as traders and market makers get comfortable with the contract specs. With the increased occurrence of surprise political, military, and economic announcements on Friday nights after TradFi markets close, equity perps will be the way both institutional and retail traders hedge risk over weekends. This will force the large US stock exchanges to move to 24/7 trading faster than they otherwise would have. Will crypto muppets or suited and booted banksters win the equity perp market? This will depend on whether TradFi regulators allow clearinghouses to offer a socialized loss system.

I predict that by the end of 2026, price discovery for the largest US tech stocks and the key US indices (i.e. S&P 500, Nasdaq 100) will happen on perps markets serving retail. I will smile when financial media show the ticker of an S&P 500 equity perp as the best pricing source rather than the CME’s Globex version. It’s not too late; the CME and other exchanges have all the advantages in the world and a plethora of smart, motivated employees. Maybe they will read this essay and get their shit together. There is no excuse to allow a bunch of crypto degens to disintermediate them, especially when the regulators compete on who gets to fluff the exchange.

The Final Frontier

The most traded derivatives contract globally is the CME SOFR futures contract. Fixed-income trading volumes dwarf those of the equity, FX, and crypto markets. The challenge that I put out to our crypto community is to create a derivative that allows retail to speculate on interest rates in a new way. The team at Pendle is hard at work doing this. Their Boros protocol is quickly gaining traction. But this vertical is wide open for many innovators to offer their ideas to the market.

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^[1] SGX stands for Singapore Stock Exchange; CBOE stands for Chicago Board Options Exchange.

^[2] The CFTC is the Commodities and Futures Trade Commission and is the regulatory body responsible for derivatives regulation in America. The CME stands for the Chicago Mercantile Exchange.

^[3] ADV stands for average daily trading volume.

^[4] The futures contracts expired in March, June, September, and December i.e. every quarter.

^[5] I will use XBT and BTC both as currency symbols to refer to the cryptocurrency Bitcoin.

^[6] Shorts provide synthetic dollars to the crypto market by purchasing Bitcoin and selling a Bitcoin/USD derivative to create a price neutral position. They earn the basis between the derivative and spot; this is essentially what Ethena does today. Please read my Crypto Trader Digest from May 2016 where I introduced the concept.

^[7] Our marking system is a bit more complicated than that, but for the purpose of discussion just assume we marked to spot.

^[8] Before we moved to the premium index determined funding rate, we also shortened the funding period from 24 hours to 8 hours in early June.

^[9] A DCM is a Designated Contract Market, you can think of this as the exchange where users trade. A DCO is a Designated Clearing Organization, you can think of this as the clearinghouse.

^[10] A PAC is a political action committee.

(Any views expressed here are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)

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It’s that time again when I become an armchair meteorologist. Concepts like La Nina and El Niño enter my lexicon. Predicting a storm’s wind direction is just as important as the amount of snowfall when determining which aspects to ski. I use my rudimentary knowledge of weather patterns to opine on when autumn ends and winter begins in Hokkaido, Japan. I discuss with other local ski bums my dream of an early start to the powder ski season. Instead of my favorite crypto charting app, the most refreshed app on my smartphone is Snow-Forecast.

As data points start trickling in, I have to decide on when to arrive on the slopes with incomplete information. You don’t know what the prevailing weather patterns will be sometimes until the day before you strap on your skis. A few seasons ago, I arrived in mid-December to find a mountain covered in dirt. A single lift opened to service a few thousand yahoos. The line was hours long to ski a flat beginner to intermediate slope with minimal snow coverage. The next day it dumped, and I had one of the most epic powder days at my favorite ski resort in the area that is covered in glades.

Bitcoin is the free-market weathervane of global fiat liquidity. It trades on the expectation of future fiat supply. Sometimes reality matches expectations, and other times it does not. Money is politics. And political rhetoric, which changes rapidly, influences the market’s expectations of future filthy fiat supply. One day our imperfect leaders call for cheaper money in larger quantities to pump the bags of their favorite constituents, other days they call for the opposite to fight inflation that destroys the plebes and their chances of re-election or a continuation of their autocratic rule. As with science, in trading it pays to have strong convictions loosely held.

Post the debacle that was the US Liberation Day on April 2nd, 2025, I called for Up Only! I believed that US President Trump and his Treasury Secretary Buffalo Bill Bessent learned their lesson about trying to alter the world’s financial and trade operating system too quickly. To regain popularity, they would hand out goodies, financed with printed money, to their backers, who own a fuck ton of financial assets like houses, stonks, and crypto. On April 9th, Trump TACO’d, called a truce on tariffs and what looked like the beginning of another great depression turned into the best buying opportunity of the year. Bitcoin rallied 21%, and selected shitcoins (primarily Ether) rose as well, demonstrated by a failing Bitcoin dominance from 63% to 59%.

However, recently, the Bitcoin implied dollar liquidity forecast deteriorated. From its all-time high reached in early October, Bitcoin is down 25%, and many altcoins get beat harder than a capitalist in a New York City mayoral election. What changed? The rhetoric from the Trump administration hasn’t altered. Trump still lambasts the Fed for keeping interest rates too high. He and his lieutenants continue to talk about pumping the housing market through various means. And most importantly at every turn, Trump caves to China in that he delays forcing the trade and financial imbalances between the two economic juggernauts to reverse because the financial and political pain is just too much to bear for politicians who must face voters every two to four years. What also hasn’t changed, and the market now ascribes more weight to this than words from politicians, is a contraction in USD liquidity.

My USD Liquidity Index (white) fell 10% from April 9th, 2025, while Bitcoin (gold) rose 12%. Part of this divergence is because of liquidity-positive rhetoric from the Trump administration. Part of this divergence is because retail investors looked at Bitcoin ETF inflows and DAT mNAV premiums as proof that institutional investors wanted Bitcoin exposure.

Institutional investors piled into Bitcoin ETFs, or so the narrative goes. As you can see the net inflows between April and October provided a constant bid for Bitcoin even though USD liquidity fell. I must add a caveat to this chart. The largest holders of the biggest ETF by AUM (Blackrock’s IBIT US) use the ETF as part of a basis trade; they are not long Bitcoin. They short a CME-listed Bitcoin futures contract vs. buying the ETF to earn the spread between the two.^[1] This is capital efficient because usually their broker allows them to post the ETF as collateral against their short futures position.

These are the five largest holders of IBIT US. They are large hedge funds or proprietary trading focused investment banks, i.e. Goldman Sachs.

The above chart shows the annualized basis these funds harvest by buying IBIT US and selling a CME futures contract. While the exchange above is Binance, the CME annualized basis is essentially the same. When the basis is markedly above the Fed Funds rate, hedge funds will pile into the trade, creating large and persistent net inflows into the ETF. This creates the impression, to those who don’t understand the market microstructure, that there is massive interest from institutional investors for Bitcoin exposure when in reality they don’t give a fuck about Bitcoin, they only play in our sandbox for a few extra points over Fed Funds. When the basis falls, they quickly dump their positions. Recently as the basis fell, the ETF complex recorded massive net outflows. Now retail believes these same investors don’t like Bitcoin and creates a negative feedback loop that influences them to sell, which decreases the basis, finally causing more institutional investors to sell the ETF.

Digital Asset Treasury (DAT) companies offered another way for institutional investors to obtain Bitcoin exposure. Strategy (ticker: MSTR US) is the largest DAT that holds Bitcoin. When its stock trades at a large premium to its Bitcoin holdings, called mNAV, it allows the company to issue shares and other forms of financing to acquire Bitcoin cheaply. As the premium fell into a discount, the rate at which Strategy acquired Bitcoin decreased.

This is a cumulative holding chart rather than a rate of change of said variable, but you can visualize that the increase in holdings slowed as Strategy’s mNAV premium evaporated.

Bitcoin ETF inflows and purchases by DATs allowed Bitcoin to rise even though dollar liquidity contracted from April 9th to the present. But this state of play is over. The basis is not juicy enough to keep institutional investors consistently buying ETFs, and with most DATs trading at a discount to mNAV, investors now shun these Bitcoin derivative securities as well. Without these flows obscuring the negative liquidity picture, Bitcoin must fall to reflect the current short-term worry that dollar liquidity will contract or not grow as fast as the politicians promised.

Show Me

It’s time for Trump and Bessent to put up or shut up. Either they have the juice for the Treasury Dept to run roughshod over the Fed, create another housing bubble, hand out more stimulus checks, etc. or they are a bunch of limp-dick charlatans. What further complicates the situation is that the Team Blue Democrats discovered, which should be of no surprise, that campaigning on variants of affordability is a winning strategy. Regardless of whether the opposition party can make good on these promises, like free bus passes, a plethora of rent-controlled apartments and government-run grocery stores, is not the point. The point is the people want to be heard and at least lie to themselves that someone in power looks out for them. The people don’t want to be gaslighted into believing that what they see and feel daily regarding inflation is fake news by Trump and his army of MAGA social media influencers.^[2] They want to be heard like Trump heard them in 2016 and 2020 when he told them he would beat up on China and deport the brown people so their well-paying jobs would magically reappear.

For those of you with a multiyear outlook, these short-term lulls in the pace of fiat money creation don’t matter. If the Team Red Republicans cannot print enough money, the stock and bond market will crash, and that will give the holdouts from both parties’ religion to return to the satanic cult of money printing. Trump is an astute politician and, similar to former US President Biden, who faced a similar revolt amongst the plebes over the COVID-stimulus induced inflation, will publicly change course and lambast the Fed for causing the inflation that afflicts the median voter. But don’t worry, Trump won’t forget the wealthy asset holders who fill the campaign coffers. Buffalo Bill Bessent will be under strict orders to print money in creative ways the plebes won’t understand.

Remember this photo op from 2022? Our favorite beta cuck towel bitch boy Fed chairperson Powell got a talking to by then-President Slow Joe Biden and US Treasury Secretary Bad Gurl Yellen. Biden explained to his subjects that Powell would crush inflation. And then because he needed to juice the financial assets of the rich folks who put him in power, told Yellen to undo all of Powell’s rate hikes and balance sheet contraction by any means necessary. Yellen issued more Treasury bills than notes or bonds, which sucked $2.5 trillion out of the Fed’s Reverse Repo Program from 3Q2022 until 1Q2025, which pumped stonks, housing, gold, and crypto. To the average voter, and some of you readers, what I just wrote might as well be Aramaic, and that’s the point. The inflation you feel directly results from a politician who told you he cared about solving affordability. Buffalo Bill Bessent must work similar magic. I have 100% confidence that he will engineer a similar outcome. He is one of the most knowledgeable money market plumbers and currency traders there ever were.

The Setup

The 2H23 and 2H25 market setups are eerily similar. The debt ceiling fight ended in mid-summer (3 June 2023 and 4 July 2025) forcing a rebuild of the Treasury General Account (TGA) sucking liquidity out of the system.

2023:

2025:

Bad Gurl Yellen pleased her boss. Can Buffalo Bill Bessent find his BBC and Bismarck the markets into shape for the Team Red Republics to get out the vote amongst those who hold financial assets in the 2026 midterm elections?

Whenever politicians listen too closely to most of their subjects who suffer under inflation, they talk tough about reigning in central bankers and finance ministry officials who love printing money. To disabuse them of the idea of allowing credit to contract, the markets present a Hobson’s choice. After a swift fall in equity and bond prices because of a realization by investors that money printing is verboten in the short term, either politicians print money to save the highly leveraged filthy fiat financial system that supports the broader economy but allows inflation to re-accelerate, or allow credit to contract which destroys rich asset holders and causes massive job losses because over leveraged businesses must reduce output and employment. Usually, the latter is more politically palatable because 1930s-style unemployment and financial distress are always an election loser, but inflation is a silent killer that printed money financed subsidies to the poor can hide.

Just like my confidence in the Hokkaido snow machine, I am 100% confident that Trump and Bessent want their Team Red Republicans to maintain power and thus will find a way to both look tough on fighting inflation and print the money necessary to continue the Keynesian fractional reserve banking con game that is the US and global economic situation. On the mountain, being early sometimes earns you dirt skiing. In the financial markets, before we get back to Up Only, the markets must, in Nelly-speak, drop down and get their eagle on.

They don’t make music videos like they used to.

The Bull Case

The counterargument to my negative dollar liquidity theory is that as the US government resumes operations post the shutdown, the TGA decreases by $100 to $150bn to hit the target $850bn in short order, which adds liquidity to the system. In addition, the Fed will stop shrinking its balance sheet as of December 1st, and soon resume balance sheet expansion via QE.^[3]

I initially held a bullish view of risk assets post the shutdown. However, as I dug into the numbers, I noticed that since July approximately $1 trillion of dollar liquidity evaporated based on my index. An addition of $150bn is great, but what next?

While various Fed governors hint that a resumption of QE is necessary to rebuild banking reserves to ensure money markets function correctly, this is just talk. We will know they are serious when Fed whisperer Nick Timiraos at the Wall Street Journal proclaims that a resumption of QE is green lit. But we aren’t there yet. In the meantime, the Standing Repo Facility will get tapped to print money, in the 10s of billions, to ensure the money markets can handle the gargantuan issuance of treasury debt.

Bessent could in theory run down the TGA to zero. Unfortunately, because the Treasury must roll over hundreds of billions of dollars weekly in bills, they must keep a large cash buffer just in case something happens. They cannot afford to default on a maturing treasury bill, which removes the possibility of instantly injecting the remaining $850bn into the financial markets.

Privatizing the government-sponsored mortgage entities, Fannie and Freddie, will definitely happen, but not within the next few weeks. The banks will also do their “duty” and lend to those building bombs, nuclear reactors, semiconductors etc., but again this lending will happen over a longer time period and this credit won’t immediately course through the veins of the dollar money markets.

The bulls are correct; over time, money printer go Brrrrrr. But first, the markets must retrace the gains since April to better align with the liquidity fundamentals. Finally, before I come to Maelstrom’s positioning, I am not conceding the four-year cycle is valid. Bitcoin and certain shitcoins will hit new all-time highs only after the markets puke enough to speed up the pace of money printing.

Maelstrom Positioning

Over the weekend, I raised our USD stables position in anticipation of lower crypto prices. The only crypto I believe can outrun the negative dollar liquidity situation in the short-term is Zcash (ticker: $ZEC). With AI, big tech, and big government, privacy across most sectors of the internet is dead. Zcash and other privacy cryptos using zero-knowledge proof cryptography are humanity’s only chance to fight this new reality. That is why Balaji and others believe the privacy meta-narrative will drive crypto markets for many years to come.

It should offend our sensibilities as disciples of Satoshi that the third, fourth, and fifth largest cryptos are a USD-derivative, a do-nothing coin on a do-nothing chain, and CZ’s centralized computer. What the fuck are we doing this for if after 15-years these are the largest cryptos after Bitcoin and Ether? I have nothing against Paolo, Garlinghouse, and CZ; they are masters of creating value for their token holders. Please take note, founders. But Zcash or a similar type of privacy crypto belongs right below Ethereum. And I believe that the grassroots crypto community is waking up to the fact that what we implicitly support by affording these types of coins or tokens these high market caps is at odds with a decentralized future where we as red-blooded humans retain agency in the face of oppressive tech, government and AI giants. Therefore, Zcash or another privacy-focused crypto will enjoy a secular rise in price whilst we wait for Bessent to get his money-printing groove back.

Maelstrom is still long as fuck, and if I have to buy back higher, as I have done too much chagrin earlier this year, so be it. I take my L’s with pride, because having spare fiat on hand allows me to go big for a W and make it fucking count. Having liquidity if an April 2025 setup presents itself defines your PNL for the cycle more so than hitting a bunch of singles that you give back to the market as you invariably lose money trading.

The Bitcoin dive from $125,000 to the low $90,000s whilst the S&P 500 and Nasdaq 100 indices hover around all-time highs tells me that a credit event is brewing. I corroborate this view when I observe the decline in my dollar liquidity index from July until now. If my view is correct, a 10% to 20% correction in stonks coupled with a 10-year Treasury yield approaching 5% will be enough to create the urgency to roll out some scheme to print money from the Fed, Treasury or another US government agency. Bitcoin could absolutely drop to $80,000 to $85,000 during this period of weakness. And if the broader risk markets implode, and the Fed and Treasury accelerate their money printing capers, then Bitcoin could zoom towards $200,000 or $250,000 at year end.

I still believe that China will reflate. But Chinese President Xi Jinping will pull the trigger once the US definitely accelerates the creation of dollars. Rightly or wrongly, Xi wants to project a strong yuan versus the dollar, and that prevents him from allowing an enormous increase in the broad money supply. The tell is that the PBOC, for the first time since January, purchased a small amount of government bonds. This is the beginning of China QE. The dragon will awaken and pour Maotai on the fire of the raging 2026 crypto bull market. And one last point about China before I depart to two-step in beautiful Argentina; isn’t it funny that Beijing is upset that the US “stole” the Bitcoin of a Chinese national engaged in alleged scam farms. Obviously, Xi thinks Bitcoin is valuable and an asset to be preserved and owned by the Chinese state or ethnic Han Chinese, rather than the US government. If both Trump and Xi, leaders of the two largest economies globally, believe that Bitcoin is valuable, why are you not bullish long term?

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^[1] The CME is the Chicago Mercantile Exchange. It lists a Bitcoin/USD futures contract. For most institutional investors, this is the only Bitcoin derivative they can trade.

^[2] MAGA stands for Make America Great Again. This one of the best political slogans ever because it means absolutely nothing and everything at the same time. Make America great again for who? When was America great? Because there is nothing specific about what it means a politician can always claim success.

^[3] QE stands for quantitative easing. A process by which the Fed creates banking reserves or dollar liquidity by purchasing securities from the banking system.

(Any views expressed here are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)

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Praise be to Lord Satoshi that time and compounding interest exist regardless of who you are.

Even if you are a government, there are only two ways to pay for stuff, using savings or debt. For a government, savings equates to taxes. Taxes are not very popular, but spending is. Therefore, when handing out goodies to the plebes and patricians, politicians prefer to issue debt. Politicians will always favor borrowing from the future to get re-elected in the present, because when the bill comes due, they won’t be in office.

If all governments, because of the incentives of its officers, are hard wired to prefer issuing debt rather than raising taxes to hand out goodies, then the next question is how do buyers of government debt fund these purchases? Do they spend their savings/equity or finance purchases by borrowing money?

Answering these questions as it pertains to Pax Americana is very important to my forward outlook of dollar money creation. If the marginal buyer of US treasury debt finances their purchases, then we can observe who is lending to them. Once we know the identities of the debt financiers, we can determine whether they create money ex nihilo or use their own equity to lend. If after answering all the questions we discover that a treasury financier creates money for lending then we can market the following leap of logic.

Government issued debt grows the money supply.

And if this statement is true, then we estimate the maximum amount of credit that the financier can issue, assuming there is a maximum.

The reason these questions are important is that I will argue that if government borrowing continues as forecast by the Too Big to Fail (TBTF) Banks, the US Treasury Department, and the Congressional Budget Office, then the Fed’s balance sheet will grow as well. If the Fed’s balance sheet grows, that is dollar liquidity positive, and ultimately pumps the price of Bitcoin and other cryptos.

Let’s step through the questions and evaluate this logic puzzle.

Question Time

Will US President Trump cut taxes to fund the deficit?

No. He and the Team Red Republicans recently extended the 2017 tax cuts.

Is the Treasury Department borrowing money to fund the federal deficit, and will they continue to do this in the future?

Yes.

Here are the estimates from the TBTF banksters, and a few US government agencies. As you can see, the estimates are for ~$2 trillion deficits funded by ~$2 trillion of borrowing.

Given the answer to the first two questions is Yes, then:

Yearly Federal Deficit = Yearly Treasury Debt Issuance Amount

Let’s step through the major buyers of treasuries and how they finance their purchases.

Debt Shit Eaters

Foreign Central Banks

If Pax Americana is willing to steal Russia’s money, who is a nuclear power and the largest commodity exporter in the world, then no foreign owner of treasuries is ever safe. Cognizant of the risk of expropriation, foreign central bank reserve managers would rather buy gold than treasuries. Therefore, gold started ripping for realz post Russia’s invasion of Ukraine in February 2022.

US Private Sector

According to the US Bureau of Labor and Statistics, the 2024 personal savings rate was 4.6%. In the same year, the US federal deficit was 6% of GDP. Given that the deficit is larger than the savings rate, it is impossible for the private sector to be the marginal buyer of treasuries.

Commercial Banks

Are the four largest money center commercial banks buying shit loads of treasuries?^[1] No.

As you can see the four large money center banks in the fiscal year 2025 bought ~$300 billion worth of treasuries. In the same fiscal year, the treasury issued $1,992 billion. While this cohort is definitely an important buyer of treasuries, they are not the marginal buyer of last resort.

Relative Value (RV) Hedge Funds

RV funds are the marginal buyers of treasuries as acknowledged by the Fed in a recent paper.

Our findings suggest that Cayman Islands hedge funds are, increasingly, the marginal foreign buyers of U.S. Treasury notes and bonds. As shown in Figure 5, between January 2022 and December 2024, a time when the Federal Reserve was reducing the size of its balance sheet by allowing maturing Treasuries to roll off from its portfolio, Cayman Islands hedge funds purchased, on net, $1.2 trillion of Treasury securities. Under the assumption that these purchases are composed entirely of Treasury notes and bonds, they absorbed 37% of net issuance of notes and bonds, nearly the same amount as all other foreign investors combined.

The Trade:

Buy a cash treasury debt security

Vs.

Sell the corresponding treasury futures contract

Thank you, Joseph Wang for this chart. SOFR volumes are a proxy for gauging the size of the RV funds’ participation in the treasury markets. As you can see, the growth in the debt load corresponds to a growth in SOFR volumes. This shows that RV funds are the marginal buyers of treasuries.

RV funds conduct this trade to earn the difference between the two instruments. Because the spread is miniscule (it’s measured in basis points; 1bps = 0.01%), the only way to make real money is to finance the purchase of the treasury security. This leads us to the most important part of this essay to understand what the Fed will do next. How do RV funds finance their treasury purchases?

RV funds engage in a repurchase agreement (repo) to finance the purchase of treasuries. In a seamless transaction, the RV fund pledges the treasury security it purchased to borrow overnight cash, that borrowed cash is then used to settle the treasury purchase. If cash is plentiful, the repo rate will trade at or right below the Upper Fed Funds. Why?

Let’s revisit how the Fed manipulates short term interest rates. The Fed has two policy rates, Upper and Lower Fed Funds; currently these equal 4.00% and 3.75% respectively. In order to force the effective short-term rate (the SOFR or Secured Overnight Funding Rate) to fall within that band, the Fed uses a few blunt instruments. I will go through them briefly, ordered from lowest to highest rate of interest.

Reverse Repo Facility (RRP)

Who is eligible: Money market funds (MMF) and commercial banks

Purpose: Cash deposited here overnight earns a rate of interest paid for by the Fed.

Award Rate: Lower Fed Funds

Interest on Reserve Balances (IORB)

Who is eligible: Commercial banks

Purpose: Banks receive interest on their excess reserves deposited at the Fed.

Award Rate: Between Lower and Upper Fed Funds

Standing Repo Facility (SRF)

Who is eligible: Commercial banks and other financial institutions

Purpose: When cash is tight, this allows financial institutions pledge eligible securities (mostly treasuries) and receive cash from the Fed. In effect, the Fed prints money and exchanges it for the pledged security.

Award Rate: Upper Fed Funds

Putting it all together we get this relationship:

Lower Fed Funds = RRP < IORB < SRF = Upper Fed Funds

This is a useful chart of real-world values to visualize the relationship between these key USD money market rates. At the top the orange (SRF) and green (Upper Fed Funds) are equal. Right below that we have the red line (IORB). The magenta line (SOFR) usually vacillates between the upper and lower bound. The yellow (Lower Fed Funds) and white (RRP) are equal.

SOFR is a blend of the rate on multiple types of repo transactions. Unlike the London Interbank Offered Rate (LIBOR) which was based on bank submissions, SOFR is based on actual market trades. This is the rate the Fed targets. If SOFR trades above the Upper Fed Funds it means cash is tight and this is a problem. Because once cash gets tight, SOFR skyrockets and the filthy fiat financial system shuts down. That is because the marginal buyers and suppliers of liquidity are all levered. If they cannot roll over their liabilities predictably at Fed Funds, then they will first suffer massive losses, and subsequently cease providing liquidity to the system. The worry is that no one will participate in the treasury market because they cannot obtain cheap leverage.

What causes SOFR to trade above the Upper Fed Funds? To answer that question, we first must inquire who is the marginal provider of cash in the repo market? MMFs and commercial banks supply the repo market with cash. Let’s examine why they would do so assuming they are profit maximizing entities.

The goal of an MMF is to take as little credit risk as possible and earn the short-term interest rate. This means MMFs mostly earn a return parking money in the RRP, lending cash in the repo market, and buying treasury bills (T-bills).^[2] In all three cases they take the credit risk of the Fed or the US Treasury, which is essentially risk free because the government can always print money to service its debts. Prior to the emptying of the RRP, the billions or trillions of dollars sat there would supply the repo market with cash. That is because RRP < SOFR, so a profit maximizing MMF will remove cash from the RRP and lend it in the repo market. But now the RRP balance is zero because the T-bill rate is so attractive; MMFs maximize profit by lending to the US government.

With the MMFs out of the game, commercial banks must fill the gap. They will happily lend reserves to the repo market because IORB < SOFR. The gating factor to how willing banks are to supply cash at “reasonable” levels, that is SOFR <= Upper Bound of Fed Funds, depends on how ample their reserves are. There are various regulatory requirements that force banks to keep a certain amount of reserves, once balance sheet capacity dwindles, they must charge higher and higher rates to supply cash to the repo markets. Banks lost trillions in reserves since the Fed began QT in early 2022.

Both marginal providers of cash, MMFs and banks, from 2022 onwards possess less cash with which to supply the repo market. At a certain point, neither was willing nor able to provide cash in the repo market at a rate at or below Upper Fed Funds. At the same time as the supply of cash that could supply the repo market at a reasonable rate fell, the demand for said cash rose. The demand rose because former US President Biden and now Trump continued to spend a fuck ton of money that required more treasury debt issuance. The marginal buyer of this debt, RV funds, must finance these purchases in the repo market. If they cannot predictably obtain funds daily at or slightly below Upper Fed Funds, they will not buy treasuries and the US government cannot finance itself at an affordable rate. For a more in-depth discussion of this please read my essay “Ski Cut”.

Because a similar situation occurred in 2019, the Fed created the SRF. The Fed can supply an infinite amount of cash using its printing press at SRF as long as one provides an acceptable form of collateral. Therefore, RV funds can be confident that no matter how tight cash is, they can always fund themselves, in the worst case, at Upper Fed Funds.

If the SRF balances are above zero, then we know the Fed is cashing the checks of the politicians using printed money.

Treasury Debt Amount Issued = Increase in Supply of Dollars

The top panel is (SOFR - Upper Fed Funds). When that difference is close to zero or positive, cash is tight. During these episodes non-trivial usage of the SRF (bottom panel, in USD billions) occurs. Usage of the SRF allows borrowers to avoid paying the higher less manipulated SOFR rate.

Stealth QE

There are two ways the Fed can ensure that there is ample cash in the system to facilitate the repos needed by RV funds to purchase dog shit treasuries. The first is to create banking reserves, by buying securities from banks. This is the textbook definition of QE. The second is to lend freely to the repo market via the SRF.

As I have said many times, QE is a dirty word. Even the most financially illiterate plebe now understands QE = money printing = inflation. When inflation bites, the average citizen votes for the opposition party. Given that Trump and Buffalo Bill Bessent want to run the economy hot, they don’t want to be blamed for the high inflation a credit fueled economic expansion will generate. Therefore, the Fed will do everything it can, with a straight face, to proclaim that its policy mix is not QE and does not stoke the fires of inflation. Ultimately, that means that the SRF is the conduit through which printed money enters the global financial system as opposed to using QE to create more banking reserves.

This will buy some time, but eventually the exponential expansion of treasury debt issuance will force the repeated use of the SRF. Remember that not only does Buffalo Bill Bessent need to issue $2 trillion annually to fund the government, he also must issue trillions more to roll over maturing debt. Stealth QE will begin shortly. I don’t know when it will begin. But if the current money market conditions persist, the treasury debt pile grows exponentially, the SRF balance must grow as the lender of last resort. As SRF balances grow, the amount of fiat dollars in the world expands as well. This phenomenon will reignite the Bitcoin bull market.

Between now and when stealth QE begins, one has to husband capital. Expect a choppy market especially until the US government shutdown ends. The treasury via its debt auctions is borrowing money (dollar liquidity negative) but not spending it (dollar liquidity positive). The Treasury General Account is above the $850 billion target by ~$150bn, and this extra liquidity won’t get released into the markets until the government reopens. This liquidity drain is one reason for the current softness in the crypto markets. Given that the four-year cycle anniversary of the 2021 Bitcoin all-time-high is nigh, many will mistake this period of market weakness and ennui as the top and dump their stack. That’s assuming they weren’t deaded in the altcoin collapse a few weeks back. That is a mistake, the dollar money market plumbing doesn’t lie. This corner of the market is shrouded in obtuse jargon, but once you translate the lingo into print money or destroy money, it becomes quite easy to know how to dance.

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^[1] The four major money center banks are JP Morgan, Citibank, Bank of America, and Wells Fargo.

^[2] Technically speaking the MMFs supply cash to the Tri-Party repo market.

(Any views expressed here are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)

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How does society adjudicate scarcity given that humanity hasn’t reached a sci-fi utopian post-scarcity existence? Infinitely abundant energy does not allow us to consume whatever we want whenever we want, which obviates the need for money. Therefore, we must use this devilish construct called money to allocate scarce resources. Money and markets combine to produce the best tool to inform society what to produce, in what quantities, and who should receive it. The market price of a good adjudicates scarcity. It follows, then, that the price of money and its quantity are the two most important variables in any society. Perversion of one or both variables leads to societal dysfunction. Every economic “ism” offers a theory of how to denigrate or glorify markets, and all contain a modicum of monetary manipulation.

While a free market is the perfect way to adjudicate scarcity, it doesn’t follow that the more market freedom given results in a linear progression towards economic Valhalla. The people desire to dampen economic volatility through regulating markets and money. That is the primary purpose of a government. The government provides goods and services that the people believe are best left under collective control. Or the government restrains markets from producing immoral outcomes like human slavery. Along with these powers, the government must exert some amount of control over the price and quantity of money. Sometimes governments are benevolent and other times despotic monetary dictators. Because governments legally can murder their citizens for violations of their laws, they can force the use of a type of money. This results in good and bad outcomes.

Invariably all governments, regardless of which theory on governance guides them, always debase their money supply in the search of a teleportation device to a post-scarcity society. Achieving post-scarcity will not result from clever ways of printing money, but will require a deeper understanding of the physical universe and an ability to manipulate this construct to our advantage. However, a politician can't wait decades or centuries to achieve a scientific revolution. And thus, the people’s palliative cure for a volatile and uncertain universe is always to print more money.

While governments are powerful, the people always find ways to retain their sovereignty. In many cultures that experienced endemic inflation over centuries of successive governments or dynasties, cultures created gifting rituals marking major life milestones (birth, marriage, and death) that involve the exchange of hard money. In this way, the people save through cultural rituals. No politician dares subvert these rituals lest they lose their mandate to lead and find themselves headless.

In the modern era, when the power of centralized governments — whether a democracy, socialist republic, communist state, etc. are all powerful because of the advances of thinking machines and the internet, how can we the people preserve our rights to sound money? The gift that Satoshi gave to humanity via their Bitcoin whitepaper is a technological miracle that was launched at a very important time in history.

Bitcoin in the current state of human civilization is the best form of money ever created. Like all money, it has a relative value. Given that Pax Americana quasi-empire rules via the US dollar, we value Bitcoin relative to the dollar. Assuming the technology works, Bitcoin’s price will ebb and flow ‌because of the price and supply of dollars.

The point of this philosophical preamble is to provide the context that produces my guiding light as to the duration of the Bitcoin/USD price cycle. There have been three cycles, where the all-time high (ATH) occurring every four years. As the four-year anniversary of this fourth cycle is upon us, traders wish to apply the historical pattern and forecast an end to this bull run. They apply this rule without understanding why it worked in the past. And without this historical understanding, they miss why it will fail this time.

To illustrate why the four-year cycle is dead, I want to conduct a simple study of two charts. The primary theme is the price and quantity of money, e.g. dollars. Therefore, I will analyze a chart of the Effective Fed Funds rate and the supply of dollar credit. The secondary theme is the price and quantity of yuan emanating from China. For most of human history, it was the wealthiest squiggly line enclosure on the map. It took a half-millennium break, 1500 to 2000, but they are back to reclaim the global economic throne. The question is, are there any obvious turning points at the various Bitcoin ATH levels that can roughly explain the peak and subsequent collapse of the price? For each four-year period, I will provide a synopsis of the monetary trends at the time that explains the charts.

US Dollar:

The white line is a gauge of the price and supply of dollar credit. This is a combination of banking reserves held at the Fed and the US banking system’s total other deposits and liabilities. The Fed publishes both numbers weekly.^[1]

The green line represents the Effective Fed Funds rate, which is set by the FOMC.

The gold line is the Bitcoin/USD price.

Yuan:

China’s economy is even more credit dependent than America’s therefore, I used the Bloomberg Economics China Credit Impulse % 12 Month Change index. You would get a similar chart if you looked at the YoY% change in nominal GDP.

Back to the past.

Genesis Cycle: 2009 to 2013

On 3 January 2009, Bitcoin produced its first block, called the genesis block. The 2008 Global Financial Crisis (GFC) raged, destroying financial institutions globally. The banksters aided and abetted by the bought and paid for US government almost destroyed the world economy but Fed chairperson Ben Bernanke “saved” the system by enacting unlimited QE, which was announced in December 2008 and started in March 2009.^[2] The Chinese helped the world economy by ramping up credit fueled infrastructure spending. By 2013, both the Fed and PBOC wavered in their support for an infinitely expanding money supply.^[3] As you will see, that caused a deceleration in credit growth or outright contraction in the supply of money, which ultimately ended the Bitcoin bull run.

US Dollar:

The price of dollars was effectively 0%. The supply of dollars rose sharply and peaked and rolled over at the end of 2013.

Yuan:

The massive increase in credit growth flooded the world with yuan, trillions of which escaped from China into Bitcoin, gold, and global real estate. By 2013, while the credit growth was impressive, it was much less than before, and the deceleration coincided with that of dollar credit growth.

This deceleration in dollar and yuan credit growth popped the Bitcoin bubble.

ICO Cycle: 2013 to 2017

This was the ICO cycle because during this time period the Ethereum mainnet went live and ushered in a growth of new issues funded by subscribing via public blockchain using smart contracts.^[4] Bitcoin rose from the ashes because of an explosion in yuan supply, not dollars. As you can see below, the China credit impulse accelerated in 2015 alongside a devaluation of the yuan versus the dollar. The supply of dollars fell and the interest rate rose. Bitcoin skyrocketed because of a fuck ton of yuan sloshing around the global money markets. Ultimately, as yuan credit growth decelerated from its 2015 highs, the tighter dollar monetary conditions bit into the bull market and gnashed it to the floor by late 2017.

Yuan:

US Dollar:

COVID Hoax: 2017 to 2021

While COVID definitely killed millions, the crisis was exacerbated by poor government policy. COVID was the ruse to condition the population to accept its loss of freedoms, and this transcended whatever type of government theory ruled in a particular locale. In the spirit of throwing shit at the wall and seeing what stuck, COVID was the perfect opportunity for Pax Americana to unleash helicopter money whereby then-US President Donald Trump provided the largest populist government handout since Franklin Delano Roosevelt’s New Deal. The trillions of dollars printed found their way into crypto. Trump ran it hot, and every market was up only.

US Dollar:

The supply of dollars doubled, and the price of money quickly fell to 0%.

Yuan:

While the Chinese credit impulse rose during COVID, President Xi Jinping did not go all out. He used COVID as the time to launch an attack on China’s property bubble. This level of yuan credit growth did not forestall a collapse in local property prices started by the “Three Red Lines” policy. But this was by design, and with no one allowed to enter or leave China at this time, it was very easy to control capital flight and social discontent on the mainland. As a result, China’s monetary policy did not materially contribute to this Bitcoin bull market.

The inflation produced by Trump and subsequent US President Biden’s economic policy of running it hot was too much to handle by the end of 2021. Inflation spiked, and those without a horde of financial assets felt cheated. The federal government stopped handing out stimmies, the Fed began shrinking its balance sheet, and announced it would quickly raise interest rates. This marked the end of the bull market.

New World Order: 2021 -?

The Pax Americana quasi-empire is but a nostalgic dream. What comes next? This is the question with which global leaders wrestle. Change is not good nor bad, but change creates economic winners and losers. Sometimes the losers are politically and economically powerful, which creates issues for ruling parties. In order to shield the negative effects of change from the populace, politicians print money.

This time around, the engine of credit growth came from the Fed’s Reverse Repo Program (RRP in magenta with the y-axis inverted). The price of money increased. The supply of money fell. But Biden needed to juice markets. Therefore, his henchwoman, US Treasury Secretary Bad Gurl Yellen, issued more treasury bills than notes/bonds in order to drain the RRP. This unleashed ~$2.5 trillion of liquidity into the markets. Her successor, Buffalo Bill Bessent, continued the policy until the RRP fell to its current value near zero. China entered bouts of deflation as judged by a negative credit impulse. Xi remained committed to reducing the price of housing and its importance to the Chinese economy. And with no other guidance or changes in the outlook for US and Chinese monetary policy, I would agree with many crypto traders that the bull run is over. But the rhetoric and recent actions by the Fed and PBOC augur otherwise.

US Dollar:

Yuan:

In the US, newly elected President Trump wants to run the economy hot. He routinely speaks about America growing in order to reduce its debt load. He lambasts the Fed for a too-tight monetary supply. His desire is generating action. The Fed resumed cutting interest rates in September even though inflation is above its own target.

The white line is Effective Fed Funds rate, the yellow line is Core PCE, and the green horizontal line is the Fed’s 2% target.

Trump also speaks about lowering the cost of housing to release trillions of dollars of trapped home equity because of the rapid rise in housing prices post-2008.

Finally, Buffalo Bill Bessent will deregulate banks so that they can increase loans to critical industries. The future as painted by the ruling political elite points to lower, not higher, interest rates and higher, not lower, growth in the money supply.

While Xi does not want to issue credit in the quantities of 2009 and 2015, he does want to end deflation. When the economic pressure proves too intense, as the above BCA chart indicates, Chinese policymakers print money. I don’t believe that China currently will be the driver of global fiat credit growth, but it won’t hinder it either.

Listen to our monetary masters in Washington and Beijing. They clearly state that money shall be cheaper and more plentiful. Therefore, Bitcoin continues to rise in anticipation of this highly probable future. The king is dead, long live the king!

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^[1] The Fed stands for the US Federal Reserve.

^[2] QE stands for quantitative easing.

^[3] PBOC stands for People’s Bank of China.

^[4] ICO stands for Initial Coin Offering. The most famous ICO was the EOS one where Block.one extracted $4 billion from suckers worldwide.

(Any views expressed here are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)

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Would the brave souls chanting “Liberté, Egalité, Fraternié” be proud of the Fifth French Republic they fought and died for? Or be proud to be led by a coke-up teacher fucker? Are they pleased that a crocodilian ex-con countess slithering in Frankfurt controls their monetary policy? Probably not.

As I donned my Panama hat and stunner shades while two-stepping to Rufus in St. Tropez this past Bastille Day, I briefly chuckled to myself at the irony of the fact that Bastille Day followed American independence. The broke French royalty further exacerbated the perilous state of the monarchy’s finances by supporting the tax-dodging slavers who were leading their own revolution against the English King George. Fast forward a few years, and the idea that white male property owners should follow their own and not royal edicts combined with popular discontent at the broken nature of the state boomeranged back across the Atlantic and caused the head fall of Louis‌ XVI.

It is ironic that a change in the American foreign and monetary policy will be one trigger that forces France to, in all but name, leave the euro. The euro is many things. A common currency of the unholy Roman Empire. An abomination created by those who wish to stifle local culture and the will of the people. An absolute stinking piece of shit. I write this essay with glee, for I cannot wait until Euro-poor-eans liberate themselves from its clutches and regain self-determination.

It is a bold thing to predict the end of the euro. Many commentators fell prey to false predictions of a collapse during the euro banking crisis of 2011 to 2012. But the smaller southern European nations were never large enough to break apart this devilish currency union if Germany and France, the two countries which underwrite the euro, were on board with printing the money necessary to forestall its dissolution via the European Central Bank (ECB).

This time around, Germany and France are pulling in opposite directions. And French savers know what’s up. They, not my cursory knowledge of American, European, and economic history, inform me that France will soft or possibly hard default on its obligations to the euro currency project. Behold this beautiful chart and listen to the people speak:

This is a chart of the change in TARGET balances of NCBs at the ECB from January 2020 to the present.^[1]

If you are not familiar with the TARGET system, shame on you. Here is a brief explanation from Perplexity:

● TARGET balances appear as net claims or liabilities on the balance sheets of NCBs vis-à-vis the ECB.

● A positive TARGET balance means an NCB has a net claim on the ECB, showing that more funds have flowed into its banking system than have left.

● A negative TARGET balance indicates a net liability, meaning more funds have left the country than entered, often because of payment outflows or capital flight.

● Every day, individual NCB bilateral balances are netted out to show only a single net position vis-à-vis the ECB, not with every other NCB. By design, the sum of all claims and liabilities across the Euro system (all NCBs plus the ECB) always equals zero.

The simple way to think about TARGET is that euro savers are confident their money is safe in countries that have a positive balance, and not safe in countries with a negative balance. The relevant thought experiment is to imagine if a particular country left the euro. Would their new national currency appreciate or depreciate versus the euro, and more importantly, in which country’s banking system would you feel safe leaving your funds?

Germany almost always has a positive TARGET balance because it is the largest and strongest economy in the euro. Also, the Bundesbank possesses the most inflation-fighting credibility of any European NCB. Therefore, folks with German bank euro deposits aren’t worried if Germany left the euro because the Deutsche Mark would appreciate vs. the rump euro.

But what about the country that represents that bold white line? How can we describe it? This is a country that as recently as early 2021 ran a TARGET surplus. A country with the second-largest economy in the euro. A country whose politicians have spread far and wide throughout the various unelected but supremely powerful centralized bureaucracies that de facto run Europe. This country is France. And French savers increasingly do not believe that their euros are safe within the French banking system. Therefore, they find greener pastures in places like Germany and Luxembourg.

Smart local capital tells us that something is seriously amiss. That is why France has the largest TARGET deficit of any country in the euro. If the second-largest economy in the euro with the largest debt load is experiencing a bank walk, it doesn’t bode well for the future of the common currency. The problem is that France is too big to fail, but too big to bail out as well. And this is where it becomes interesting for Satoshi’s faithful. What will the policy response be from the French politicians, the ECB, and foreign monetary authorities to the quickly deteriorating French finances?

This essay will focus on why France is fucked. Why a change in US monetary and foreign policy means German and Japanese capital can no longer finance the generous French welfare state. The variety of ways France can steal capital from domestic and foreign savers. And finally, what the policy options are for the ECB. The TLDR is that many folks will wake up one morning and understand that money in the bank is not yours and then fully comprehend why Bitcoin is so necessary. The ECB will valiantly print money to forestall the loss of its raison d’être. It shall be a glorious day for the faithful as printed euros will combine with printed dollars, yuan, yen, etc to bid up the price of Bitcoin.

Geographic Irony

The sometimes stated but mostly unstated goal of US foreign policy is to prevent integration of the Eurasian world-island. At all costs, Russia, China, and Iran cannot cooperate. These foreign policy goals lead to ironic outcomes, especially when one considers the current financial state of the two major losers of WW2.

Lay out a map of the world and look at the positioning of Germany and Japan. Between them are Pax Americana’s three main strategic rivals or enemies depending on how much Made-in-USA NeoCon cyanide consumed. Post WW2, the last thing the US political elite was going to allow was for those dirty pinko commies to change the social structure of Germany and Japan and align with Moscow. For in truth, the German and Japanese cultures produced very industrious societies. Unfortunately, this productivity made war just like every other major nation state. They just lost, so history thinks poorly of them.

The US tolerated ex-Nazis and Japanese imperialists keeping their social, political, and economic standing if only to prevent the will of the people from trying a different form of government. That meant that the German and Japanese economies must grow to prove communism was ideologically bogus and serve as the front line in containment of Soviet Russia. The easiest way to grow was to allow them to piggyback on the American economic rocket ship. America loaned capital and goods to both nations so that they could rebuild their industries and export their cheaper finished goods back to America. However, America also allowed Germany and Japan to put up stiff trade barriers to keep out stronger American companies. These trade policies, more than anything else, are the genesis of the current American trade deficit and financial capital surplus.

Another interesting fact is that even to this day, of American troops stationed in foreign countries, Japan and Germany rank number one and two, accounting for 50% of the total. That gives a new meaning to Fuck Around and Find Out if you think devilish communist thoughts.

The policy worked, and four generations on, German and Japanese elite politicians are toadies of the US. Can you believe conservative Japan even followed the US into the nihilist abyss, allowing chicks with dicks into workplace bathrooms previously only reserved for humans born with a uterus. While there is noise complaining about aggressive, ugly American foreign policy, German and Japanese politicians always do what they are told on the issues that matter. The financial result is that Germany and Japan are the richest countries in the world as measured by the net portfolio balance (NPB). To calculate NPB, subtract foreign ownership of local portfolio assets from the total ownership of foreign portfolio assets of a country but excluding its official foreign exchange reserves.^[2]

Germany NPB = $4,968bn

Japan NPB = $4,446bn

The US runs the largest NPB deficit at 58% of GDP. Guess who the number deux is? They eat baguettes, wear berets, and produce some excellent pinots … Zeeee French. Frances’ NPB deficit is 38% of GDP and is the world’s second largest. However, one of these two is not like the other. The US has the global reserve currency, the largest consumer market in the world, and is one of the three major military superpowers alongside Russia and China. France is none of those things yet has racked up a massive bill financed by the Germans and the Japanese. It’s interesting that yet again after almost two centuries of blood, sweat, white flags, and tears, France is owned by the Germans.

After eighty years, the imbalances in this system will cause severe change. The Pax Americana elite finally bankrupted their empire, and in order to rebuild strength, they must look inward. That is what America-first is all about. The plebes are restless that, for all the economic excellence of America over the last eighty years, their lives relative to their parents are less prosperous. The elite outsourced their jobs to China to dampen inflation and boost corporate profits and in the process created an America that can’t win a proxy war in Ukraine against Russia, and can’t allow its attack dog Israel to bomb Muslims with impunity in Iran because of a shortage of defensive missiles. What a shame! What kind of Christians are they if they can’t successfully win a Crusade…

If America is finally going to put up its trade barriers and use its domestic finance to rebuild its domestic industrial capacity, then Germany and Japan can’t continue their mercantilist policies. They themselves must repatriate that foreign capital and retool their economies to focus on their domestic market to compete with China as well. This is a big issue for the US, and I have written about how the US monetary authorities will replace foreign capital flows with printed money. But what about the European Union (EU)? The problem for the EU is France because its largest creditors, Germany and Japan, must repatriate their capital.

Germany and Japan got the memo, and their political leaders will repatriate their country’s assets to spur local industries. Here are some selected quotes from the leaders of Germany and Japan.

Christian Sewing, CEO of Deutsche Bank, said this about “Made in Germany”:

61 leading companies and investors have come together across industries to launch the initiative “Made for Germany”, aimed at shaping a future-proof German economy. Against the backdrop of geopolitical and economic challenges, “Made for Germany” initiates a new era of strengthened dialogue for constructive exchange between business and government, aiming to sustainably enhance Germany’s investment climate.

GZero describes former Economic Security Minister Sanae Takaichi’s platform as she campaigns to rule the Liberal Democratic Party:

Her “Japan First” policies include reviewing the US-Japan trade deal, cracking down on badly-behaving tourists, and curbing immigration.

If German and Japanese capital will not finance others any longer, why is this an acute problem for France? The French government and the banks require foreign funding. 59% of French OAT government bonds with maturity over one year are owned by foreigners. 70% of French long-term bank debt is owned by foreigners. And the biggest two foreign country holders of said debt eat sauerkraut and sushi.

Given the dire state of France’s finances, are the domestic politicians willing to curb spending? Non.

One reason Macron’s presidency is terminally ill is that the ECB opposes the increased government spending desired by the domestic politicians. Macron cannot pass a budget; two prime ministers failed to pass a budget this year. Over in Frankfurt, the crocodile ex-con countess refuses to support France’s bond market with printed euros without massive politically unfeasible budget cuts. In the end, domestic politics on both the left and right are determined that the French state should spend more rather than less money. And they will succeed if it results in Macron resigning early, then so be it.

The French budget deficit will continue to grow, but there are no willing foreigners with checkbooks large enough to finance it. And this brings us to the next section of this essay, where I shall ideate on ways in which capital controls can ameliorate the situation.

L’État C’est Moi

When faced with the intractable problem of who shall pay, politicians always start with foreigners. The Communist Party (New National Front) leader Jean-Luc Melenchon had this to say about foreign debt holders earlier this year:

Do not provoke a crisis by spreading an atmosphere of panic around France. The 3000 billion in debt is not ours. It belongs to foreign investors at 60%. Let them be cautious with the French. If they amuse themselves by trying to bankrupt France, they will pay the bill.

If you are a French government, bank, or corporate bondholder, and you say to yourself, “He’s a communist, and France is capitalist, so I have nothing to worry about.” That is the wrong answer. There is no such thing as private property when the state faces bankruptcy. Foreigners are always the first to be relieved of their capital. Therefore, I can confidently say that if you are a foreign owner of French bonds and equities, the best time to sell was yesterday and the next best is today. There is no reason to fuck around and find out if the French would rather work longer, retire later, and pay higher taxes to preserve your capital. If Macron’s raising of the retirement age by two years triggered nationwide protests in 2023 (remember the “Gillet Jaune”?) no politician will win an election advocating for austerity at this juncture. France is burning right now as protesters express their frustration at the possibility of less government spending.

Let’s first concentrate on the effect on the euro financial system if foreign holders of French assets get fucked. Remember that the fugazi financial system is a fractionalized one. What is one entity’s asset is another’s liability. And a thin veneer of equity supports all assets. Therefore, if French assets that were counted as capital at various EU financial institutions evaporate, insolvency follows.

Here are some sobering statistics about intra-EU French liabilities; let’s assume that foreigners hold 50% of this debt:

- 25% of EU-issued securities are French, 12.5% EU non-French owned

- 27% of EU bank debt issued is French, 13.5% EU non-French owned

- 39% of EU non-financial debt is French, 19.5% EU non-French owned

If we assume banks hold a mix of these assets as collateral for loans, then the average percentage is 15.17%.

If these assets get wiped out, the EU banking system is approaching insolvency on an unlevered basis. To save the EU banking system, the ECB would print EUR 5.02 trillion.

What happens when there is a whiff of systemic banking stress? The central bank in charge prints the fiat needed to keep the banking system solvent on a nominal basis. In the US, the Fed did it in 2008; in Europe, the ECB under Super Mario Draghi did it in 2012. And crocodile ex-con countess Lagarde will do it before the end of the decade.

We know the ECB will respond to French foreign bondholder appropriation by printing EUR 5.02 trillion euros to save the banking system. That is just the starting number; once you pop, you just can’t stop. The ECB, liberated from its faux austerity regarding QE and various forms of money printing, will keep going as contagion spreads throughout the EU. Which other highly indebted countries will default on foreign debt holders? I don’t know, but investors will be scared shitless and sell anything they can to get capital out of the euro.

What about non-EU foreign holders of French debt? What will they do? In the EU, the largest holder of French debt is Germany. Outside the EU, it’s Japan. The relevant question is, will the BOJ allow the financial institutions it oversees and the government itself to accept massive losses on French debt securities? Of course not. To Japanese financial institutions, losses on French assets would not be fatal but embarrassing. It’s estimated that Japan Inc. holds $200 billion worth of French financial assets, which gives us a starting point for yen printed to plug a hole.

Finally, the Fed could use the contagion risk radiating from a collapse of the euro as an excuse to accelerate its money-printing efforts.

Domestic French Capital Controls

Politicians’ theft never stops with just foreign capital because financial crises never just stop after whacking the first mole. The euro is an almost thirty-year-old ghoul. The unwind won’t be over just because the foreigners got their comeuppance. It’s time for French savers to become patriots as the state steals their capital.

French savers will rightly worry that their euro assets within the banking system and euro-denominated French equities will get re-denominated into a much weaker franc. The only option for the politicians to make good on their societal spending programs is to leave the euro and readopt the franc. Even though the French state is broke, the country is still intrinsically wealthy. France is a global tourist destination, possesses abundant fertile farmland, and low-cost nuclear energy powers the country. A limited period of autarky would not be disastrous for the French real economy. However, those locals who hold euro-denominated French assets would experience instant deflation because of re-denomination of said assets into a much weaker franc.

A much weaker franc would boost tourism, supercharge exports especially against more expensive German ones, and it would allow France to regain its sovereignty over its money supply. Both the left and the right bristle at following edicts from Frankfurt and Brussels. That is why the ECB and EU council are dead-set on preventing any “extremist” left or right leaning French politician from taking over. But the people want to be free, and shall be in short order.

French capital recognizes this is the likely endgame that is not far off. That is why the TARGET deficit is accelerating. Those with two eyes and a modicum of common sense are getting the fuck out.

Locals who still hold French financial assets still have time to get out because of the fractured political climate. There are no domestic capital controls yet. But when they come, you cannot withdraw much in the way of physical euro cash, or wire euros outside of the French banking system, or escape by buying Bitcoin and gold. Therefore, as the growth TARGET deficit of France accelerates, Bitcoin will benefit.

How much capital will leave the French banking system?

As of July 2025, domestic French banking deposits totaled EUR 2.6 tn.

Most global banking regulators do not appreciate how digital banking speeds up the transmission of a bank run. Therefore, a significant amount of the capital could leave quickly before the French banking regulators and or the ECB react and restrict movement of capital out of the French or European banking system. Putting a finger in the air, I estimate that 25% of this capital could leave within a few days before the imposition of capital controls. This amounts to EUR 650 bn.

What is the size of domestic holdings of French financial assets that could fly out of France?

Total value of French equities: $3.45 trillion

Total value of the French government bond market: $3.25 trillion

Selling these assets quickly in size is tough because who will buy them? The Germans and Japanese are no longer there bidding up the market. Non-froggies will steer clear of the French capital markets for fear of expropriation. Therefore, using the same finger in the air estimation that 25% of holders could sell and leave equates to $1.68 trillion of capital flight. $1.15 trillion could escape quickly using the current EURUSD exchange rate and adjusted by the 53% foreign ownership. Of course, this is a shitty estimate. I use this mental exercise to point out that hundreds of billions if not trillions of dollars could quickly leave France and find a home in Bitcoin and gold if domestic capital gets spooked.

Once the French capital controls become a reality, the virus will spread to the rest of the Eurozone.

Euro Contagion

If Germany and France effectively say “fuck you” to the imbeciles in Frankfurt and Brussels, why should any other euro member do what they say? Domestic politicians across Europe are populist despite the best efforts of the establishment to crush the will of the people. The plebes want the money to be printed to make their lives better, not the lives of foreign capital holders. There will be nothing stopping any euro member from running up deficits over 3% of GDP, which the Maastricht Treaty forbids.

The question then becomes, does Germany want to retain the common euro currency or not? If it does, then most of the euro members will stay so they can piggyback off of the German Bundesbank’s stellar reputation. If Germany leaves the euro, then everyone else will too. Why would a domestic politician tie their country’s future to a bunch of other middling countries with shaky finances? A euro without Germany is weaker than one that includes it, which helps exports, but foreign investors would charge much higher interest rates to finance a non-German euro. Given that most European countries currently want to run deficits for a generous welfare state and to increase defense spending to fight big bad Russia, I believe they would rather stick with Germany ‌to access cheaper foreign capital.

Regardless of what happens, there will be a period of intense uncertainty. Investors who hold euro-denominated stocks and bonds dislike this type of uncertainty. They will dump these assets indiscriminately. This euro risk-off event will bring the EU banking system to the brink of insolvency again. And again, to save the system, the ECB will print euros. These euros effectively pump Bitcoin and gold as the only two hard assets any investor with a single neuron would purchase in this situation. I guess the next best thing after Bitcoin and gold are US equities, which is a hard thing for me to say. Shortly after the ECB smashes the Brrrr button, they will impose EU-wide capital controls because they cannot allow capital to leave.

I can’t put a number on the amount of capital that will flee Europe into hard assets and the US stock market. If you believe this sequence of events is even a remote possibility, you must sell all euro-denominated assets and remove your capital from the EU banking system. What do you have to lose? Let’s look at the performance of the EU stock and bond market post-COVID to understand the opportunity cost of protecting your capital early. Remember, they who sell first, sell best.

The EuroStoxx 50 Index (white) underperformed the MSCI World Index (yellow) from 2021 to the present.

Over the same time frame, The Bloomberg EuroAgg Bond Index (white) and the EuroStoxx 50 Index (yellow) underperformed Bitcoin (magenta) and gold (green) in euro terms.

As you can see, EU stocks and bonds underperformed all major assets. In the future, the financial situation will only deteriorate further as Europe scores successive own-goals. How can you invest in an economic zone that actively purchases expensive American natural gas transported via ship rather than cheaper Russian gas transported directly via pipeline? Just get the fuck out.

Why Doesn’t the ECB Print?

None of this analysis is groundbreaking. Even the paper-pushing pillocks at the ECB know that France’s finances are figgity fucked in a world where German and Japanese capital is absent. If the euro is the sacred cow, why isn’t the ECB doing “whatever it takes” in former ECB emperor Super Mario Draghi’s words, to prevent a dissolution? The ECB should restart QE using its array of alphabet letter soup programs.

While the ECB’s goal is maximum euro, its maximum euro as long as they are in control. The ECB wants all of its member country subjects to do what they are told. They are told that yearly government deficits should not exceed 3% of GDP. They are told that domestic politicians and political parties are unacceptable if they espouse views of national sovereignty. In France’s case, the ECB opposes any party like Marine Le Pen’s very popular National Front that wishes to enact France-first policies. You might hate Le Pen or more likely, her father because they dine on Billie Holiday’s “Strange Fruits” of the Algerian flavor, but she believes in democracy more than Lagarde. And that’s a problem for Lagarde because the French public wants the government to print and spend money for the benefit of France, not unelected bureaucrats in Frankfurt and Brussels. And therefore, because the ECB’s teacher-fucker pet has lost control of the French Parliament, the ECB will exert control by withholding freshly printed euros.

In the ECB and EU council Soviet think, if France runs greater than 3% deficits to fund populist policies that benefit France domestically, what’s stopping all the other wayward European children from doing the same? Austerity and the associated costs to the populations must be enforced such that Europe™ survives. The lack of action by the ECB euro money printer scares French capital into leaving the clutches of domestic French banking regulators by moving deposits to other euro member countries.

The ECB is so focused on control of Europe™ that it’s cutting off its nose to spite its face. The ECB should telegraph to the market that it will save France and any other nation whose “free” bond market refuses to fund the government at affordable rates. Why? Because the euro needs to weaken dramatically against the dollar. As you can probably tell if you study contemporary history, the US is keen to maintain Europe as its vassal state, and various elite US politicians take a dim view of their wannabe Soviet EU Judeo-Christian cousins. Buffalo Bill Bessent plans to continue this policy by destroying Europe’s competitiveness with a strong euro vs. the dollar.

To grow US exports at the expense of mostly German and other EU countries’ exports, Bessent must weaken the dollar versus the euro dramatically. Continuing to run massive deficits, proclaiming an industrial policy and the associated explosion of bank credit generation, teasing a gold revelation, browbeating the Fed to cut rates when by all objective measures the US economy is strong to very strong, etc. are all policies which will ceteris paribus weaken the dollar vs. most other fiat currencies including the euro. While Bessent is busy trashing the dollar to supercharge Pax Americana’s manufacturing resurgence, Lagarde is busy running too tight of a monetary policy in order to discipline democratically elected politicians of member countries who want to spend money on populist policies. This is why the euro appreciated 12% vs. the dollar since Trump ascended the throne.

Bitcoin Doesn’t Care

Either the ECB presses the Brrr button now and implicitly finances the French welfare state, or it does it later when French capital controls threaten to destroy the euro. Either way, money gets printed in the trillions of euros. Bitcoin doesn’t care and will continue its inexorable rise versus the piece of trash that is the euro.

One thing we can be sure of is that EU banking regulators will attempt to close the exits regardless of which path the ECB takes. If you are a Euro-poor-ean with capital within the euro banking system, the freedom with which you can spirit your capital away into the loving arms of the one true Lord Satoshi will wane rather than wax. The slow-motion collapse of the French state is the signal that it’s time to sell euros and buy Bitcoin. If you read too much mainstream financial press and believe Bitcoin is a scam, sell euros, buy Bitcoin, and then use that Bitcoin to buy another hard asset outside of the EU. Bitcoin is the best way to preserve options on what to do with your precious capital is that it is a digital bearer asset. In a few minutes, you can convert your euro bank balance into Bitcoin using a spot exchange on the continent. And voila, you are no longer Lagarde’s bitch.

If you are not a denizen of Europe™ do not buy European financial assets under any circumstances. Instead, buy some Bitcoin, sit back and watch your sick gainz as printed euros contribute to the bull market in growth of the fiat money supply. If you want to know when the cracks in the euro will emerge, watch the trajectory of France’s TARGET deficit. Maybe, just maybe, you can flaunt your riches at next year’s Bastille Day jamboree. You too can light capital on fire by purchasing a Nebuchadnezzar of bubbly water and fist pump to Rufus in the middle of the afternoon.

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^[1] NCB stands for National Central Bank e.g. Bundesbank.

^[2] Thank you, Russell Napier, for this definition.

(Any views expressed here are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)

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Buffalo Bill Bessent’s plan to re-industrialize America and attempt to forestall the inevitable decline of Pax Americana from a quasi-empire into purely a powerful nation state is nothing new. The exigent circumstances of WW2 allowed the Treasury to subsume the Fed from 1942 until 1951. Part of Bessent’s is reshaping the yield curve, aka yield curve control. What did the yield curve look like during that period versus today?

The Fed capped treasury bill (T-bills) yields at 0.675% and 10-year to 25-year bonds at 2.5%.^[1] As you can see, the current yield curve features both higher short-term and long-term rates. However, the key difference is that the yield curve back in the day was much steeper than the current one. Before I discuss the benefits to various sectors of the American economy of a 1951-shaped yield curve, let’s understand how the Fed, using its current tools, could engage in this type of yield curve control (YCC).

Manipulating the yield on T-bills by lowering the interest on banking reserves (IORB) and the rate at which banks borrow from the discount window (DW) allows the Fed to pin short-term yields where it desires. Using the System Open Market Account (SOMA) to print money (e.g. create banking reserves) and purchase bonds from banks, the Fed ensures yields do not exceed the agreed upon cap. This action expands the Fed’s balance sheet. The current Fed toolkit can perfectly achieve a 1951-shaped yield curve. The question this essay will ponder is how politically Trump and Buffalo Bill Bessent will achieve this level of market manipulation.

Before we get into the politics and bureaucratic rules that govern the Fed, I want to touch on the benefits for various sectors of the economy of a 1951-shaped yield curve.

The essence of Buffalo Bill’s plan is to move credit creation and by extension economic growth out of the hands of the Fed and various non-bank financial institutions like private equity firms into the hands of small and medium-sized bank loan officers (I will call these regional banks). In his recent Wall Street Journal op-ed where he lambasted the Fed, he described it in populist terms of elevating Main St. over Wall St. Don’t get too hung up on the fact that entrance into his economic Valhalla requires the use of the undemocratic tools of Fed money printing. Bessent is a two-faced Treasury Secrecy as evidenced by his critique of Bad Gurl Yellen’s policies prior to his ascension and dutiful implementation of the same said policies post-coronation.

For regional banks to create credit profitably, they require a steep yield curve. The chart below shows that while the overall rate of interest was lower during the 1942-1951 period, the yield curve was much steeper and thus it was safer and more profitable to lend to SMEs. SMEs are the lifeblood of the American economy. Firms with fewer than 500 FTEs account for roughly 46% of employment. However, these SMEs cannot get loans when the Fed is the primary issuer of credit, as this printed money flows to large corporations who can access institutional debt capital markets. Also, the yield curve is too flat if not inverted; therefore, it is too risky for regional banks to lend to these types of businesses. My essay “Black or White” talked about this‌. I called Bessent’s monetary policy QE 4 Poor People.

The banks will now lend to the real industry that can produce the weapons needed for another glorious century of Bombs of Baghdad / Tehran / Gaza / Caracas (yes, an attempt at Venezuelan regime change is going to happen by 2028) etc. fill in your brown or Muslim population center and now the American military can bring forth Democracy^TM … assuming the denizens are still breathing :(.

That fixes the industrial side of the equation. In order to placate the American plebes, who require the ever-expanding welfare state to purchase their allegiance, the government must finance itself more affordably. By fixing the yield on long-term bonds, Bessent can issue infinite amounts of dogshit treasuries that the Fed dutifully buys with printed dollars. The interest expense collapses, as does the federal deficit.

Finally, the value of the dollar relative to other filthy fiat currencies and gold collapses. This allows American industry to export competitively priced goods to Europe first and then the global south in competition with China, Japan, and Germany.

Conceptually, it's very easy to understand why Bessent wants to take control of the Fed and enact YCC, but the current Fed is not playing along. Therefore, Trump must pack the Fed with his loyalists who will submit to the will of Buffalo Bill lest they get the hose again. Fed Governor Lisa Cook is about to experience the 2025 version of the firehose treatment. If you don’t know what that is, take a gander at the tactics used by the establishment during the civil rights protests in the 1960s.

The Fed has two boards that control the various policies needed for Bessent’s plan to succeed. The Federal Reserve Board of Governors (FBOG) controls the IORB and, by extension, the rate on DW loans. The Federal Reserve Open Market Committee (FOMC) controls the SOMA. How do voting members of each board interact with each other? How are these voting board members chosen? How can Trump legally gain control of both boards quickly. Speed is of the essence because the 2026 midterm elections are a little over one year away, and Trump’s Team Red Republicans will face stiff competition at the ballot box. If Team Red Republicans lose control of the Senate and Trump hasn’t got a voting majority on both boards by November 2026, the Team Blue Democrats will confirm none of his future appointments. These are the questions that this essay shall answer. I must caution that when delving into the purely political sphere, there is a heightened risk of error. Humans do weird and unpredictable things. My goal is to point out a very probable path forward, and highly probable is all that my portfolio requires to remain long as fuck Bitcoin, shitcoins, physical gold bullion, and gold miners.

Fed Board Primer

Understanding the bureaucratic decision-making process of the organization in charge of printing money is integral to my investment framework. Along my educational journey into the mechanics of the global filthy fiat monetary system, I learned many things about how various finance ministries and central banks operate. As complex adaptive systems filled with nodes of human decision makers, these bureaucratic organisms must abide by “rules” to achieve anything. Certain rules govern the unelected bureaucracy (the Fed) responsible for the US monetary policy. Therefore, I must answer a few questions to forecast how said policy will bend to the will of Trump and Buffalo Bill Bessent.

1. Who, and specifically which boards, votes on which parts of monetary policy?

2. How many aye votes are required to carry a motion?

3. Who chooses the people who sit on these various boards?

4. When are board members replaced?

First, Trump must gain four seats for a majority on the seven-member FBOG. Then he can use his FBOG majority to get seven voting seats for a majority on the twelve-member Fed Open Market Committee (FOMC). I will explain the monetary policies each body can enact, member selection, and how Trump can get control by the end of the first half of 2026.

Let’s dive into the composition of the FBOG.

FBOG Explained

There are seven members appointed by the president, confirmed by the Senate, who sit on the FBOG. Below is the current list of governors:

The FBOG has power over two very important things. One, the board sets the IORB. Two, the board votes to approve nominated Federal Reserve District Bank presidents who rotate into voting positions on the FOMC.

In order for the Fed to manipulate short-term rates effectively, it must set the IORB within the upper and lower bound of the Fed Funds rate determined by the FOMC. Therefore, when things are harmonious within the organization, the FBOG and FOMC work together and the IORB is within that range. But what if the FBOG is pro-Trump and believes monetary policy set by the FOMC is too restrictive? Is there anything the FBOG can do to force the FOMC to lower the Fed Funds rate?

The FBOG could set the IORB much lower than Fed Funds. This opens up an arbitrage opportunity for the banks that are members of the Fed. The banks can post collateral at the DW, whose rate will follow the IORB lower, borrow at the lower DW rate and lend at SOFR.^[2] The loser is the Fed, as it essentially prints money and hands it to the banks doing the arbitrage. In order to stop getting cucked by Jamie Dimon et al., the FOMC must lower the Fed Funds rate to match the IORB, even if they would rather not because a majority of voting board members suffer from TDS.^[3]

If Trump had a four-seat majority on the FBOG, he could force the FOMC to lower rates to the level he desires quickly. How many governors are loyal to Trump at this current moment?

Because beta cuck towel bitch boy Jerome Powell’s term as Fed chairperson finishes in May 2026, certain board members are angling to replace him. To show their fealty to Trump, they speak publicly about what the Fed policy should be, and in certain circumstances dissent from the majority decision at FOMC meetings. The two board members who dissented at the July 2025 meeting were Bowman and Waller.^[4] Trump is halfway there.

Surprisingly, Adriana Kugler abruptly resigned from the board this summer, and the Senate has confirmed Trump’s nominee Stephen Miran. The rumor on the street is that Kugler’s hubby was trading securities during Fed blackout periods; for those readers who are not politically connected, that behavior might be called insider trading and comes with a one-way ticket to JAIL if the DOJ ever comes knocking.^[5] Kugler resigned before being tarred and feathered by the Trump administration. With Kugler gone and Miran in, that’s three in Trump’s camp, just one more to go.

Like all humans, Fed governors abuse their power. They insider trade (see the previous paragraph), and in board member Cook’s case, allegedly lie on mortgage applications. Bill Pulte, the head of the Federal Housing Finance Agency, accused Cook of mortgage fraud and called for her resignation. She stood her ground and refused to go. Pulte referred her case to the Department of Justice (DOJ) and its head, Pam Bondi, is currently reviewing whether to seek a grand jury indictment for bank fraud. Grand juries almost always agree to indict. It is trivial for the DOJ to get the green light to indict Cook, and therefore I can only imagine the hesitation on the DOJ’s part is to use the threat of a formal indictment as leverage to force Cook to resign. I don’t know if she is guilty or innocent; depending on which mainstream media outlet you follow will determine whether you believe in her guilt or innocence. Supposedly, Buffalo Bill Bessent had irregularities on some of his financial applications with banks. Everyone is a criminal in America, doncha know! Regardless of her ultimate guilt or innocence, the DOJ has close to a 100% conviction rate, and Cook will be cooked if she doesn’t resign. I imagine her obstinacy is purely a negotiation tactic for a soft, cushy landing at some well-paid academic post in government or academia provided by the Trump administration. In any case, she will not be on the FBOG by early 2026. Snake eyes, mothafucka!

With four votes in his pocket, Trump can cap the yields on T-bills quickly as he instructs the FBOG to drop the IORB. Next up, the FBOG can unshackle the regional banks from nonsensical regulations and allow them to lend to Main St. small businesses as Bessent desires. The FBOG can do this as it handles the regulation or lack thereof of commercial banks. The last piece of the puzzle is gaining control of the quantity of money, which allows him to fix long-term yields much lower via the SOMA. To accomplish this, Trump needs control of the FOMC.

How then can control of the FBOG lead to getting a seven-vote majority on the FOMC?

Federal Reserve District Bank Presidents

There are twelve Fed district banks. Back in America’s more agrarian past, different districts needed different interest rates depending on the type of goods and services provided to the national economy throughout the year — hence the need for twelve district banks. Each district bank nominates a president who must receive at least four aye votes from the FBOG to sit on the FOMC. There are only five voting members out of the twelve district presidents on the FOMC, with the New York Federal Reserve Bank president holding a permanent voting seat. Therefore, each year, four different district bank presidents vote on the FOMC. Every year ending in a 1 or a 5, the district presidents face re-election by each Fed district’s board. A simple majority of the Class B and C board members (four out of six)‌ on each district board votes to select a bank president. In February of next year, all presidents are up for reelection. The relevant voting districts alongside New York are:

● Cleveland

● Minneapolis

● Dallas

● Philadelphia

What do you notice about the professional backgrounds of most of these board members? They are financiers or industrialists. Their personal net worth would increase dramatically if money were more plentiful and cheaper. These folks are also all human, and humans usually when left to their own devices, always act in their own self-interests. I do not know their political affiliations, but I am confident that even if they suffer from TDS, the antidote of higher asset prices that enrich themselves and their cronies will cure this affliction. That being said, if it's known that the FBOG will only approve a president who would vote in favor of easier monetary policy on the FOMC, the boards of each district bank will do what’s in Trump and their best interests.

If the district boards don’t put through dovish candidates for the FOMC seat, the FBOG will reject them. Remember, Trump now has the controlling four votes out of seven.

Trump needs only three out of four new voting governors to be loyalists. That gets him to seven votes on the FOMC, and most importantly, control of the SOMA, which is the Fed’s money printer. Then Trump’s peeps on the FOMC will print the money to buy the shitload of dogshit debt which Buffalo Bill Bessent cannot find a buyer. And there you have it, ladies and germs, the Treasury Fed Accord of 2026. Complete with money printing and YCC. Just remember that in the filthy fiat financial system, a pre-flop hand of Four, Seven off-suit is more powerful than pocket rockets.

But I know y’all are jonesin’ for a bull post on my future price of Bitcoin assuming my money printing prediction comes true. Here you go.

Bull Market Math

For those who doubt Trump is serious about printing money to “revitalize” the dream of Pax Americana, here is a brief history lesson on what animates elite politicians to push for radical change. American elite politicians have always done whatever it takes, even if it is very unpopular, to preserve the fruits of the supposed empire for the ruling class. The relationship between the descendants of former African slaves and the European immigrants is a great example and one that continuously dominates the political and social discourse of the country. It was the Civil War, the bloodiest war in American history, that saw President Lincoln kneecap the Confederate economy by emancipating slaves. After the Union triumphed, they abandoned the newly freed humans to Jim Crow segregation in the former Confederate states, and the ruling elite didn’t reconsider formally extending suffrage and other civil rights to the former slaves until 1965. The rise in literacy amongst former slaves and the #Marketing of communism that espoused economic and civil equality of all humans‌ enthralled the black underclass. The problem was that the elite needed those poor black bodies on the front line in Indochina fighting communist “Charlie”, in the northern factories producing exportable goods, in the wealthy households doing domestic work, and on the southern farm but definitely marching on televised Washington D.C. asking for the same rights as everyone else. American #Marketing also needed to sell an image to the non-aligned world that American capitalism was better than Soviet communism. And it’s not a good look when the nation's Declaration of Independence says “all men are created equal” but police dogs are snarling at little girls on their way to newly desegregated schools. Therefore, a Southern Democrat, resident Lyndon B. Johnson, became a champion for civil rights for a bunch of niggers who were only a few generations removed from picking cotton, much to the chagrin of many members of his class. Today, another war against a more united, prosperous, and militarily strong Eurasia (Russia, China, India, and Iran) requires a drastic change in credit allocation. And therefore, I proclaim with extreme confidence regarding money printing, these crackers ain’t playin’.

Trump and Buffalo Bill Bessent believe it is their mission to restore the global primacy of America. That requires rebuilding a solid manufacturing base to produce real goods, not “services”. President of China, Xi Jinping, came to a similar conclusion when faced with the 2018 US-China Trade War started by Trump. Xi crushed the animal spirits of the financiers and big tech CEOs to change the economic direction of China. Who would have thought Alibaba CEO Jack Ma would be called to Zhongnanhai to drink tea and serve a stint in tycoon jail. Instead of building shitty apartments and bike-sharing apps, the best and brightest in Xi’s China would conquer the green economy, rare earths, military drones, ballistic missiles, AI etc. And after almost a decade, China can endogenously produce all the real goods a nation state needs to preserve its sovereignty in the 21st century without the help of America.

The point is, do not doubt that team Trump will use all the tricks in the book to print the money this transformation of America requires. With that said, indulge me in a bit of mental masturbation as to the amount of credit the Fed and the commercial banking system will create by 2028.

Between now and 2028, the Treasury must issue new debt to pay back old debt and to fund the government deficit. I used the <DDIS> function on Bloomberg to estimate the total amount of treasury debt maturing between now and 2028. Then I assumed the federal deficit would be $2 trillion per year until 2028. That brings my estimate of treasury debt issuance to $15.32 trillion.

During COVID the Fed purchased approximately 40% of all treasury debt issued using the SOMA, which increased the size of the balance sheet. I believe the Fed will purchase 50% or more of debt issued, because today even fewer foreign central banks will buy treasury debt because they know Trump will issue a fuck ton of it.

Arriving at an estimation of bank credit growth is difficult. The most defendable estimate is to use the COVID period as guidance. During COVID, Trump ran QE 4 Poor People. Bank credit growth increased by $2.523 trillion over that period evidenced by the growth in banking other deposits and liabilities reported each week by the Fed. Trump has approximately three years left to juice the markets, which equates to $7.569 trillion of bank loans issued.

That brings the total Fed plus commercial banking credit growth to $15.229 trillion. The most finger in the air portion of this model is guessing how much Bitcoin will rise per dollar of credit created. Again, I referred to the COVID time period. The slope of the percentage increase in Bitcoin to a dollar of credit growth was ~0.19. Ladies and gentlemen, that results in a 2028 Bitcoin price prediction of $3.4 million!

Do I think Bitcoin will rise to $3.4 million by 2028? No, but I believe the number will be markedly higher than the ~$115,000 that it trades at today. My goal is to get the direction of travel correct and be confident that I’m betting on the fastest horse, assuming that Trump is serious about printing trillions of dollars to achieve his policy goals. This model does just that.

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^[1] A T-bill has a maturity under one year.

^[2] It is a bit too technical for this essay to explain exactly how the DW rate will match IORB. The rate at which collateralized borrowing from the DW is determined by each Fed district bank president. The FBOG has control over who sits in that seat because it approves bank presidents after they have been nominated by each district bank’s board. SOFR stands for Secured Overnight Funding Rate; it is the replacement for the London Interbank Overnight Rate (LIBOR).

^[3] Jamie Dimon is the CEO of JP Morgan Chase and one if not the most powerful banker in the empire. TDS stands for Trump Derangement Syndrome. You know someone suffers from TDS if they oppose a policy they normally would support purely because Trump supports it.

^[4] However, at the most recent September FOMC meeting, Bowman and Waller did not dissent in favor of a larger 0.50% cut like Miran, but analysts believe Bowman and Waller got what they wanted in terms of a lower dot-plot neutral rate and dovish forward guidance.

^[5] These are purely allegations with no substantiation other than tongues wagging over email speculating as to the reasons for Kugler’s sudden departure.