Arthur Hayes Bitcoin 2025 Conference Speech: The Road for BTC to 1 Million Dollars

Original Title: Arthur Hayes' Keynote Speech at Bitcoin 2025 "It's F**king Maths" Translation: Golden Finance

The task of the U.S. Secretary of the Treasury

The new U.S. Treasury Secretary is Bessent, who previously worked with George Soros and helped break several different sovereign currency peg mechanisms. It is clear that he has a deep understanding of what needs to happen economically for the U.S. to succeed in the face of all these challenges.

This is a photo of Bessent doing a sales presentation. I believe some of you have seen the movie "Glengarry Glenn Ross" and that iconic scene when... I forgot the actor's name, he stands there telling the salespeople ABC—Always Be Closing. So what is Scott Bessent's job? Every time you see him on TV, imagine him as a used car salesman who is trying to sell you something. What is he selling you? Bonds. His job is to sell bonds because his boss—the U.S. government—needs to finance itself.

So why are bonds a bad investment? The yellow part here is a chart of the total amount of U.S. Treasury bonds, starting from 2017. You can see that it is based on 100, and the debt supply has increased by about 80%. Then I compared this index with TLT (an ETF that tracks long-term Treasuries) divided by the Nasdaq 100 index. So if the chart goes down, it means the Nasdaq has outperformed bonds. From 2017 to now, the Nasdaq has outperformed bonds by about 80%. So yes, you might have made money from the coupon of holding bonds, but if you had invested in the stock market, you would have made 80% more.

Let's take a look at the same chart compared to gold. It's a similar situation. If you hadn't held U.S. Treasuries but instead had purchased gold, your performance would be about 80% better. Clearly, this isn't a gold or stock meeting. We're talking about Bitcoin here. So how does it perform compared to Bitcoin? That's even more striking. By purchasing Bitcoin instead of bonds, your performance would also surpass that of the bonds.

Therefore, even though many investment professionals will come out and tell you, you know, I think the bond market will perform well in the next year or two, and such, this may be true. You might really make money by holding bonds, but you will earn more by holding other things. The goal of investing is to maximize the money you make in the current environment, and holding government bonds is not a good deal.

Now, this clearly goes back to my point that this job of Besant is very difficult, because as more and more investors read these charts and understand that if they continue to hold government bonds, their performance will be far inferior to the returns they could earn for themselves and their clients, then more government action is needed to ensure that the U.S. government can finance itself. So it is clear that after the Trump administration came to power, they talked about the spending issues of the U.S. government.

US debt deficit and inflation

This is a chart from the Peterson Institute. The fiscal year in the United States starts in October. We can see that as of March this year, despite a lot of effort and rhetoric to control excessive government spending, our expenditures in FY 2025 have already surpassed those in FY 2024, which was already a record deficit year.

It is clear that in the media, we have been discussing a lot about certain individuals — we will mention that person later — on how they will control government spending by eliminating fraud and abuse. We discussed it for a while, and then the protagonist of this effort, the Doge "pioneer" Musk, disappeared without a trace. We haven't heard from him in a while, as this is bad political maneuvering. Every dollar spent by the government goes into someone else's pocket. If you're going to step up and say we need to cut trillions of dollars from the deficit, it will obviously have a negative impact on many people and businesses. We saw the negative reactions from the media and individuals regarding this. Ultimately, I think politicians realized that, hey, this is not a good political strategy. Let's recall our "attack dog" and let him fade out of people's sight to run his private company.

But this means that if they cannot meaningfully cut the deficit, how do you balance the accounts? Recently, Scott Besant has started to tour the media, talking about how he focuses on growth. He is fully committed to pursuing growth. So what does it mean if you are facing a huge deficit? It means you need to make the nominal GDP growth rate exceed your interest costs, which is very difficult unless you intend to increase the amount of credit in the economy.

Many of you here are Americans, or have been in North America for a long time. I have lived in Greater China for most of my adult life. When you live in China, you understand that GDP or growth is simply the output of how much credit you are willing to inject into the economy. If we want to understand what the Trump administration – and I think any administration will do in the face of these mathematical facts, we have to understand that this economy is dependent on credit. So, if you're willing to inject more credit into the system, you'll be able to achieve whatever growth you want. So if Bessant says they want 6% or 7% nominal GDP growth, fine, how much credit are you going to create? We want to know how much credit they intend to create, as this is ultimately what causes Bitcoin to outperform all other assets in fiat terms.

So, how do we get past the sustained deficit of 7%? What can they do? Normally, the authorities blow up another financial bubble. Maybe that's Bitcoin and cryptocurrency. Politicians take a very loose stance and say, "Hey, we want our brothers and sisters in the crypto world to be very rich, pay capital gains tax, you know, spend a lot and improve economic performance." They can encourage the banking system to lend to the real economy, which I called "QE for the poor" in an article I wrote a few months ago. Basically, if the banking system is not engaged in financial engineering, but instead uses its balance sheet to lend to ordinary companies, this creates jobs and economic growth.

Now, the issue with these two matters is the existence of inflation. Inflation is necessary for balancing the balance sheet. I know this is an unpopular word in politics and economics, but inflation is necessary for the government to bear its massive debt. So we will face inflation, and obviously, everyone here understands that Bitcoin is the best hedge against this. But we need to spread this message to the world.

The Road to 1 Million Dollars for Bitcoin

Finally, I want to talk about a few things. The road for Bitcoin to reach 1 million dollars, I believe there are mainly three aspects.

First is capital controls and tariffs. I recently wrote an article delving into what I believe are bad political tools, because they encourage goods inflation and empty shelves, which ordinary Americans do not like. But you can achieve the same economic rebalancing goals by using capital controls. So we are starting to see some fringe economists—who will soon become mainstream—talk about how they can eliminate certain tax benefits that foreigners enjoy when investing in the U.S. and redistribute that income to voters or use it to purchase Treasury bonds of specific maturities.

The second thing is the exemption of the bank's supplementary leverage ratio (SLR), I will elaborate on this later. Scott Bessent has mentioned this in several interviews, and he recently even strengthened his remarks in interviews with Bloomberg and Fox News, talking about his belief that this ratio will be exempted this summer, just like during the COVID-19 pandemic when large banks could leverage unlimitedly to purchase government bonds.

Finally, an increasingly prominent area is Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs), which, if allowed again, will be able to inject a large amount of funds into the mortgage market.

Let's take a look at this "trinity." "Foreigners must pay" is a good political strategy. If you want to tell voters "I want to give you something," it is obviously better if someone else pays for it. This is how politics operates around the world. Back in 1984, the U.S. government faced another problem, the same problem: how do we get people to buy our debt? At that time, the yield on 30-year Treasury bonds was about 12%. They said, "Hey, why don't we exempt foreign bondholders from withholding tax?" Now, if you are an American, all the interest you earn from holding Treasury bonds is taxed at a specific rate, I think between 20% and 30%. But now, if you are a foreigner, you do not have to pay that tax.

So there is now a discussion about canceling this exemption to achieve several goals. First, by essentially taxing the income earned by foreigners, this could raise over a trillion dollars in ten years. Now, obviously, if you are being taxed, you might not want to hold government bonds. So one idea is whether we can set a very low tax rate for holding long-term government bonds—these are things that are difficult to sell—and impose a high tax on government bonds (short-term government bonds)—these are cash-like instruments you might hold in a money market account. Everyone wants this; everyone wants high-yield cash accounts. So let's penalize you for holding short-term government bonds but encourage you to hold long-term government bonds. This is a mild form of yield curve control. How do we get demand for long-term bonds from foreigners? Just change the tax rate.

Now, the ultimate question is who will replace foreigners as the marginal holders of the debt. Clearly, this means they will print money to make up for the funds lost due to foreigners not investing in this debt.

Another thing: the bank bond-buying frenzy. Supplementary Leverage Ratio (SLR), if you remember nothing from this speech, please remember this. It’s a way for banks to buy bonds with unlimited leverage. There’s something called Basel III, which is a very complex regulation established after the global financial crisis that did one smart thing. It said, hey banks, you don’t have enough capital, why don’t we allow you to have more capital? So if I hold a bond, I have to put in some of my own equity capital. This makes sense. This means that U.S. banks will face limits on the amount of U.S. Treasury bonds they can purchase. Keep in mind that the Treasury needs to sell $20 trillion or more in bonds each year, and it needs to ensure that someone can buy those bonds. So if I remove this exemption, it allows commercial banks to buy Treasury bonds with unlimited leverage. When they can do that, their profits will soar because they pay very low interest rates on commercial deposits. Clearly, the smiling Jaime Dimon is very much hoping for this to happen. He has stated on multiple occasions that he believes the banking system needs this exemption. As I often say, Jaime Dimon gets what Jaime Dimon wants.

One more thing, stablecoins are clearly a very hot topic these days. If you combine stablecoins or interest-paying USD stablecoins issued by U.S. banks in the market with SLR exemptions, they basically become like Tether. They don't allow any fees to be paid to people who invest in these stablecoins and use them for transfers, and then they can put all that money into U.S. Treasuries and there are no capital requirements. It's basically unlimited profits. So I expect that if this exemption goes through — and I think it will go — you're going to see a very consistent effort by the big U.S. banks to issue "orange stablecoins" (stablecoins related to Bitcoin or a bank that supports Bitcoin) because it's a way for them to earn a lot of net interest income.

This is a post by Trump on "Truth Social" about Fannie Mae and Freddie Mac.

Basically, these are the organizations that issued mortgages before the 2008 financial crisis. They were very profitable. Now, what happens when you release Fannie Mae and Freddie Mac? Essentially, you are liberating them from government conservatorship. This deal has been discussed for almost two years. If you bought in at one dollar, these companies might now be trading at 11 dollars in the market. But you liberate them from conservatorship, they are allowed to issue more debt with their equity capital, backed by implicit government guarantees, and leverage it 33 times. Then they can buy up to 5 trillion dollars in mortgages. If you allow these two organizations to return to normal operations, that would mean 5 trillion dollars of liquidity entering the market.

simple calculation

Where did I come up with the idea that Bitcoin could reach 1 million dollars?

• If we consider "quantitative easing for the poor" — banks providing more loans to the real economy — I estimate that from now until 2028, it could generate up to $3 trillion in bank credit. The statistic to watch is the "other deposits and liabilities" item on the Federal Reserve's balance sheet each week, where we will see this happening.
• If banks are allowed to purchase government bonds, it is estimated that $900 billion in foreign demand may disappear. This must be compensated by commercial banks, which can now purchase these government bonds with unlimited leverage.
• Finally, let's release Fannie Mae and Freddie Mac to bring $5 trillion in liquidity to the market.
• This will bring us close to printing 9 trillion dollars from now until 2028.

Let's put this in context. During the COVID-19 pandemic, the United States' stimulus plans and all aid given to the financial sector totaled about $4 trillion. From the low in March 2020 to $70,000 in November 2021, Bitcoin rose by about 10 times.

Remember, prices are determined by the margin. What matters is the marginal price, not the total stock. Therefore, if we reduce the Bitcoin on trading platforms due to ETF demand, and the money we print from now until 2028 is twice that during the COVID-19 pandemic, then reaching 1 million dollars for Bitcoin will be easy.

Source: Golden Finance