Arthur Hayes' latest prediction: Bitcoin 250K, Ether 10K, see you by the end of the year!

Original author: Arthur Hayes

Original Title: Time Signature

Compiled and organized by: BitpushNews

Unveiling Trump's "Fascist Economy" and the Secret Waltz of the Crypto Bull Market - The Fatal Dance Steps of Bitcoin and the "Credit Drum". Are your investment moves keeping up?

The highest praise humanity can offer to the universe is the joy born from dance. Most religions incorporate some form of music and dance into their worship rituals. However, the House Music I believe in, which "moves your body," is not in the church on Sunday mornings, but in the dance floor of Club Space at the same time.

In college, I joined the ballroom dancing club and used my body to praise the rhythm. Each type of ballroom dance has strict rules (for example, in the rumba, you cannot put your weight on a bent leg), and for beginners, the hardest part is to dance the basic steps in time with the beat. The biggest difficulty lies in first determining the tempo of a song, and then knowing where each beat falls.

My favorite ballroom dance—the Cowboy Dance—is in 4/4 time, while the Waltz is in 3/4 time. Once you know the time signature, your ears must catch which instrument is on the accent and count the remaining beats of the measure. If every piece of music was just the bass drum hitting "one, two, three, four," it would be very monotonous and boring. The reason music is engaging lies in how composers and producers layer other instruments and sounds to add depth and richness to the song. However, when dancing, listening to all these secondary sounds is unnecessary for placing your feet in the right position at the right time.

Just like music, price charts are the fluctuations of human emotions, and our portfolios dance along with them. Just like in ballroom dancing, our decisions to buy and sell different types of assets must follow the beats and rhythms of specific markets. If we stray from the rhythm, we will lose money. Losing money, like a dancer out of rhythm, is ugly. So the question arises: if we want to remain beautiful and rich, which instrument in the financial market must our ears listen to?

If there is an obvious core idea to my investment philosophy, it is this: the most important variable in profitable trading is understanding how the supply of fiat currency changes.

This is even more critical for cryptocurrencies, as it is a fixed supply asset, at least in the case of Bitcoin. Therefore, the speed of fiat currency supply expansion determines the rate at which Bitcoin prices rise. Since the beginning of 2009, massive amounts of fiat currency have been created, competing for the relatively insignificant supply of Bitcoin, making Bitcoin the best-performing fiat-denominated asset in human history.

Currently, the harsh sounds emanating from financial and political events are forming a tritone. The market continues to rise, but there are some very serious, seemingly negative catalysts creating discordant notes. Should you hedge locally because of tariffs and/or war? Or are these just unnecessary instruments? If so, can we hear the guiding force of the bass drum—namely credit creation?

Tariffs and wars are important because a single instrument or sound can ruin a piece of music. But these two issues are interconnected and ultimately unrelated to the continuous rise of Bitcoin. U.S. President Trump cannot impose meaningful tariffs on China because China will cut off rare earth supplies to the "Beautiful Country" and its vassal states. Without rare earths, the U.S. cannot manufacture weapons to sell to Ukraine, nor can it sell to Israel. Therefore, the U.S. and China are engaged in a crazy tango, with both sides only probing to a certain extent to avoid overly shaking the body economically or geopolitically. That’s why the status quo, although sad and deadly for people in both places, will not have a substantive impact on the global financial markets at present.

At the same time, credit drums continue to delineate time and rhythm. The United States needs industrial policy, which is a euphemism for state capitalism, technically referred to by that dirty word: fascism. The United States needs to shift from a semi-capitalist economic system to a fascist economic system, as its industrial giants cannot produce war materials in sufficient quantities based on their own volition to cope with the current geopolitical environment.

The war between Israel and Iran lasted only twelve days, as Israel exhausted the missiles supplied by the United States and could not operate its air defense system perfectly. Russian President Putin remains indifferent to the threats posed by the United States and NATO as they deepen their support for Ukraine, as they cannot produce weapons in the same quantity, speed, and low cost as Russia.

The United States also needs a more fascist-style economic arrangement to boost employment and corporate profits. From a Keynesian perspective, war is highly beneficial to the economy. The organic demand of the people is replaced by the government's insatiable demand for weapons.

In the end, the banking system is also willing to provide credit to enterprises because they have profit guarantees by producing the products needed by the government. The wartime president is very popular, at least in the beginning, as everyone seems to be getting richer. If we take a more comprehensive approach to measuring economic growth, it becomes very clear that the war is extremely destructive in net benefits. But that kind of thinking does not win elections, and the primary goal of every politician is re-election, if not for themselves, then for their party members. Trump is a wartime president, like most of his American predecessors, and thus he is placing the U.S. economy in a wartime state. As a result, finding the rhythm becomes easier; we must look for ways in which credit is injected into the economy.

In the article "Black or White," I explained how government-backed profits lead to key industries obtaining bank credit. I refer to this policy as "Quantitative Easing for Poor People" (QE 4 Poor People), which creates a credit fountain. I had predicted this would be the way the Trump team would boost the U.S. economy, and the MP Materials deal is our first large-scale real-world case.

The first part of this article will explain how this transaction expands the supply of dollar credit and will serve as a template for the Trump administration in its attempts to produce the key commodities (semiconductors, rare earths, industrial metals, etc.) necessary for 21st-century warfare.

War also requires the government to continue borrowing huge amounts of money. Even if the wealth of the rich expands due to increased credit supply, leading to a rise in capital gains tax revenue, the government will still face a growing fiscal deficit. Who will buy this debt? Stablecoin issuers.

With the increase in the total market capitalization of cryptocurrencies, a portion of it will be stored in the form of stablecoins. The vast majority of these stablecoins' assets under custody (AUC) are invested in U.S. Treasury bills.

Therefore, if the Trump administration can provide a favorable regulatory environment for traditional finance (TradFi) to participate in and invest in cryptocurrencies, the total market value of cryptocurrencies will soar. Consequently, the custodial assets of stablecoins will automatically increase, thereby creating more purchasing power for treasury bills. U.S. Treasury Secretary Bessent will continue to issue treasury bills that far exceed treasury notes or bonds for stablecoin issuers to purchase.

Let's dance a credit waltz, and I will guide the readers on how to perfectly execute the S-shaped step.

Quantitative Easing for Poor People (QE 4 Poor People)

Central banks printing money cannot generate a strong wartime economy. Finance has replaced rocket engineering. To correct the failure of wartime production, the banking system is encouraged to provide credit to industries deemed critical by the government, rather than to corporate raiders.

American private enterprises aim for profit maximization. Since the 1970s, knowledge work has been conducted within the United States while production has been moved overseas for higher profits. China is very willing to enhance its manufacturing skills by becoming the world's low-cost and, over time, high-quality manufacturing factory. However, producing a $1 Nike does not threaten the elites of the "beautiful country." The real issue is that at a time when the hegemony of the beautiful country is severely threatened, it cannot produce war materials. Therefore, all the noise about rare earths has followed.

Rare earths are not rare, but the processing difficulty is very high, largely due to the enormous environmental externalities and substantial capital expenditure requirements. Over 30 years ago, Chinese leader Deng Xiaoping decided that China would dominate rare earth production, and this foresight can now be utilized by the current leadership. Currently, all modern weapon systems require rare earths; therefore, it is China, not the United States, that determines how long the war lasts. To correct this situation, Trump is drawing on China's economic system to ensure that U.S. rare earth production increases, allowing him to continue his aggressive actions.

Here are the highlights from Reuters regarding the MP Materials transaction:

• The U.S. Department of Defense will become the largest shareholder of MP Materials.
• This transaction will boost the United States' rare earth production and weaken China's dominance.
• The Ministry of Defense will also provide a guaranteed price for key rare earth products.
• The guaranteed price will be twice the current market price in China.
• After the announcement, MP Materials' stock price soared nearly 50%.

All of this is good, but where does the funding for building the factory come from?

MP Company stated that JPMorgan and Goldman Sachs are providing a $1 billion loan for the construction of its 10x capacity factory.

Why are banks suddenly willing to lend to the real economy? Because the U.S. government guarantees that this "burn money project" is profitable for borrowers. The following T-account explains how this transaction creates credit out of thin air, leading to economic growth.

MP Materials (MP) needs to build a rare earth processing plant and obtained a $1000 loan from JPMorgan Chase (JPM). The loan creates $1000 of new fiat currency (wampum), and this money is deposited into JPMorgan Chase.

The MP company subsequently built a rare earth processing plant. To do this, it needs to hire workers, referred to as "Plebes." In this simplified example, I assume that all costs consist of labor fees. The MP company must pay the workers, resulting in a debit of $1000 from the MP account and a credit of $1000 to the Plebes in the JPM account.

The Department of Defense (DoD) needs to pay for these rare earths. The funding is provided by the Treasury Department, which must issue debt to finance the DoD. JPMorgan converts its corporate loan assets to MP through the discount window into reserves held at the Federal Reserve. These reserves are used to purchase debt, leading to a credit in the Treasury General Account (TGA). The DoD then purchases rare earths, which becomes income for the MP company, ultimately returning to JPMorgan in the form of deposits.

The ending balance of fiat currency (EB) is $1,000 higher than the initial loan amount from JPMorgan. This expansion is due to the money multiplier effect.

This is how government procurement guarantees financing for the construction of new factories and hiring workers through commercial bank credit. I did not include it in this example, but JPMorgan Chase is now lending to these "grassroots" individuals to help them purchase assets and goods (homes, cars, iPhones, etc.) because they have stable and good jobs. This is another example of new credit creation that ultimately ends up in the hands of other American companies, and this income is then deposited back into the banking system. As you can see, the money multiplier is greater than 1, and this wartime production leads to increased economic activity, which is counted as "growth."

The money supply, economic activity, and government debt are all growing in sync. Everyone is happy. The "grassroots" have jobs, and financiers/entrepreneurs have government-guaranteed profits. If these fascist economic policies can magically provide benefits for everyone, why hasn't this become the global economic policy of every nation-state? Because it would cause inflation.

The human resources and raw materials required for producing goods are limited. The government is squeezing the financing and final production of other goods by encouraging the commercial banking system to create money out of thin air. Ultimately, this will lead to a shortage of raw materials and labor. However, fiat currency is not in short supply. Therefore, wage and commodity inflation will follow, which will ultimately cause suffering to any individuals or entities that are not directly connected to the government or the banking system. If you don't believe me, please read the daily history of the two World Wars.

The trading of MP Materials is the first large-scale significant case that reflects the "quantitative easing for the poor" policy. The best part of this policy is that it does not require approval from Congress. The Department of Defense, under the directives of Trump and his successor in 2028, can issue guaranteed procurement orders in the course of its normal business operations. Profit-seeking banks will follow suit, fulfilling their "patriotic" duties by providing funding to those companies that are dependent on the government. In fact, elected representatives from all parties will compete to argue why the companies in their districts should receive procurement orders from the Department of Defense.

If we know that this form of credit creation will not face political resistance, how can we protect our portfolios from the ensuing inflation?

Blowing bubbles, trying hard to blow them bigger

Politicians are not unaware that stimulating "key" industries through accelerated credit growth can lead to inflation. The challenge lies in utilizing excess credit to inflate a bubble in an asset that will not disrupt social stability. If wheat prices were to soar like Bitcoin has over the past 15 years, most governments could be overthrown by popular revolts. Instead, governments encourage the public (who instinctively feel that their actual purchasing power is declining) to share in the credit game by investing in government-recognized inflation-hedging assets, thereby profiting from it.

Let's look at a real-world example from a non-crypto field, back in China. China is the best example of a fascist economic system. Since the late 1980s, their banking system has created the largest amount of credit in the shortest time in civilized human history, primarily allocating it to state-owned enterprises. They have successfully become the world's low-cost, high-quality factory; currently, one-third of the world's manufactured goods come from China. If you still think that products made by Chinese companies are of low quality, go take a test drive of a BYD and then take a test drive of a Tesla.

China's money supply (M2) has increased by 5000% from 1996 to the present. Those hoping to escape this credit-driven inflation face very low bank deposit interest rates. As a result, they have flocked to apartments, a behavior encouraged by the government as part of its urbanization strategy. Soaring housing prices, at least before 2020, helped suppress the public's demand for hoarding other physical goods. Housing prices in China's first-tier cities (Beijing, Shanghai, Shenzhen, Guangzhou) have become the most expensive in the world when calculated by affordability.

19 years, land prices increased by 80 times, with a compound annual growth rate (CAGR) of 26%.

This kind of housing price inflation has not undermined social stability, as ordinary middle-class citizens are able to borrow money to purchase at least one apartment. Therefore, everyone is involved. An extremely important secondary effect is that local governments mainly fund social services by selling land to developers, who then build apartments to sell to the "grassroots." As housing prices rise, land prices and sales also increase, and tax revenue rises accordingly.

This case tells us that if the Trump administration really intends to fully implement economic fascism, then the excess credit growth must inflate a bubble that can both allow ordinary people to make money and simultaneously fund the government.

The bubble that the Trump administration will blow will focus on the cryptocurrency sector.

Before I delve into how the crypto bubble fulfills various policy objectives of the Trump administration, let me first explain why Bitcoin and cryptocurrencies will soar as the United States becomes a fascist economy.

I created a custom index named <.BANKUS U Index> on the Bloomberg terminal (white line). This represents the total reserves held by the Federal Reserve against other deposits and liabilities in the banking system, serving as a proxy for loan growth. Bitcoin is represented by the golden line, with both lines indexed to 100 as of January 2020. Credit growth doubled, and Bitcoin subsequently grew by 15 times. The fiat price of Bitcoin has a high leverage effect on credit growth.

At this point, whether retail or institutional investors cannot deny that if you believe more fiat currency will be created in the future, Bitcoin is the best investment choice.

Trump and Beisent have also been "orange-pilled". From their perspective, the best thing about Bitcoin and the entire cryptocurrency is that, compared to the affluent white baby boomer generation, traditionally non-stock holding demographics (young people, the poor, and non-white individuals) have a higher proportion of cryptocurrency ownership. Therefore, if cryptocurrency thrives, it will create a broader and more diverse group of people who are satisfied with the ruling party's economic platform.

In addition, to encourage all types of savings to invest in cryptocurrencies, a recent executive order has explicitly allowed 401(k) retirement plans to invest in crypto assets. These plans hold about $8.7 trillion in assets. Boom Shak-A-Laka!

A deadly blow is President Trump's proposal to eliminate the capital gains tax on cryptocurrencies. Trump is offering war-driven crazy credit growth, regulatory permissions allowing pension funds to invest cash in cryptocurrencies, and—TMD, no taxes! Hooray!

All of this is good, but there is one problem. The government must issue more and more debt to fund the procurement guarantees provided by the Department of Defense and other agencies to private enterprises. Who will buy this debt? Cryptocurrency wins again.

Once capital enters the crypto capital market, it usually does not leave. If an investor wants to sit on the sidelines, they can hold a stablecoin pegged to the US dollar, such as USDT.

To earn returns from its custodial assets, USDT will invest in the safest traditional finance (TradFi) income-generating instruments: Treasury bills. Treasury bills have a maturity of less than one year, so interest rate risk is close to zero, and they are as liquid as cash. The U.S. government can print unlimited amounts of dollars for free, so nominal default will never occur. Currently, Treasury bills yield between 4.25% and 4.50% depending on the maturity. Therefore, the higher the total market capitalization of cryptocurrencies, the more funds the stablecoin issuers accumulate. Ultimately, most of these custodial assets will be invested in Treasury bills.

On average, for every 1 dollar increase in the total market cap of cryptocurrencies, 0.09 dollars flow into stablecoins. Let’s assume Trump fulfills his duties and pushes the total market cap of cryptocurrencies to 100 trillion dollars by the time he leaves office in 2028. This is an increase of about 25 times from the current level;

If you think this is impossible, it means you haven't been exposed to cryptocurrency for long enough. This will create approximately $90 trillion in treasury bond purchasing power, achieved through global capital inflows by stablecoin issuers.

From a historical perspective, when the Federal Reserve and the Treasury needed to finance America's World War II adventures, they also turned to issuing Treasury bills far in excess of bonds.

Now, Trump and Bessent have "drawn a circle" (resolved the issue):

• They copied the Chinese model and created a fascist economic system in the United States to produce goods.
• The inflationary impulse of financial assets caused by credit growth has been directed towards cryptocurrencies, which have skyrocketed, making the general public feel wealthier due to their astonishing returns. They will vote for the Republican Party in 2026 and 2028... unless they have a teenage daughter... or perhaps the public always votes with their wallets.
• The continuously rising cryptocurrency market has led to a large inflow of funds into USD-pegged stablecoins. These issuers invest their custodial assets in newly issued Treasury securities, which provide funding for the expanding federal deficit.

The bass drum is beating. Credit is being pumped. Why haven't you fully invested in cryptocurrency yet? Don't be afraid of tariffs, don't be afraid of war, and don't be afraid of randomly occurring social issues.

Trading Strategy

It's very simple: Maelstrom is fully invested. Because we are degens, the altcoin space offers amazing opportunities to outperform Bitcoin, this crypto reserve asset.

The upcoming Ethereum bull market will completely ignite the market.

Since Solana rose from $7 to $280 from the ruins of FTX, Ethereum has been the least favored among large cryptocurrencies. But now it's different; the Western institutional investor group, led by its main cheerleader Tom Lee, is very fond of Ethereum.

Buy first, then ask questions. Or don’t buy, and instead sit in the corner of the club like a gloomy guy, drinking a light beer that tastes like urine, while a group of people at the table next to you, whom you think are less intelligent than you, are spending a lot of money on champagne.

This is not financial advice, so you decide for yourself. Maelstrom is doing everything related to Ethereum, everything related to DeFi, and all the "degen" gameplay driven by ERC-20 altcoins.

My end-of-year goal:

• Bitcoin = $250,000
• Ethereum = $10,000

Freedom on the yacht, TMD!