(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.

(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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US Treasury Secretary Scott Bessent deserves a new nickname. I previously christened him as the BBC, short for Big Bessent Cock. Yes, his demolition ding-dong is destroying the status quo across the global financial ecosystem, but this moniker doesn’t do him justice. I believe he needs a more apt name to describe the pain he will inflict on two very important constituents in the fugazi financial system: the Eurodollar banking system and foreign central banks.

Similar to the serial killer in the movie Silence of the Lambs, a fucking classic worthy of a “Netflix and Chill” night for any uninitiated youngin, Scott “Buffalo Bill” Bessent is about to exterminate the Eurodollar banking system and take control of foreign non-dollar deposits. Where slaves and highly trained legions upheld Pax Romana, slaves and the hegemony of the US dollar uphold Pax Americana. The slavery aspect of Pax Americana isn’t just about historically shipping over Africans to pick cotton; the modern whip is the “monthly payment” multiple generations of youngsters willingly shouldering life-crushing levels of debt to acquire worthless credentials in the hopes they too can work at Goldman Sachs, Sullivan & Cromwell, or McKinsey. This is a way more widespread, insidious, and ultimately effective means of control. Unfortunately, now that America’s gots dat AI, these debt donkeys are about to be unemployed … put that blue collar on, playa.

I digress.

Pax Americana’s control over the global reserve currency, the US dollar, is what I will discuss in this essay. Various US Treasury Secretaries have wielded this dollar cudgel with varying degrees of success. The most notable failure was allowing the Eurodollar system to emerge.

The Eurodollar system emerged in the 1950s and 1960s to avoid US capital controls (e.g., Regulation Q), sidestep economic sanctions (the USSR needed a place to store its dollars), and bank non-US trade flows as the global economy recovered after WW2. The monetary authorities at the time could have recognized the need to supply foreigners with dollars and allowed domestic US money center banks to own this business, but domestic political and economic concerns required a hardline stance. As a result, the Eurodollar system grew to an unknown size over the ensuing decades and became a force with which to be reckoned. An estimated $10 to $13 trillion Eurodollars are sloshing around in various non-US bank branches. The ebb and flow of this capital caused various financial crises in the post-WW2 era, which always required money printing. “The Offshore Dollar and US Policy” was a paper written in August 2024 by the Atlanta Fed that discussed this phenomenon.

For Buffalo Bill Bessent, the problem with the Eurodollar system is twofold. The first issue is that he is clueless about how many Eurodollars exist and what they finance. The second issue, which is the most important, is that these Eurodollar deposits are not being used to buy his dogshit treasury debt securities. Is there a way for Bessent to solve these two problems? Hold this thought for a second while I touch quickly on foreign currency holdings of non-US retail depositors.

De-dollarization is real. It started in earnest in 2008, when the US monetary masters of the universe decided instead of allowing banks and financial institutions to fail because of their bad bets, to bail them out by embarking on QE Infinity.^[1] A useful proxy to understand the reaction of global central banks that hold trillions of dollars' worth of USD-denominated assets is the percentage of gold in their reserves. The higher the percentage of gold in one's reserves, the less one trusts the US government.

As you can see, post-2008 the percentage of gold in central bank reserves bottomed and began a secular ascent.

This is the TLT US ETF, which tracks US Treasury bonds with a 20-year or longer maturity divided by the price of gold. I have indexed it at 100 starting in 2009. Treasuries have lost almost 80% of their value versus gold since 2009. The monetary policy of the US government was to bail out its banking system and fuck over both foreign and domestic debt holders. No wonder foreign central banks began aping Scrooge McDuck. US President Trump intends to follow a similar strategy, but besides fucking over bondholders, he believes he can tax foreign capital and trade flows to Make America Great Again using tariffs.

Bessent can’t really do much to convince central bank reserve managers to buy more treasuries. However, there is a large under-banked, from a dollar perspective, cohort that exists in the Global South who would love nothing more than to have a positively yielding dollar currency account. As you know, all fiat is trash when compared to Bitcoin and gold. That being said, if you are within the fiat system, the best fiat is the dollar. Domestic regulators that rule most of the world’s population force their plebes to own shitty currencies beset with high inflation and limit access to the dollar financial system. These plebes would buy treasury bills at whatever yield Bessent offers, if only to escape their shitty government bond markets. Is there a way Bessent can bank these folks?

I first travelled to Argentina in 2018 and have been back regularly since. This is a chart of ARSUSD indexed at 100 starting in September 2018. The Argentinian peso lost 97% of its value in dollars in seven years. Currently, when I travel there mostly to ski, I pay all service staff in USDT.

Buffalo Bill Bessent found a new tool that will solve his problems. It is called a stablecoin. Dollar-pegged stablecoins are now promoted by the US Treasury. The empire will support select issuers as they hoover up Eurodollar and Global South retail deposits. To understand why, I will quickly step through the structure of an “acceptable” dollar-pegged stablecoin. Then, I will touch on the implications for the TradFi banking system. Finally, and this is what y’all degens are here for, I will lay out why Pax Americana supported dollar-pegged stablecoin global adoption will power a secular rise in the use of DeFi applications, specifically Ethena, Ether.fi, and Hyperliquid.

As you know, Maelstrom doesn’t fuck for free. We have bags and bags and more fucking bags.

If you haven’t gotten your fill of stablecoins, I will tease a new stablecoin infrastructure project - Codex - that we are advising, which I believe will be the best performing token; from its soon to launch TGE until the end of this cycle.

What is an Acceptable Stablecoin?

A dollar-pegged stablecoin is analogous to a narrow bank. The stablecoin issuer accepts dollars and invests those dollars in a risk-free debt instrument. The only risk-free debt instruments in nominal dollar terms are treasury debt securities. Specifically, because the issuer must be able to provide physical dollars on demand if a holder redeems, stablecoin issuers will only invest in treasury bills (T-bills). A T-bill has a maturity of less than one year. Because it has little to no duration risk, it trades as if it were cash.

Let’s walk through the flow.

Creation of a unit of stablecoin, I will use the example of Tether USD (symbol: USDT):

1. The authorized participant (AP) wires dollars into the Tether’s bank account.

2. Tether creates 1 unit of USDT for every dollar deposited.

3. To earn a yield on its dollars, Tether buys T-bills.

If an AP wires $1,000,000, they receive 1,000,000 USDT.

Tether buys $1,000,000 worth of T-bills.

USDT pays no interest.

But

The T-bills pay essentially the Fed Funds rate, which currently is 4.25% to 4.50%.

Tether has a net interest margin (NIM) of 4.25% to 4.50%.

In order to accumulate deposits, Tether or an affiliated financial institution like a crypto exchange will pay out a portion of the NIM if a depositor stakes their USDT. Staking just means you lock your USDT up for a period of time.

Redemption of a unit of stablecoin:

1. The AP sends USDT to Tether’s crypto wallet.

2. Tether sells T-bills in the USDT dollar amount.

3. Tether sends one dollar for every one USDT to the AP’s bank account.

4. Tether burns USDT, removing it from circulation.

The business model of Tether is very simple. Receive dollars, issue a digital token that rides on a public blockchain, invest the dollars in T-bills, and earn the NIM. Bessent will ensure that issuers the empire will tacitly support by law can only hold dollars in a chartered US bank and or treasury debt securities. No funky stuff.

Eurodollar Implications

Before the emergence of stablecoins, the US Federal Reserve and the US Treasury Department always bailed out Eurodollar banking institutions when they got into trouble. A well-functioning Eurodollar market was essential to the health of the empire. But now, there is a new tool that allows Bessent to soak up those flows. At the macro level, Bessent must provide a reason for Eurodollar deposits to shift on-chain.

For example, during the 2008 Global Financial Crisis, the Fed secretly lent billions of dollars to foreign banks who were short dollars because of the knock-on effects of the collapse of subprime mortgages and their associated derivatives.^[2] As a result, Eurodollar depositors believe that the US government implicitly guarantees their money even though technically they are outside of the US-regulated financial system. Declaring that non-US bank branches will not receive any help from the Fed or Treasury should another financial crisis occur will redirect Eurodollar deposits into the loving hands of stablecoin issuers. If you think this is far-fetched, a strategist at Deutsche Bank wrote a piece openly questioning whether the US would weaponize dollar swap lines to force the Europeans to do what the Trump administration requires of them. You better believe Trump would love nothing more than to castrate the Eurodollar market by effectively debanking it. These same institutions debanked his family after his first term; it’s time for payback. Karma is a bitch.

Without the guarantee, Eurodollar depositors would act in their own best interest by moving funds into dollar-pegged stablecoins like USDT. Tether holds all of its assets as US bank deposits and or T-bills. By law, the US government guarantees all deposits held at the eight Too Big to Fail (TBTF) banks; ‌post the 2023 Regional Banking Crisis, the Fed and Treasury effectively guaranteed all deposits at any US bank or branch. The default risk of T-bills is nil as well because the US government will never voluntarily go bankrupt because it can always print dollars to repay T-bill holders. Therefore, stablecoin deposits are risk-free in nominal dollar terms, but now Eurodollar deposits are not.

Quickly, dollar-pegged stablecoin issuers will face an influx of $10 to $13 trillion, and subsequently purchase T-bills. The stablecoin issuer becomes a price-insensitive buyer of Buffalo Bill Bessent’s dogshit paper in FUCKING SIZE!

Even if Fed chairperson beta cuck towel bitch boy Powell continues to obstruct Trump’s monetary agenda by refusing to cut Fed Funds, end quantitative tightening, and restart quantitative easing, Bessent could offer T-bills at a lower rate than Fed Funds. He could do this because the stablecoin issuer must buy whatever he is selling at the yield offered if they are to earn a profit. In a few moves, Bessent gains control of the front end of the yield curve. There is no point in the Fed’s continued existence. Maybe a statue of Bessent in the style of “Perseus with the Head of Medusa” by Cellini will tower over some square in Washington D.C. entitled “Bessent with the Head of The Creature From Jekyll Island”.

Global South Implications

The US social media companies will be the Trojan horse that destroys the ability of foreign central banks to control the money supply of their plebes. In the Global South, the penetration of Western social media platforms (Facebook, Instagram, WhatsApp, and X) is total.

I have spent half of my life in the Asia-Pacific region. Converting depositors' local currency into dollars or dollar equivalents (e.g. HKD) so that capital can access dollar yields and US equities makes up a large part of investment banking activity in the region.

The local monetary authorities play whack-a-mole against TradFi institutions to shut down schemes which allow capital to leave. The government needs the capital of the plebes and to some extent the non-politically connected wealthy sequestered so they can inflation tax them, prop up poor performing national champions, and provide low-interest loans to heavy industry. Even if Bessent wanted to use the large US money center banks as the tip of the spear to bank these desperate folks, local regulators forbade it. But there is another, more potent way to access this capital.

Apart from mainland China. Everyone uses Western social media companies. What if WhatsApp rolled out a crypto wallet to every user? Within the app, users can seamlessly send and receive an approved stablecoin like USDT. With this WhatsApp stablecoin wallet, what if users could also send money to any other wallet on a variety of public blockchains?

Let’s walk through a fictional example to illustrate how WhatsApp could provide a digital dollar bank account to billions of members of the Global South.

Fernando is a Filipino who operates a click farm in the rural Philippines. Basically, he will create fake followers and impressions for social media influencers. Because all of his clients are outside of the Philippines, he finds it difficult and expensive to receive payment. WhatsApp becomes his primary payment method as it provides a wallet with which to send and receive USDT. His clients, who also have WhatsApp, are more than happy to stop using shitty banks. Both sides are delighted with this arrangement, but it dis-intermediates the local Filipino banking system.

After a while, the Philippine Central Bank takes notice that a large and growing portion of banking flows has disappeared. They realize WhatsApp has spread dollar-pegged stablecoins throughout their economy. The central bank has effectively lost control of the money supply. However, there is not much they can do about it. The most effective way to prevent Filipinos from using WhatsApp is to shut off the internet. Short of that, even pressuring the local Facebook executives, if there are any, won’t do anything. Mark Zuckerberg reigns from a Hawaiian bunker. And he has gotten the blessing of the Trump administration to roll out stablecoin functionality globally to Meta users. Any sort of internet laws that disadvantage US tech players will cause the levying of high tariffs by the Trump administration. Trump already threatened the EU with higher tariffs unless they backed down on their “discriminatory” internet legislation.

Even if the Filipino government could remove WhatsApp from the Android and iOS app stores, it's trivial for motivated users to circumvent the blocks by using a VPN. Of course, any sort of friction inhibits usage of an internet platform, but social media is basically an addictive drug for the masses. After experiencing constant dopamine hits for over a decade, the plebes will find any workaround to continue destroying their brains.

Finally, Bessent could wield his sanctions weapon. The Asian elite all squirrel their money away in USD offshore banking centers. They obviously don’t want their wealth inflated away through their monetary policies. Do as I say, not as I do. Let’s say that Filipino President Bongbong Marcos threatens Meta. Bessent could hit right back and sanction him and his cronies, thus freezing their billions of dollars of offshore wealth unless they bend the knee and allow stablecoins to proliferate inside their country. His mother, Imelda, knows all too well how long the arm of the US law is as she beat RICO charges stemming from allegations that she and her late husband, the former dictator Ferdinand Marcos, of embezzling Philippine government money to purchase New York City real estate. I don’t think Bongbong is itching for round two.^[3]

If my thesis is correct and stablecoins are part and parcel of Pax Americana’s monetary policy to expand the use of the dollar, the empire will protect US tech giants from local regulator reprisals as they provide dollar banking services to the plebes. And there is nothing any of these governments can do about it.

Assuming I got this right, what is the TAM of potential stablecoin deposits from the Global South? The most advanced bloc of countries in the Global South are the BRICS nations.^[4] Let’s exclude China because it banned Western social media companies. The question is what’s the best estimate of local currency bank deposits. I asked Perplexity, and it spat out $4 trillion. I know this might be controversial, but let’s add the Euro-poor-eans to this group that use the euro. I believe the euro is a dead garcon walking as Germany-first then France-first economic policies will splinter the currency union. With the coming capital controls, by the end of the decade the only thing a euro will be useful for is paying the cover charge at Berghain and the table minimum at Shellona. When we add Euro bank deposits of $16.74 trillion, the total comes close to ~$34 trillion up for grabs.

Go Big or Go Home

Buffalo Bill Bessent has a choice: go big, or go Democrat. Does he want Team Red to triumph in the 2026 midterm and, most importantly, the 2028 presidential elections? I believe he does, and if that is the case, the only path to victory is to finance Trump’s ability to provide more free shit to the plebes than the Mamdanis and AOCs of the world.^[5] Therefore, Bessent needs to find a price-insensitive buyer of treasury debt. Obviously, he believes stablecoins are part of the solution given public statements of support for this technology. But he needs to go all the way.

If the Eurodollars and deposits of the Global South and Euro-poor-eans don’t flow into stablecoins, he must Bismark them with his star-studded member. It puts the dollars on its skin, or it gets the sanctions again.

$10 to $13 trillion of T-bill buying power comes from the dismantling of the Eurodollar system.

$21 trillion of T-bill buying power comes from retail deposits of the Global South and Euro-poor-eans.

Total = $34 trillion

Obviously, not all of this capital will find its way into the hands of dollar-pegged stablecoins, but at least we have a large potential TAM.

The real question is how ‌the addition of up to $34 trillion in stablecoin deposits powers DeFi usage to new heights? And if there is a credible argument to be made that DeFi usage will increase, which shitcoins will Pump Up The Jam?

The Stablecoin to DeFi Flow

The first concept readers must understand is staking. Let’s imagine that some portion of that $34 trillion now exists as stablecoins. For simplicity's sake, let’s assume Tether’s USDT received all the inflows. Because of the intense competition from other issuers like Circle and large TBTF banks, Tether has to pass on some of its NIM to holders. It does this by partnering with a few exchanges whereby USDT staked with an affiliated exchange’s wallet accrues some interest in the form of newly minted USDT units.

Let’s walk through a simple example.

Fernando from the Philippines has 1,000 USDT. PDAX, a crypto exchange based in the Philippines, offers a 2% yield on staked USDT. PDAX creates a staking smart contract on Ethereum. Fernando stakes his 1,000 USDT by sending it to the smart contract address, and then a few things happen:

1. His 1,000 USDT becomes 1,000 psUSDT (PDAX Staked USDT; a liability of PDAX). Initially, 1 USDT = 1 psUSDT but every day psUSDT becomes more valuable than USDT by the amount of interest accrued. E.g. using a 2% annual rate and ACT/365 simple interest accounting, psUSDT gains ~0.00005 each day. After one year, 1 psUSDT = 1.02 USDT.

2. Fernando receives 1,000 psUSDT into his exchange wallet.

Something powerful just happened. Fernando locked his USDT up with PDAX and received an interest-bearing asset in return. psUSDT is now acceptable collateral within the DeFi ecosystem. That means he can trade it for another crypto; he can borrow against it; he can use it as leverage to trade derivatives on a DEX, etc.

What happens when Fernando wants to redeem his psUSDT for USDT after one year?

1. Fernando goes to the PDAX platform and unstakes 1,000 psUSDT by sending it to his exchange wallet and or connecting a third-party DeFi wallet like Metamask to the PDAX dApp.

2. The psUSDT is burnt, and he receives 1,020 USDT.

Where does the interest come from to pay Fernando an extra 20 USDT? That comes from Tether in partnership with PDAX. Tether has a positive NIM, which is just interest income earned from its T-bill portfolio. Tether then creates additional USDT with those dollars and sends a portion to PDAX to satisfy its contractual obligation.

Both USDT (base money) and psUSDT (interest-bearing money) become acceptable collateral throughout the DeFi ecosystem. Therefore, some percentage of total stablecoin flow will interact with DeFi dApps. Total Value Locked (TVL) measures this interaction. Whenever a user interacts with a DeFi dApp, they must lock up their capital for some period, which is represented by TVL. TVL is at the top of the funnel for trading volume or other revenue-generating actions. Therefore, TVL is a leading indicator of future cash flows of a DeFi dApp.

Before we look at how TVL affects the future earnings of a few projects, I want to explain the major assumptions used in the upcoming financial models.

Model Assumptions

I will shortly present three simple yet powerful financial models which estimate a target price by the end of 2028 for Ethena (Token: $ENA), Ether.fi (Token: $ETHFI), and Hyperliquid (Token: $HYPE). I will forecast until the end of 2028 because that is when Trump leaves office. My base case is that it’s slightly more likely for a Team Blue Democrat to win the presidency than a Team Red Republican. That is because there is no way Trump can successfully right the wrongs for his base in under four years that result from a culmination of a half a century of monetary, economic, and foreign policy. The rat poison on the cake is that no politician ever keeps all their campaign promises. Therefore, voter turnout from Team Red Republicans will wane.

The Team Red rank and file will be apathetic to whoever is the Trumpian successor running for president and will not show up in large enough numbers to outvote childless cat ladies suffering from Trump Derangement Syndrome (TDS). TDS will afflict any member of Team Blue Democrat that ascends the throne, which results in them engaging in monetary policies that cut off their nose to spite their face if only to prove they differ from Trump. But in the end, no politician can resist printing money, and dollar-pegged stablecoins are one of the best price-insensitive buyers for short-term treasury debt. Therefore, they might not initially support stablecoins wholeheartedly, but the new Emperor will discover they are quite naked without said capital and ultimately continue the policies I spoke about previously. This policy wobble will burst the crypto bubble and lead to a bear market of epic proportions.

Finally, the numbers bandied about in my models are massive. This is a once in a century change of the global monetary architecture. Most of us, unless we inject stem cells intravenously for the rest of our lives … maybe, will never witness such an event again in our investing careers. The upside potential I forecast will be bigger than SBF’s amphetamine habit. You will never again see such a bull market in the pillars of DeFi that profit from the proliferation of dollar-pegged stablecoins.

Because I like to forecast with base-ten numbers that end in a zero, I estimate that by 2028 the total amount of dollar-pegged stablecoins in circulation will be at least $10 trillion. This number is large because the deficits Bessent must finance are massive and growing exponentially. The more Bessent finances the government using T-bills, the faster the debt pile grows because he must roll over debt yearly.

The next critical assumption is what level of the Fed Funds rate Bessent and the new post-May 2026 Fed chairperson choose. Bessent has gone on record saying the Fed Funds rate is 1.50% too high, and Trump routinely demands a 2.00% cut. Given that on the upside and downside you always overshoot, I think Fed Funds will quickly land around 2.00%. There is no real rigor around this number in the same way none of the establishment economists have a clue either. We are all making shit up on the fly, so my number is as good as theirs. And the political and economic realities of a dead-broke empire require cheaper money that a 2% Fed Funds rate provides.

Finally, where do I think 10-year yields will land? Bessent’s goal is to create 3% real growth. Adding that to Fed Funds at 2%, which in theory represents long-run inflation or thereabouts, gets us to a 10-yr yield of 5%. I will use this to calculate the present value of terminal earnings.

Using these assumptions, we arrive at a terminal value of cumulative cash flows. Because these cash flows are available to token holders as buybacks, we can use this as the fundamental value of a particular project. This is how I value and forecast FDV.^[6] Then I compare my model’s future output to the current value, and presto, the upside potential becomes clear.

All model inputs are in BLUE, and all outputs in BLACK.

Spend It

The most important behavior that new stablecoin users engage in is spending on goods and services. By now, everyone is used to tapping their phone or debit / credit card on some sort of point-of-sale system to pay for things. Using stablecoins has to be just as easy. Is there a project that allows users to deposit their stablecoins to a dApp, and spend them as if it were a Visa debit / credit card? Absolutely, it’s called Ether.fi Cash.

Users from around the world can sign up in minutes, and after completing the onboarding process, now have their very own Visa-powered stablecoin spending card. You can use it on your mobile phone, and or via a physical card. After depositing stablecoins to your Ether.fi wallet, you can spend anywhere that accepts Visa. Ether.fi can even extend credit against your stablecoin balance to turbo charge your spending.

I am an advisor and investor in the Ether.fi project, so I’m obviously biased, but I have been waiting for a low-fee solution to spending my crypto offline for over a decade. The customer experience whether I use my Amex or Ether.fi cash card is the same. This is important because, for the first time, many in the Global South will pay for goods and services anywhere in the world powered by stablecoins and Ether.fi.

The real juice is becoming a financial supermarket, offering many traditional products a bank offers. Then, Ether.fi can offer additional products to depositors. The key ratio I forecasted in order to calculate future cash flows is the Fee / Vault Ratio. For every dollar of stablecoin deposited, how much revenue does Ether.fi earn? To arrive at a defensible number, I perused the latest annual filing from the best-run commercial bank in the world, JP Morgan. On a deposit base of $1,060.4 bn, they earned $18.8 bn in revenue, or a Fee / Value Ratio of 1.78%.

Ether.fi Cash Vault %: This represents the percentage of stablecoin supply that is deposited into a cash vault. Currently, after only four months in existence, the percentage is 0.07%. Given that this product just launched, I believe there is room to grow that percentage to 1.00% by 2028.

I believe that $ETHFI can 34x from the current levels.

Now that the plebes can spend their dollars, is there a way to earn a higher yield than Fed Funds?

Lend It

After millions more folks can go out and spend stables to purchase a coffee, they will want to earn interest. I already spoke about how I believe issuers like Tether will pay a portion of their NIM to holders. But that won’t be a massive number; many savers will be in search of higher yields without taking too much extra risk. Is there an endogenous yield within the crypto capital markets that new stablecoin users can capture? Absolutely, Ethena offers higher-yielding opportunities.

There are only two ways to lend money within the crypto capital markets safely. Lend to speculators via derivatives, or lend to crypto miners. Ethena focuses on lending to speculators via shorting crypto/USD futures and perpetual swap (perp) contracts against long crypto capital. This is a strategy that I called “cash and carry” back in the days when I was promoting it at BitMEX. I subsequently wrote an essay entitled “Dust on Crust” where I implored an intrepid entrepreneur to package this trade up and offer it as a synthetic-dollar, high-yielding stablecoin. Guy Young, the founder of Ethena, read that essay, and subsequently assembled a rockstar team to do the hard work and bring it to reality. When we heard about what Guy was building, Maelstrom signed on as a founding advisor. Ethena’s USDe stablecoin became the fastest-growing stablecoin ever, racking up ~$13.5 billion in deposits in under 18 months. USDe is now third largest behind Circle’s USDC and Tether’s USDT in terms of circulating supply. Ethena’s growth is so strong that by St. Patty’s Day next year, Circle CEO Jeremy Allaire will drown his sorrows with a pint of Guinness as Ethena because the second largest stablecoin issuer behind Tether.

Because of exchange counterparty risk, the rate that speculators pay to borrow dollars to go long crypto is usually above that of T-bills. I set the neutral rate at 10% when I created the perp along with the team at BitMEX in 2016. That means if the perp price is equal to that of spot, longs will pay shorts a 10% APY. Given that every single perp exchange copied BitMEX’s design verbatim, they all feature a 10% neutral rate. The reason this is important is that 10% is much higher than the current upper bound of Fed Funds at 4.50%. Therefore, staked USDe yields should almost always be higher than Fed Funds. This gives the opportunity for new stablecoin savers who wish to take a little extra risk the ability to earn double on average the yield offered by the Buffalo Bill Bessent.^[7]

Some, but definitely not all, of the new stablecoin deposits will save using Ethena, earning higher yields. Ethena takes a 20% cut of interest income. Below is a simple model:

USDe Market Share: Currently, Circle’s USDC has a 25% market share of total stablecoins in circulation. I believe Ethena will surpass Circle, and we have seen over time that at the margin USDC loses deposits as USDe gains them. Therefore, my long-term assumption is that USDe captures a 25% market share behind Tether’s USDT.

Avg USDe Yield: Given that in this long-run scenario I forecast $2.5tn of USDe supply, this will put downward pressure on the basis spread between derivatives and spot. As Hyperliquid takes over as the largest derivatives exchange of any type, they will decrease the neutral rate to increase the demand for leverage. This also implies that the open interest (OI) of the crypto derivatives market will grow substantially. It makes sense that if there are millions more DeFi users who have trillions of dollars in stablecoin deposits at their disposal, they can pump OI into the trillions of dollars.

I believe that $ENA can 51x from the current levels.

Now that the plebes can earn a bit more interest income, how can they trade their way out of inflation-induced poverty?

Trade It

The most pernicious effect of global monetary debasement is that it forces everyone to become a speculator to maintain their standard of living if they don't already own a phat stack of financial assets. With a much larger portion of the world, who has suffered the most under wanton fiat debasement, now saving on-chain via stablecoins, they will trade the only asset class, crypto, which offers them the ability to speculate their way out of assured poverty. The on-chain trading venue of choice currently is Hyperliquid (Token: $HYPE) which has a 67% DEX market share. Hyperliquid is so transformational that it is quickly growing against CEXs like Binance. By the end of this cycle, Hyperliquid will be the largest crypto exchange of any type, and Jeff Yan might become richer than CZ, the founder and former CEO of Binance. The King is dead. Long live the King!

DEX market share - Source

CEX market share - Source

The theory that DEXs will consume all other types of exchanges is not new. What is new in Hyperliquid’s case is the execution ability of the team. Jeff Yan has built a team of roughly ten folks that ships better product at a faster pace than any other centralized or decentralized team in the space.

The best way to think about Hyperliquid is as a decentralized version of Binance. Because Tether and other stablecoins predominantly powered Binance’s banking rails, we can think of Binance as the precursor to Hyperliquid. Hyperliquid also depends solely on stablecoin infrastructure for deposits, but it is an on-chain trading experience. With the rollout of HIP-3, Hyperliquid is quickly transitioning into a permissionless derivatives and spot juggernaut. Any application that wants a liquid central limit order book with real-time margining can integrate any derivatives market they desire with the HIP-3 infrastructure.

My prediction is that by the end of this cycle, Hyperliquid is the largest crypto exchange of any type, and the growth in stablecoin circulation to $10tn will supercharge this growth. Using Binance as an example, we can forecast Hyperliquid’s ADV for a given level of stablecoin supply.

Currently, Binance’s perp ADV is $73 billion at a $277 billion total stablecoin supply; the ratio is 26.4%. You will see this represented in the model as Hyperliquid ADV Share.

I believe that $HYPE can 126x from the current levels.

Finally, I want to talk about the shitcoin stablecoin project I’m the most excited about because it has an upcoming token launch.

Collateralize It

Now that millions and possibly billions more folks use stablecoins, how will non-crypto businesses take advantage of this new form of payment? Most businesses around the world have issues with payments. They get charged egregious fees by payment processors, and many times banks will just not deal with them. But with stablecoins in the hands of many more users, businesses can liberate themselves from the clutches of rapacious TradFi financial institutions. While this is a great aspiration, businesses will need an easy to implement tech stack that enables them to accept stablecoin payments, pay suppliers and taxes in local currency, and account for cash flows properly.

Codex is a project that has launched a purpose-built blockchain for stablecoins. They are not an issuer today, but provide the ability for businesses to deal with stable-to-stable, stable-to-fiat, and fiat-to-stable payments. Remember Fernando and his click farm. He needs to pay some of his staff in pesos into their local bank accounts. Using Codex, Fernando can receive stablecoins from his clients and convert a portion of those stablecoins into Pesos which are deposited directly into a local bank account. Codex has already launched this functionality and in its first month did $100m of trading volume.

Why I’m so excited about Codex has nothing to do with disintermediating the global transaction banking business of TradFi. Yes, that is a massive TAM to go after, but the more game-changing business that no one is attacking is extending credit to SMEs who otherwise have no access to working capital financing. Today, Codex only extends sub one-day credit to the safest PSPs and fintechs, but tomorrow, Codex could extend longer-term loans to SMEs. If an SME is fully on-chain and runs its payments with stables using Codex, it can achieve triple-entry bookkeeping.

The improvement of triple over double-entry bookkeeping is that because revenue and expense transactions are all on-chain, Codex can in real-time compute a net income and cash flow statement for an SME using unfalsifiable data. Based on this unfalsifiable data, Codex can lend money to an SME with confidence that the fundamentals of the business will allow said business to repay the loan with interest on time. Currently, in most developing countries and to some extent in developed countries, SMEs find it difficult or impossible to get bank loans. Banks understandably don’t want to take the risk because they fear the backwards looking accounting data they receive is fugazi. Therefore, banks lend only to large companies or politically connected elites.

Codex, in my vision, will become the largest and most impactful financial institution for the Global South first, and then the developed world ex-US by using stablecoin infrastructure to underwrite loans to SMEs. Codex will truly become the first real crypto bank.

Codex is in its infancy, but the founders will make their users and token holders uber wealthy if they are successful. Before Maelstrom took on this advisory role, I ensured the founders were ready to pursue a tokenomics playbook similar to Hyperliquid. From day one, revenue earned will flow back to token holders. They may conduct a capital raise. Sign up to learn more here. But I want to make sure the world is aware that there is already an actual piece of stablecoin infrastructure, doing real volume today, that will TGE soon. It’s time to get on board an FTL spaceship.

The Rein of Buffalo Bill Bessent

The degree to which Buffalo Bill Bessent will terrorize the Eurodollar and non-dollar bank depositors around the world depends on the spending trajectory of the US government. I have the utmost confidence that Bessent’s boss, US President Trump, has no intention of balancing the budget, cutting taxes, or curtailing spending. I know this because Trump admonished his fellow Team Red Republicans for being too obsessed with cutting spending. He quipped in not so many words that they had an election to win in 2026. Trump has no ideology other than winning. And political winners in a late-stage capitalist democratic republic give out goodies for votes. Therefore, Buffalo Bill Bessent will run rampant, and there ain’t no Officer Starling around to stop him.

As the government deficit continues to widen, and Pax Americana’s hegemony declines, growth at least in the magnitude needed to increase tax revenues will be scarce. Therefore, Bessent will stuff more and more debt down the throat of the market. However, the market doesn’t want to own debt in a currency when the express policy of the folks in charge is to weaken it. And therefore, using stablecoins as T-bill sink, it’s time to put the dollars on its skin, or get the sanctions again.

Bessent will wield his sanctions cudgel widely and violently in order to make sure that dollar-pegged stablecoins bring home capital sequestered in Eurodollars and non-US retail banking deposits. He will deputize the Tech Bros like Zuckerberg and Musk to bring forth the good word to the uncivilized barbarian horde over yonder. And these Broligarchs will gladly wrap themselves in the flag and push dollar-pegged stablecoins to their non-US users whether local regulators like it because they are PATRIOTS!

If I am right, we will see news headlines that hit on these themes:

1. The need for oversight of the offshore USD market, aka Eurodollars

2. Tying the use of central bank dollar swap lines with the Fed and or Treasury to opening up certain aspects of digital markets to US tech firms

3. Regulations put forward to require stablecoin issuers to hold dollars in a US bank branch and or T-bills.

4. Encouragement of stablecoin issuers to list on US stock markets

5. US big tech firms adding crypto wallets to their social media apps

6. General positive statements by members of the Trump administration about the use of stablecoins

Maelstrom will continue to be very long the stablecoin vertical because of positions in $ENA, $ETHFI, and $HYPE. We always look to the future; therefore, you will hear a lot more about Codex as I believe it will become the stablecoin infrastructure main character.

Pass dat dollar lotion, I’m a bit ashy.

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^[1] QE stands for quantitative easing, the process by which a central bank creates banking reserves by purchasing government bonds. US Federal Reserve chairman Ben Bernanke started QE infinity in 2008.

^[2] We only know about this stealth intervention due to Freedom of Information Act lawsuits in the US.

^[3] If you want to watch a fascinating documentary about the whole saga I highly recommend “The Kingmaker”.

^[4] BRICS stands for Brazil, Russia, India, China, and South Africa.

^[5] Zohran Mamdani (running for mayor of New York City) and Alexandria Ocasio-Cortez “AOC” (Congresswoman from New York City) are two leading Democrat politicians whose platforms are very socialist but popular.

^[6] FDV stands for Fully Diluted Valuation.

^[7] The extra risk they are taking is the counterparty risk of the exchanges where Ethena sells derivatives contracts.

(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 most exalted form of praise humanity bestows on the universe is its happiness derived from dancing. Most religions incorporate some sort of music and dance into their worship. My organized religion, house music, “jacks your body” not at church on Sunday morning but at a similar time at Club Space.

In university, I praised the beat by joining the ballroom dancing club. Each ballroom dance is very prescriptive (e.g., in ballroom rumba, you cannot step onto a bent leg), and for beginners, the hardest part is performing the basic step to the beat. A large part of the struggle is determining the time signature of a song and then where each count falls.

Jive music, my favorite ballroom dance, is in 4/4 time, while waltz music is in 3/4 time. Once you know the time signature, your ear must then detect which instrument accents the first beat and counts the rest of a bar. If every piece of music were just a kick drum thumping out ONE, two, Three, four, it would be very monotonous and boring. What makes music engaging is how composers and producers’ layer on other instruments and sounds to add depth and richness to a song. But while dancing, listening to all these secondary sounds is superfluous to the act of placing your feet in the right places at the right times.

Just like music, a price chart is a wave of human emotion to which our portfolios dance. And just like a ballroom dance, our decisions to buy and sell different types of assets must adhere to the time signature and the count of a particular market. If we are out of time, we lose money. Losing money, like out-of-time dancers, is ugly. The question then becomes: if we are to remain beautiful and prosperous, to which instrument within the financial markets must we tune our ears?

If there is one axiomatic idea that underpins my philosophy toward investing, it is that the most important variable to profitably trading is understanding how the supply of fiat changes. When it comes to crypto, this is even more important because, at least for Bitcoin, it is a fixed supply asset. Therefore, the pace of fiat supply expansion determines the pace of Bitcoin price Ascension. Due to the gargantuan creation of fiat since early 2009 bidding for a relatively minuscule supply of Bitcoin, Bitcoin became the best-performing fiat-denominated asset in human history.

Currently, the cacophony of sounds produced by current financial and political events is tritone. The markets keep grinding higher, but there are some very serious, and what would seem to be negative, catalysts producing dissonance. Should you be sheltering in place due to tariffs and/or war? Or are these just non-essential instruments? If so, then can we hear the guiding force of the kick drum, a.k.a. credit creation?

Tariffs and wars are important because a singular instrument or sound can destroy a piece of music. But these two issues are interrelated and ultimately irrelevant to Bitcoin continuing to creep higher. U.S. President Trump cannot apply meaningful tariffs against China because China will cut off the supply of rare earths to Pax Americana and her vassals. Without rare earths, the U.S. cannot build weapons to sell to Ukrainian President Voldemort “The Slavic Slayer” Zelensky, nor to Israeli Prime Minister Benjamin “The Bedouin Butcher” Netanyahu. And so, the U.S. and China are engaged in a fatal tango where each side trades just enough with each other not to rock the boat too much economically or geopolitically. This is why the status quo, while sad and deadly for humans in both of these theatres of war, will not materially impact the global financial markets…for now.

All the while, the credit kick drum continues to demarcate time and tempo. The U.S. needs industrial policy, which is a euphemism for state-sponsored capitalism, technically called that dirty word: fascism. The U.S. needs to migrate from a semi-capitalistic to a fascist economic system because its champions of industry, of their own accord, do not produce the means of war in quantities sufficient for the current geopolitical environment. The Israel-Iran war lasted only twelve days, because Israel ran out of U.S.-supplied missiles to operate its air defenses flawlessly. Russian President Vladimir Putin is unfazed by the U.S. and NATO’s continued threats to become more deeply involved in supporting Ukraine because they cannot produce armaments in the same quantity, at the same pace, nor for the same low price as Russia can.

The U.S. also needs a more fascist economic arrangement to boost employment and corporate profits. Wars are great for economies viewed through a Keynesian lens. Sluggish organic demand from the population is replaced with insatiable demand from the government to produce weapons. Finally, the banking system is willing to extend credit to businesses because they are guaranteed profits by producing what the government desires. Wartime presidents are very popular, at least at first, because everyone appears to become wealthier. If we took a more wholesome approach to counting economic growth, it would be very apparent that war is extremely destructive on a net basis. But that sort of thinking doesn’t win elections, and every politician’s number one goal is re-election, if not for themselves, then for their party members. Trump is a wartime president, just like the majority of his U.S. presidential predecessors, and as such, he is placing the U.S. economy on a wartime footing. It then becomes easy to find the beat; we must look for the ways in which credit is pumped into the economy.

I explained how government-guaranteed profits for “critical” industries lead to the extension of bank credit in my essay “Black or White.” I called this policy “QE 4 Poor People,” and it creates a credit geyser.^[1] I predicted this would be the method by which Team Trump pumped up the US economy, and the MP Materials deal is our first real-world example at scale. The first part of this essay will walk through how this deal expands the supply of dollar credit and will be the template the Trump administration follows in their attempt to produce the critical goods needed in a 21st-century war: semiconductors, rare earths, industrial metals, etc.

War also requires the government to continue borrowing gargantuan sums. Even if capital gains tax receipts rise as rich folks’ assets pump due to an increase in the supply of credit, the government will still post ever-increasing fiscal deficits. Who will buy the debt? Stablecoin issuers.

As the total market cap of crypto rises, a portion of that is stored in stablecoins. The vast majority of these stablecoin assets under custody (AUC) are invested in US Treasury bills. Therefore, if the Trump administration can provide a favorable regulatory landscape for TradFi to participate and invest in crypto, its total market cap will surge. Then the stablecoin AUC rises automatically, which creates more buying power for Treasury bills. US Treasury Secretary Bessent will continue to issue vastly more T-bills than Treasury notes or bonds to be purchased by stablecoin issuers.

Let’s dance the credit waltz, and I will instruct readers on how to perform the serpentine flawlessly.

And One,

QE 4 Poor People

Central bank money printing does not produce a strong wartime economy. Financial replaces rocket engineering. To rectify this wartime production failure, the banking system is encouraged to provide credit instead to industries deemed critical by the government instead of corporate raiders.

The US private companies are profit-maximizing. From the 1970s to now, it has been more profitable to do “knowledge” work inside the US while pushing production offshore. The Chinese government was perfectly happy to upgrade its manufacturing skills by becoming the world’s low-cost and, over time, high-quality workshop. However, producing $1 Nikes isn’t what threatens the Pax Americana elite. It is that the empire cannot produce the means of war at the very time its hegemony is seriously threatened. Hence all the noise about rare earths.

Rare earths are not rare, but very difficult to process in large part due to enormous environmental externalities and huge CAPEX requirements. Chinese President Deng Xiaoping, over thirty years ago, decided China would dominate the production of rare earths, and now that farsightedness can be exploited by Chinese President Xi Jinping. Currently, all modern weapons systems require rare earths; therefore, Xi decides how long wars last, not Trump. To rectify this situation, Trump is borrowing the economic system of China to ensure rare earth production ramps up in the US so the empire can continue its belligerency.

From Reuters here are the bullet points of the MP Materials deal:

● US Defense Dept to become MP Materials' biggest shareholder

● Deal will boost US output of rare earths, loosen China's dominance

● Defense Dept will also guarantee a floor price for key rare earths

● Floor price will be twice current Chinese market price

● MP Materials' shares surge nearly 50% on news of the deal

All this is great and good, but where will the money come from to build the facility?

JP Morgan and Goldman Sachs are backing a $1 billion loan to build the 10X facility, MP said.

Why all of a sudden do banks want to lend to the real industry? Because the US government guarantees the boondoggle will be profitable for the borrower. The T-table below explains how this deal causes ex nihilo credit creation that creates economic growth.

1. MP Materials (MP) needs to build a rare earths processing facility and gets a loan of $1,000 from JP Morgan (JPM). The act of lending creates $1,000 of new fiat wampum, which is deposited at JP Morgan.

2. MP then builds the facility to process rare earths. To do so, it needs to hire people, the Plebes. In this simplified example, I assume all costs consist of labor. MP must pay its workers, which results in a debit of $1,000 from MP’s account and a credit of $1,000 to the Plebes’ account at JPM.

3. The Department of Defense (DoD) needs to pay for these rare earths. The money is provided by the Treasury, which must issue debt to fund the DoD. JPM converts its MP corporate loan asset into reserves held at the Fed by accessing the discount window. These reserves are used to purchase the debt, which results in a credit to the Treasury's General Account (TGA). The DoD then purchases the rare earths, which becomes revenue for MP that ends up as a deposit at JPM.

The Ending Balance of fiat (EB) is $1,000 higher than the initial JPM loan amount. This expansion is due to the money multiplier effect.

This is how a government procurement guarantee creates the construction of a new facility that employs people financed by commercial banking credit. I didn’t include it in this example, but JPM will now lend to the Plebes to buy assets and goods (houses, cars, iPhones, etc.) because they have a good stable job. This is another example of new credit creation, which ends up in the hands of other US companies that deposit this revenue back into the banking system. As you can see, the money multiplier is >1, and this wartime production leads to an increase in economic activity, which is accounted for as “growth.”

The money supply, economic activity, and the government debt pile all grow. Everyone is happy. The Plebes have jobs, and the financiers/industrialists have government-guaranteed profits. If these fascist economic policies provide goodies for everyone out of thin air, why isn’t this already the global economic policy of every nation-state? Because it creates inflation.

The supply of human bodies and raw materials required to produce goods is finite. The government, by encouraging the creation of money out of thin air via the commercial banking system, is crowding out the financing and ultimately the production of other goods. Eventually, this creates shortages of raw materials and labor. However, there is no shortage of fiat money. Therefore, wage and goods inflation will follow, which ultimately creates misery for anyone or any entity not directly connected to the government or banking system. If you don’t believe me, read the quotidian histories of the World Wars.

The MP Materials deal is the first major deal that exemplifies the QE 4 Poor People policy. The best part about this policy is that it doesn’t require congressional approval. The DoD, under the direction of Trump and whoever follows him in 2028, can hand out guaranteed procurement orders under its normal course of business. Profit-motivated banks will follow and do their patriotic duty funding enterprises that suckle at the government teet. In fact, elected representatives from all political parties will be falling over themselves to argue why companies based in their district deserve to receive DoD procurement orders.

If we know that this form of credit creation is immune from political pushback, how do we protect our portfolios from the inflation that is sure to follow?

Blowing Bubbles

It is not lost on politicians that ramping up credit growth to spur on “critical” industries creates inflation. The challenge is to use the excess credit to blow a bubble in an asset that won’t destabilize society. If the price of wheat went up as fast as Bitcoin did over the past 15 years, most governments would have fallen to popular revolution. Instead, the government encourages the population, who intrinsically feels themselves getting poorer and poorer in real terms, to put skin in the credit game by profiting from the rise in the state-sanctioned inflation hedge.

To see a real-world non-crypto example, let’s turn to Choyna. China is the best example of a fascist economic system. Their banking system created the largest amount of credit in the shortest period of time in civilized human history from the late 1980s to the present and handed it out predominantly to state-owned businesses. They successfully became the low-cost, high-quality workshop of the world; currently, one-third of all manufactured goods are produced in China. If you still think Chinese companies produce subpar quality goods, go test drive BYD and then a Tesla.

The Chinese money supply (M2) grew 5,000% from 1996 to the present. Plebes who wished to escape this credit-fueled inflation faced very low banking deposit rates. As a result, they piled into apartments, which the government encouraged as part of its urbanization drive. The ever-increasing housing prices, at least until 2020, helped dampen the desire for comrades to hoard other real goods. House prices in tier-1 Chinese cities (Beijing, Shanghai, Shenzhen, and Guangzhou) became the most expensive in the world on an affordability basis.

Land prices are up 80x in 19 years for a 26% CAGR.

This home price inflation didn’t destabilize society as your average middle-class comrade was able to borrow money and purchase at least one apartment. Therefore, everyone was in on it. An extremely important second-order effect is that local governments primarily fund social services by selling land to developers who build apartments to sell to plebes. As house prices went up, land prices and sales rose alongside tax revenue. This allowed the central government in Beijing to lessen revenue raised from direct taxation. Taxes are never popular, and in some respects, the Chinese Communist Party is the ultimate populist government.

The recent Chinese example shows us that if the Trump administration is serious about going fully economically fascist, the excess credit growth must blow a bubble that allows the average person to make money while simultaneously funding the government. The bubble that the Trump administration will blow will be centered in crypto. Before I delve into how a crypto bubble accomplishes various policy goals of the Trump administration, let me first illustrate why Bitcoin and crypto will zoom higher as the US becomes a fascist economy.

I created a custom index (white) called <.BANKUS U Index> on Bloomie. This is the sum of bank reserves held at the US Federal Reserve and of the banking system’s other deposits and liabilities, which is a proxy for loan growth. Bitcoin is in gold, and both lines are indexed at 100 as of January 2020. Credit growth doubled, and Bitcoin increased 15 times in response. Bitcoin’s fiat price is highly leveraged to credit growth. By this point, no retail or institutional investor can deny that Bitcoin is the best horse to ride if you believe there will be more units of fiat created in the future.

Trump and Bessent have been orange-pilled as well. From their perspective, the great thing about Bitcoin and crypto in general is that a larger percentage of traditionally non-stock-owning cohorts (the young, the poor, and non-white) own crypto than in the wealthy white boomer population.^[2] So if crypto booms, it creates a broader, more diverse set of people who are pleased with the ruling party’s economic platform. Furthermore, in a bid to encourage all types of savings to invest in crypto, per a recent executive order, 401(k) retirement plans are now explicitly allowed to invest in crypto assets. These plans hold approximately $8.7 trillion in assets. Boom Shak-A-Laka!

The coup de grâce is a proposal by Emperor Trump to eliminate capital gains taxes on crypto. Trump is providing insane war-driven credit growth, regulatory permission for retirement funds to plow cash into crypto, and no fucking taxes. Huzzah!

All of this is well and good, but there is one problem. The government must issue more and more debt to fund the procurement guarantees the DoD and other agencies extend to private businesses. Who is going to buy the debt? Crypto for the win again.

Once capital enters the crypto capital markets, it usually doesn’t leave. If a punter wants to chill on the sidelines, they can hang out in USD-pegged stablecoins like Tether. Tether, in order to earn yield on its AUC, invests in the safest TradFi yield-bearing instrument there is: T-bills. T-bills have a maturity of under one year, thus reducing interest rate risk to near zero, and are as liquid as cash. The US government can print an infinite amount of dollars for free and therefore will never default in nominal terms. T-bills currently yield 4.25-4.50% depending on the maturity. Therefore, the higher the total crypto market cap rises, the more funds stablecoin issuers will accumulate. And finally, most of this AUC will invest in T-bills.

On average, for every $1.00 the total crypto market cap increases, $0.09 finds its way into stablecoins. Let’s assume that Trump does his part, propelling the total crypto market cap to $100 trillion by the time he leaves office in 2028. That’s about a 25x rise from current levels; if you don’t think that is possible, you haven’t been around crypto long enough. That would create roughly $9 trillion in T-bill purchasing power from stablecoin issuers due to global inflows.

For historical context, when the Fed and Treasury needed to finance America’s WWII escapade, they resorted to issuing way more bills than bonds.

Now Trump and Bessent have squared the circle:

1. They copied China and created an American fascist economic system to produce the wartime goods needed to continue dropping bombs indiscriminately.

2. The credit growth-inspired financial asset inflationary impulse is directed at crypto, which dutifully screams higher, and a wide swath of the population feels wealthier due to their sick gains. They will be voting Republican in 2026 and 2028 … unless they have a teenage daughter … or maybe plebes always vote with their wallets.

3. A rising crypto market creates massive inflows into stablecoins pegged to the USD. These issuers invest their AUC in newly minted T-bills, which finance the ever-expanding federal deficit.

The kick drum is thumping. The credit is pumping. Why are you not fully invested in crypto? Don’t be scurred of tariffs, of war, or of random social issues.

Trading Tactics

It’s pretty simple: Maelstrom is fully invested. Because we are degens, the shitcoin space offers amazing opportunities to outperform Bitcoin, the crypto reserve asset.

The coming Ether bull run is about to tear the market a new asshole. Ever since Solana rose from the FTX ashes from $7 to $280, Ether has been the most hated large-cap crypto. No more; the Western institutional investor class, whose chief cheerleader is Tom Lee, loves Ether. Buy first, ask questions later. Or don’t and be that sourpuss in the corner sippin’ on a piss-like tasting light beer at the clerb while a gaggle of humans you rate as less than intelligent burn their money on bubbly water at the table over yonder. This ain’t financial advice, so do you. Maelstrom is doing all things Ethereum, all things DeFi, all things degen powered by ERC-20 shitcoins.

My year-end targets:

Bitcoin = $250,000

Ether = $10,000

Yachtzee, Motherfuckers!

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^[1] QE stands for Quantitative Easing

^[2] Here are some sources: Business Wire, NFT Evening

(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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Equity investors be Yellen, “Stablecoin, stablecoin, stablecoin; Circle, Circle, Circle.”

Why are they so bullish? Because The Big Bessent Cock (BBC) said:

And the result is this chart:

This is a chart of Circle vs. Coinbase market capitalization. Remember that Circle must hand over 50% of its net interest income to its daddy gimp Coinbase. How is it that Circle can then be worth almost 45% of Coinbase? Things that make you go hmmm…

Another result is this sad chart (because I own Bitcoin not $CRCL):

This is a chart of Circle’s price divided by Bitcoin’s, indexed to 100 when Circle listed. Circle has outperformed Bitcoin by almost 472% since its IPO.

The question crypto degens should ask themselves is why is The BBC so bullish on stablecoins. Why did the Genius Act receive bipartisan support? Is it that American politicians actually care about financial freedom, or is there something else afoot? Maybe politicians do care about financial freedom in the abstract, but lofty ideals do not power action. There must be another, more realpolitik reason for the about-face on stablecoins. Remember in 2019, Facebook’s efforts to integrate a stablecoin called Libra into its social media empire were shuttered due to opposition from politicians and the US Federal Reserve (Fed). Let’s review the major problem the BBC must solve to understand why the BBC is going goo goo gagga gagga over stablecoins.

The major issue that US Treasury Secretary Scott “The BBC” Bessent faces is the same one that his predecessor Janet “Bad Gurl” Yellen faced. Their bosses like to spend money without raising taxes; i.e., the US president and politicians in the House of Representatives and the Senate. It then falls to the Treasury Secretary to fund the government via borrowing at an affordable rate. Very quickly, it became clear that the market does not want to buy long-term government bonds of any over-indebted advanced economy at high prices/low yields. This is the doom porn twerk-off The BBC and Bad Gurl Yellen watched over the past few years… booty booty butt:

These are 30-year bond yields of the UK (white), Japan (gold), the US (green), Germany (magenta), and France (red).

If rising yields weren’t bad enough, the real value of these bonds got torched.

Real Value = Bond Price / Gold Price

TLT US is an ETF that tracks >20-year maturity treasuries. TLT US is divided by the gold price and indexed at 100. The real value of long-term treasuries plummeted by 71% over the past five years.

If past performance weren’t bad enough, here are some other constraints faced by Yellen and now Bessent. The bond sales team at the Treasury Department must engineer an issuance schedule that accomplishes the following:

Fund ~$2 trillion of yearly federal deficits plus $3.1 trillion of maturing debt in 2025.

This is a chart detailing the largest US Federal Government outlays and their YoY change. Notice how every major line item is growing at or faster than US nominal GDP.

The previous two charts show that the weighted average interest rate paid on outstanding treasury debt is lower than all points on the treasury yield curve.

● The financial system issues credit collateralized by nominally risk-free treasury debt. Therefore, interest must be paid; otherwise, the government defaults on a nominal basis, which would destroy the entire filthy fiat financial system. The interest expense will continue to increase as maturing debt will be financed at higher rates because the entire treasury yield curve is higher than the current weighted average interest on the debt.

● The defense budget will not go down, given that the US is engaged in wars in Ukraine and the Middle East.

● The healthcare outlays will increase into the early 2030s as baby boomers enter their prime years of receiving sick care from Big Pharma, paid for by the US government.

Sell bonds in such a way that the benchmark 10-year yield does not rise over 5%.

● When the 10-year yield approaches 5%, bond market volatility measured by the MOVE Index spikes, and a financial crisis is not far behind.

Sell bonds in such a way that is stimulative to the broader financial markets.

This chart from the US Congressional Budget Office has data only up until 2021, but it clearly shows that as the US stock market rose relentlessly post the 2008 Global Financial Crisis, capital gains tax revenue soared.

● The US government requires tax revenue derived from taxing year-on-year stock market gains to prevent truly mind-bogglingly large fiscal deficits.

● The US government exists to serve wealthy property owners. In the good old days when the bitch was in the kitchen, the nigger in the field, and the injun in the hinterland, only white male property owners were allowed to vote. In modern America, while suffrage is universal, power still emanates from the wealth that controls listed corporations, resulting in government policy that enriches and entrenches the power of the roughly 10% of households who control over 90% of stock market wealth. One of the most salient examples of the government's preference for property owners is how, during the 2008 Global Financial Crisis (GFC), the Fed printed money to save banks and the broader financial system, but the banks were still allowed to foreclose on people’s homes and businesses. Socialism for the rich, capitalism for the poor! With a track record like this, it’s no wonder New York City mayoral candidate Mamdani is so popular; the poor folks want some of that socialism too.

The Treasury Secretary’s job was easy when the Fed was conducting quantitative easing (QE). The Fed printed money and bought bonds, which enabled the US government to gorge itself on cheap debt and levitated the stock market. But now that the Fed, at least optically, must appear to be fighting inflation, the august body cannot cut rates or engage in QE. The Treasury Department must do the heavy lifting all alone.

By September 2022, the market decided to sell bonds on the margin due to the belief in the permanence of the largest peacetime US federal deficits in the country's history and a hawkish Fed. The 10-year yield almost doubled in two months, the stock market was down close to 20% from the summer highs, then Bad Gurl Yellen put her red bottoms on and got to work. In what has been called Activist Treasury Issuance (ATI) in a paper written by Hudson Bay Capital, Yellen began issuing more treasury bills than those with a coupon.^[1] Over the next two years, $2.5 trillion was injected into the financial markets due to the Fed’s Reverse Repo Program (RRP) balance falling. If the goal was ticking the three boxes I outlined above, Yellen’s ATI policy crushed it. That was then, but what about The BBC? How will he tick the same boxes in the current environment? The RRP is practically empty; where will he find trillions of dollars of sterilized funds sitting on a balance sheet ready and willing to buy treasury debt at high prices and low yields?

The third quarter of 2022 was rough. The chart below of Nasdaq 100 (green) and 10-year treasury yield (white) shows how, as yields spiked, the stock market swooned.

The ATI policy effectively drew down the RRP (red) and pumped financial assets like Nasdaq 100 (green) and Bitcoin (magenta). The 10-year treasury yield (white) never breached 5%.

There are two pools of funds owned by the large Too Big to Fail (TBTF) banks ready and willing, if there is the requisite profit potential, to buy trillions of dollars' worth of treasury debt. They are demand/time deposits and reserves held at the Fed.^[2] I’m focusing on the eight TBTF banks because their existence and profitability are predicated on the government guarantee of their liabilities and banking regulations are crafted to benefit them more so than non-TBTF banks. Therefore, they will do what the government asks as long as there is some modicum of profit on offer. The BBC requests they purchase his shitty bonds, and in return, he will shower them with risk-free returns.

I believe the reason why the BBC is so pumped up about all things “stablecoin” is that by issuing a stablecoin, TBTF banks will unlock up to $6.8 trillion of T-bill purchasing power. These inert deposits can then be re-leveraged within the fugazi fiat financial system to levitate markets. In the next section, I will walk through my model of how the issuance of a stablecoin leads to T-bill purchases and enhanced TBTF banking profitability.

After discussing the stablecoin-to-T-bill flow, I will quickly explain how, if the Fed stops paying interest on reserves, it will free up to $3.3 trillion to buy treasury debt. This will be another example of a policy that technically is not QE, but will have the same positive effect on fixed supply monetary assets like Bitcoin.

Let’s learn about The BBC’s new favorite monetary bazooka, stablecoins.

The Stablecoin Flow

My prediction rests on a few critical assumptions:

Treasuries Receive a Full or Partial Exemption from the Supplemental Leverage Ratio (SLR)

- An exemption means that a bank is not required to hold equity capital against its treasury portfolio. A full exemption means that banks can buy treasuries with infinite leverage.

- The Fed just voted to reduce the amount of capital banks must hold against treasuries; the first effects will be felt within the next three to six months. It is estimated this proposal frees up $5.5 trillion of bank balance sheet capacity to buy treasuries, as per the chart above. Markets are forward looking so this buying power will begin to be front ran in the treasury market leading to lower yield ceteris paribus.

Banks are Profit-Motivated Loss-Minimizing Organizations

● From 2020 to 2022, banks were urged by the Fed and Treasury to load up on treasuries; banks bought a fuck ton of longer-dated coupon bonds due to their higher yields. By April 2023, losses on these bonds, due to the fastest rise in Fed policy rates since the early 1980s, caused three banks to fail within a week.^[3] In the TBTF realm, Bank of America’s losses on its Held to Maturity portfolio of bonds eclipsed its total equity capital and the bank would have been insolvent if forced to mark-to-market its bond portfolio. To squash the crisis, the Fed and Treasury effectively nationalized the entire US banking system via the Bank Term Funding Program (BTFP). Non-TBTF banks can still lose money, however, and if losses on treasuries cause insolvency, management will be ousted and the bank sold to Jamie Dimon or another TBTF bank for a song.^[4] Therefore, bank CIOs are hesitant to load up on long-term treasury bonds lest the Fed conducts another rug pull by raising rates.

● Banks will buy T-bills because they are effectively high-yielding zero-duration cash-like instruments.

● Banks will only buy T-bills with deposits if they earn a high net interest margin (NIM) and are required to post little to no capital against them.

JP Morgan recently announced its plan to launch a stablecoin called JPMD. JPMD will ride on Base, a layer-2 operated by Coinbase built on top of Ethereum. As a result, JP Morgan will have two types of deposits. The first I will refer to as regular deposits. Regular deposits are still digital, but to move them within the financial system requires bank-to-bank antiquated systems talking to each other and a massive amount of human oversight. Regular deposits move Monday to Friday, 9 a.m. to 4:30 p.m. Regular deposits pay a paltry yield; the Federal Deposit Insurance Corporation (FDIC) estimates that the average yield on a regular demand deposit is 0.07% and 1.62% for a one-year time deposit.

The second type of deposit is a stablecoin, or JPMD. JPMD rides on a public blockchain, which in this case is Base. Customers can spend their JPMD 24/7, 365. JPMD, by law, cannot pay a yield, but I imagine that JP Morgan will entice customers to convert regular deposits into JPMD by offering generous cash-back spending perks. It is unclear at the current moment whether offering a staking yield is allowed.

Staking Yield: This is when a customer locks up their JPMD with JP Morgan; while the stablecoin is locked, it receives yield.

Customers move money from regular deposits to JPMD because JPMD is more useful and the bank offers cash-back spending perks. In total, the TBTF banks have an estimated $6.8 trillion in demand and time deposits.^[5] Very quickly, because stablecoins are a better product, regular deposits will be converted to JPMD or similar stablecoins issued by other TBTF banks.

Why would JP Morgan go through the hassle of nudging customers to switch from regular deposits to JPMD? The first reason is cost reduction. If all regular deposits become JPMD, then JP Morgan can effectively eliminate its compliance and operations departments. Let me explain why Jamie Dimon came in his pants when he learned about how stablecoins actually work.

Compliance at a high level consists of a set of rules handed down by regulators and enforced by a horde of humans using technology from the early 1990s. The structure of rules takes the form of: if this happens, then do that. These if/then relationships can be interpreted by a single senior compliance officer and codified into rules that an AI agent can follow flawlessly. Because JPMD offers full transparency due to the fact that all public addresses are doxxed, an AI agent trained on the corpus of relevant compliance regulations can perfectly ensure that certain transactions are never approved. The AI can also instantaneously prepare any report requested by a regulator. The regulator, in turn, can validate the correctness of the data because it all exists on a public blockchain. In aggregate, the TBTF banks spend $20 billion per year on compliance and the operations and technology required to comply with banking regulations.^[6] This will be reduced to effectively zero by shifting all regular deposits into stablecoins.

The second reason why JP Morgan will push JPMD is that it allows the bank to purchase billions of dollars’ worth of T-bills risk-free with the stablecoin assets under custody (AUC). This is because T-bills have close to zero interest rate risk but effectively yield the Fed Funds Rate. Remember that TBTF banks have $5.5 trillion of treasury buying capacity under the new SLR. The banks need to find a pot of inert cash with which to purchase said debt, and deposits held by their stablecoin are a perfect fit.

Some readers might retort that JP Morgan can already buy T-bills with its regular deposits. My response is that stablecoins are the future because they create a better customer experience and allow TBTF banks to eliminate $20 billion of costs. This cost savings alone will motivate banks to embrace stablecoins; the extra NIM is the cherry on top.

I know that many readers want to splunk their hard-earned cash into Circle ($CRCL) or the next shiny new stablecoin issuer. But don’t sleep on the stablecoin profit potential for TBTF banks. If we take the average price-to-earnings ratio of the TBTF banks at 14.41x and multiply that by the cost savings and stablecoin NIM potential, it comes out to $3.91 trillion. The current market cap of the eight TBTF banks is approximately $2.1 trillion, which means that stablecoins could pump TBTF bank stocks on average by 184%. If there is a non-consensus trade out there an investor can execute in SIZE, it is going long an equally weighted basket of the TBTF banks based on this stablecoin thesis.

What about competition?

Don’t worry about that; the Genius Act ensures that non-bank-issued stablecoins cannot compete at scale. The act explicitly bars technology firms like Meta from launching their own stablecoins; they must partner with a bank or FinTech. Of course, anyone can in theory obtain a banking charter or purchase an existing bank, but all new owners must be approved by the regulators. Let’s see how long that takes. Another provision that hands the stablecoin market to banks is the prohibition on paying interest to stablecoin holders. Without the ability to compete on interest payments to holders, FinTechs will not be able to affordably siphon deposits away from banks. Even successful issuers like Circle will never be able to tap into the $6.8 trillion worth of TBTF regular deposits up for grabs. Furthermore, FinTechs like Circle and smaller banks do not enjoy a government guarantee of their liabilities, but TBTF banks do. If my mother were ever going to use a stablecoin, it would be one issued by a TBTF bank. Boomers like her will never use a FinTech or smaller bank for this purpose because they don’t trust them due to the lack of a government guarantee.

David Sachs, the US President Trump’s Crypto Czar, agrees. I’m sure many corporate crypto donors are miffed that after all those crypto campaign donations the result was being quietly shut out of the lucrative US stablecoin market. Maybe they should change tactics and actually advocate for true financial freedom, and not for just a stool under the chamber pot where the TBTF bank CEOs defecate.

In short, the adoption of stablecoins by TBTF banks eliminates FinTech competition for their deposit base, reduces the need for expensive human and routinely incompetent compliance officers, requires no payment of interest which boosts their NIM, and ultimately results in their stock price pumping. In return for the gift of stablecoins bequeathed by The BBC, TBTF banks will purchase up to $6.8 trillion worth of T-bills.

ATI : Bad Gurl Yellen : Stablecoins : The BBC

Next up, I will talk about how the BBC can liberate another $3.3 trillion of inert reserves from the Fed’s balance sheet.

Interest on Reserve Balances (IORB)

In the aftermath of the 2008 GFC, the Fed decided that banks would never go under for lack of reserves. The Fed creates reserves that sit dormant on its balance sheet by purchasing treasuries and mortgage-backed securities from banks; this is called quantitative easing. The banks can, in theory, convert reserves held at the Fed into currency in circulation, which can be lent out, but decline to do so because the Fed prints money to pay them sufficient interest. The Fed sterilizes these reserves to prevent inflation from spiking even higher. The problem for the Fed is that the interest on reserve balances (IORB) increases as they raise rates. This is not good because unrealized losses on the Fed’s bond portfolio also increase as it raises rates. As a result, the Fed is insolvent and operating in a negative cash flow situation. The negative cash flow situation is purely a policy choice that can be changed, however.

US Senator Ted Cruz recently mused that maybe the Fed should cease paying IORB. That would force banks to replace that lost interest income by converting reserves into treasuries. Specifically, I argue they will purchase T-bills due to their high-yielding, cash-like properties.

Sen. Ted Cruz has been pushing his Senate colleagues to end the power to pay banks reserves out of a belief that this change would be a big contributor to lowering deficits.

– Source: Reuters

Why should the Fed print money and prevent the banks from supporting the empire? There is no reason for a politician to oppose this policy change. Both Democrats and Republicans love fiscal deficits; why not allow themselves to spend more by unleashing $3.3 trillion worth of bank buying power into the treasury market? Given that the Fed is unwilling to help Team Trump finance America First, I believe that Republican legislators using their majorities in both legislative houses will strip the Fed of this power. Therefore, the next time yields spike, lawmakers will stand ready to unleash this torrent of money to finance their wanton spending.

Before I conclude this essay by waxing bullish on the dollar liquidity that will surely get created during The BBC’s tenure, I want to talk about Maelstrom’s cautious positioning between now and the third quarter.

A Cautionary Tale

While I am very bullish, I believe there could be a short lull in dollar liquidity creation after Trump’s spending bill, called the Big Beautiful Bill, is passed.

The bill, as it currently reads, raises the debt limit. While many provisions will be horse-traded among the politicians, Trump will not sign a bill that doesn’t hike the debt ceiling. He needs additional borrowing capacity to fund his agenda. There is no indication that the Republicans will attempt to force the government to contract spending. The question for traders is, what is the dollar liquidity impact when the Treasury resumes net borrowing?

The Treasury continued to fund the government from January 1st onwards primarily by drawing down its checking account, the Treasury General Account (TGA). The TGA balance is $364 billion as of June 25th. As per guidance from the Treasury Department in its most recent quarterly refunding announcement, if the debt ceiling were raised today, the TGA balance would be refilled to $850 billion by issuing debt. This would cause a dollar liquidity contraction of $486 billion. The only major dollar liquidity line item that could soften the negative impulse is if funds leave the RRP, which stands at $461 billion.

This is not a slam dunk Bitcoin short trading setup due to the TGA refill. This is a proceed with caution; the bull market might be interrupted for a short period of time trading setup. I believe that between now and the August Jackson Hole Fed speech to be given by beta cuck towel bitch boy Jerome Powell, the market will trade sideways to slightly lower. If the TGA refill proves to be dollar liquidity negative, then the downside is $90,000 to $95,000. If the refill proves to be a nothingburger, Bitcoin will chop in the $100,000s without a decisive break above the $112,000 all-time-high. I have a feeling that Powell will announce the end of quantitative tightening and/or other what will seem to be mundane but highly significant banking regulatory changes. By early September, the debt ceiling will have been raised, the TGA mostly refilled, and the Republicans laser-focused on handing out goodies so they don’t get Mamdani’d in their home district come November 2026. Then green dojis will impale the bears powered by a surge in money creation.

Between now and the end of August, Maelstrom will be overweight staked USDe (Ethena USD). We already dumped all our liquid shitcoin positions. Depending on the price action, we may lighten up on Bitcoin risk as well. Buying shitcoin risk on or around April 9th yielded 2x-4x gains on a select number of shitcoins within three months. Without a clear liquidity catalyst, the shitcoin complex will get smoked. In the aftermath, we can dumpster dive with confidence and maybe hit a five or ten bagger before there is another lull in fiat liquidity creation in the late fourth quarter of 2025 or early first quarter of 2026.

Tick the Boxes

Adoption of stablecoins by TBTF banks creates up to $6.8 trillion of T-bill buying power.

Cessation of the Fed paying IORB creates up to $3.3 trillion of T-bill buying power.

$10.1 trillion can flood into the T-bill market over time due to the BBC’s policies. If my predictions are correct, this $10.1 trillion liquidity injection will act upon risky assets in the same way Bad Gurl Yellen’s $2.5 trillion injection did… PUMP UP THE JAM!

This is yet another liquidity arrow that can be plucked from The BBC’s policy quiver when needed. It will be needed once Trump’s Big Beautiful Bill is passed and the debt limit raised. Quickly thereafter investors will start to fret again on how in the fuck the treasury market is supposed to digest the massive amount of to be issued debt without imploding.

Some of you are still waiting for monetary Godot. You are waiting for Fed Chairperson Powell to announce another round of unlimited QE and rate cuts before you sell bonds and buy crypto. It ain’t happening, at least not until the US definitely enters a kinetic war against Russia, China, and/or Iran, or a large systemically important financial institution is on the brink of collapse. Not even a recession will bring Godot into being. So, stop listening to the simp sitting in the cuck chair, and start listening to the man wielding the monster cock.

The next few charts will show the opportunity cost investors suffered waiting for monetary Godot.

The Fed’s balance sheet (white) fell at the same time the Effective Fed Funds Rate (gold) rose. You would think that Bitcoin and other risky assets would slump over this time period.

Bad Gurl Yellen wasn’t about to let rich folks down and conducted ATI. Bitcoin (gold) rose over 5x at the same time the RRP balances fell 95%.

Do not make the same mistake again. Many financial advisors are still pushing clients to buy bonds because yields are forecast to fall. I agree that central banks globally will cut rates and print money to prevent the meltdown of their government bond markets. Furthermore, if the central bank doesn’t do something, finance ministries will. That is the argument I put forward in this essay; I believe Bessent, via support for stablecoin regulation, SLR exemptions, and cessation of paying IORB, can unleash up to $10.1 trillion of buying power for treasuries. But who cares if you make 5% or 10% returns being long bonds? You will miss out on Bitcoin pumping 10x to $1 million or the Nasdaq 100 spiking 5x to 100,000 by 2028.

The real stablecoin play isn’t betting on crusty FinTechs like Circle—it’s understanding that the US government just handed TBTF banks the launch keys to a multi-trillion-dollar liquidity bazooka disguised as “innovation.” This isn’t DeFi. This isn’t financial freedom. This is debt monetization dressed in Ethereum drag. And if you're still waiting for Powell to whisper “QE infinity” in your ear before you go risk-on, congrats—you’re the exit liquidity.

Instead go long Bitcoin. Go long JPMorgan. Forget about Circle. The stablecoin Trojan horse is already inside the fortress, and when it opens, it’s not armed with libertarian dreams—it’s loaded with T-bill buying liquidity aimed at keeping equities inflated, deficits funded, and Boomers sedated. Don’t sit on the sidelines waiting for Powell to bless the bull market. The BBC is done getting fluffed, and it’s time for him to soak the world with his liquidity juices.

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^[1] Treasury bills have no coupon and a maturity of less than one year. Treasury notes or bond have a coupon and maturities between one and thirty years.

^[2] The TBTF banks are: JP Morgan, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, Morgan Stanley, State Street, and Bank of New York Mellon.

^[3] Silvergate, Signature, and Silicon Valley Bank all bit the dust in early 2023 > this was called the Regional Banking Crisis.

^[4] Jamie Dimon is the CEO of JP Morgan.

^[5] Source: FDIC

^[6] This estimate is provided by Perplexity who summed up the annual costs reported by banks in their public filings.

(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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While Circle CEO Jeremy Allaire has no choice by to assume the position at the behest of his daddy gimp Coinbase CEO Brian Armstrong, I hope that for those of you who trade anything "stablecoin" related in the public equity markets this essay can prevent a rapid expansion of your sphincter as promoters jam dogshit up the behinds of clueless punters. It is with that preamble that I shall begin a discussion of the past, present, and future of the stablecoin market.

Within the capital markets firmament, professional crypto traders are somewhat unique in that to survive and thrive requires an in-depth knowledge of how money moves throughout the global fiat banking system. A stock picker or forex punter doesn’t need to know how stocks and/or currencies are settled and transferred. The broker, whose services must be used to trade, provides this service silently in the background.

To begin with, buying your first Bitcoin is not easy; it is unclear what is the best and safest option. The first step for most, at least when I started slinging crypto in 2013, is buying Bitcoin from another individual by sending them a fiat bank wire directly, or paying in physical cash. Then you graduate to trading on an exchange that provides a two-sided market place where you can trade Bitcoin in larger size for a smaller fee. But depositing your fiat onto an exchange was/is not easy or straightforward. Many exchanges do not have rock solid banking relationships, or exist in a regulatory grey area in their domestic country which means you cannot wire them money directly. The exchange figures out work arounds like directing users to transfer fiat directly to local agents who issue cash vouchers on exchange, or standing up an adjacent business that appears to a bank account opening officer to be unaffiliated with crypto in order to obtain an account and directing users to transfer funds there.

Scammers take advantage of this friction by stealing fiat in various ways. The exchange itself could be lying as to where funds are going, and one day… poof - the website disappears alongside your hard-earned fiat. If third party intermediaries are used to ferry fiat into and out of the crypto capital markets, those individuals can evaporate with your funds at any point.

Due to the risks involved with moving fiat around the crypto capital markets, traders must know and trust the cash flow operations of those they trade with in detail. I received a crash course in global payments when money moved within the Hong Kong, Mainland Chinese, and Taiwanese banking system (I will refer to this region as Greater China).

Understanding how money flowed in Greater China helped me understand how the major Chinese and international exchanges (Bitfinex) conducted their business. This is important because all real crypto capital markets innovation occurred in Greater China. And this is even more true for stablecoins. The reason why this is important will become apparent so read on. The greatest crypto exchange success story in the West belongs to Coinbase which opened its doors in 2012. However, Coinbase’s innovation was obtaining and retaining banking relationships in one of the most hostile markets to financial innovation, Pax Americana. Otherwise Coinbase is just a very expensive brokerage account for crypto, and that’s all it ever needed to be to propel its early shareholders to billionaire status.

The reason why I’m writing another missive about stablecoins is because of the blow out success of the Circle IPO. To be clear, Circle is grossly overvalued, but the price will continue levitating. The listing marks the beginning not the end of this cycle’s stablecoin mania. The bubble will pop after the launch of a stablecoin issuer on a public market, most likely in the US, that separates fools from tens of billions of capital by using a combination of financial engineering, leverage, and amazing showmanship. As usual, most of those who will part with their precious capital will not understand the history of stablecoins and payments within crypto, why the ecosystem has evolved the way it has, and what that means about which issuers will be successful or not. A very bankable charismatic individual will get on stage and spew all sorts of nonsense, wave his (most likely a male) hands to and fro, and convince you why the leveraged piece of dogshit he is selling is about to corner the multi-trillion dollar stablecoin total addressable market (TAM).

If you stop reading here, the only question you must ask yourself when evaluating an investment in a stablecoin issuer is this: how will they distribute their product? To distribute at scale, and by that, I mean have the ability to reach millions of users affordably, an issuer must use the pipes of a crypto exchange, a Web2 social media goliath, or a legacy bank. If they have no distribution, they have no chance of success. And if you can’t easily verify that said issuer has the access to push product through one or more of these channels, run away!

Hopefully my readers will not incinerate their capital in this fashion because they read this essay and can think critically about the stablecoin investment opportunities placed before them. This essay will discuss the evolution of stablecoin distribution. First, I will talk about why and how Tether grew in Greater China, which set them up to conquer stablecoin payments in the Global South. Then I will discuss the Initial Coin Offering (ICO) boom and how this created a true product-market fit for Tether. I will move onto discuss the first attempts by Web2 social media giants to get into the stablecoin game. And finally, I will touch upon how legacy banks will get into the action. To repeat, because I know X makes it difficult to read a piece of prose longer than a few hundred characters, if a stablecoin issuer or tech provider cannot distribute through a crypto exchange, Web2 social media giant, or legacy bank, they have no business.

Greater China Crypto Banking

Currently the successful stablecoin issuers Tether, Circle, and Ethena all have the ability to distribute their product through a large crypto exchange. I will focus on the evolution of Tether and to a small degree Circle to illustrate that for any new entrant it will be almost impossible to repeat their success.

In the beginning, crypto trading was ignored. For example, from 2014 until late in the 2010s, Bitfinex held the crown as the largest non-Chinese global exchange. Back then Bitfinex was owned by a Hong Kong operating company that had a variety of local bank accounts. This was great for an arbitrage trader like myself who lived in Hong Kong as I could wire money onto the exchange almost instantaneously. Across the street from my apartment in Sai Ying Pun was a street that contained almost every local bank. I would walk cash between the banks to cut down on fees and on how long it took to receive my money. This was very important because it allowed me to turn my capital once per day during the work week.

At the same time in Mainland China (aka “China”) the big three exchanges, OKCoin, Huobi, and BTC China, all had multiple bank accounts at the large state-owned banks. Physically travelling to Shenzhen by bus took 45 minutes, and armed with my passport and basic Chinese language skills, I opened a variety of local bank accounts. By having banking relationships as a trader in China and Hong Kong you had access to all the liquidity globally. I also felt confident knowing my fiat wouldn't go missing. Conversely, I lived in fear every time I sent a wire to certain Eastern European domiciled exchanges because I didn’t have trust in their banking rails.

But as crypto’s profile rose, banks started closing accounts. Every day you had to check the operational status of each bank<>exchange relationship. This was very detrimental to my profits as a trader, the slower money moved between exchanges, the less money I could make conducting arbitrage. But what if you could move an electronic dollar on a cryptographic blockchain and not via traditional banking rails? Then dollars, the life blood of crypto capital markets then as is now, could move 24/7 for almost free between exchanges.

The team at Tether in collaboration with the original founders of Bitfinex created such a product. In 2015 Bitfinex allowed Tether USD to be used on its platform. Back then Tether used the omni protocol as a layer on top of the Bitcoin blockchain to send Tether USD (USDT) between addresses. It was a proto smart contract layer built on top of Bitcoin.

Tether would allow certain entities to wire them USD in a bank account, and in return Tether would mint USDT. USDT could be sent to Bitfinex and purchase crypto. Whoopty fucking doo, why was this exciting that just one random exchange offered this product?

Stablecoins, just like all payments systems, only become valuable when large numbers of economically significant participants become nodes in the network. With regards to Tether, apart from Bitfinex, crypto traders and other large exchanges needed to use USDT for it to solve any real problems.

Everyone in Greater China was in the same boat. The banks were closing accounts both for traders and exchanges. Add to that the desire of Asians to obtain dollars because their domestic currencies were prone to shock devaluations, high inflation, and low domestic bank deposit rates. For most Chinese folks obtaining access to dollars and US financial markets is very difficult, if not impossible. Therefore Tether, with a digital version of USD available to anyone with an internet connection, was super appealing.

The Bitfinex / Tether team leaned into this. The CEO of Bitfinex from 2013 onwards, Jean-Louis van der Velde, had prior experience at a Chinese auto manufacturer. He knew Greater China, and endeavored to make USDT the go to dollar bank account for crypto-minded Chinese folks. Bitfinex, while never having any ethnically Chinese c-suite denizens, created massive trust between Tether and the Chinese crypto trading community. Therefore, you can take it to the bank that the Chinese trust Tether. And throughout the global south, overseas Chinese run shit as citizens of the empire are discovering in this ill-fated trade war, therefore the Global South is banked by Tether.

Just because Tether had one large exchange as its foundering distributor didn’t ensure success. The market structure changed in such a way that trading altcoins vs. USD was only possible by using USDT. Let’s progress forward to 2017, at the height of the ICO craze where Tether really cemented its product-market fit.

ICO Baby

August 2015 was a very important month because the People’s Bank of China (PBOC) conducted a shock devaluation of the yuan vs. the dollar, and Ether (the native currency on the Ethereum network) began trading. The macro and the micro phase shifted into sync. This is the stuff of legend, and ultimately powered the bull run from then onwards to December 2017. Bitcoin pumped from $135 to $20,000; Ether from $0.33 to $1,410.

The macro is always favorable when money is being printed. As Chinese traders were the marginal buyers of all crypto, which at point just meant Bitcoin. If they felt queasy about the yuan, Bitcoin pumped. At least that was the narrative.

The PBOC shock devaluation increased capital flight. Fuck yuan, give me dollars, crypto, gold, foreign property, etc. Bitcoin by August 2015 had declined from an all-time high of $1,300 pre-Mt. Gox bankruptcy in February 2014 to $135 the low on Bitfinex earlier that month when ZhaoDong, China’s largest OTC Bitcoin dealer, suffered the largest ever margin call to the tune of 6,000 BTC on Bitfinex. The Chinese capital flight narrative started the pump; from August to October 2015, BTCUSD more than tripled.

The micro is always where the most fun is to be had. The proliferation of shitcoins really started after the Ethereum mainnet, and its native currency Ether, went live on 30 July 2015. Poloniex was the first exchange to allow Ether trading, and it was this foresight that propelled them to Main Character status by 2017. Circle, funny enough, almost bankrupted themselves purchasing Poloniex at the top of the ICO market. They would sell the exchange at a massive loss to His Royal Highness Justin Sun many years later.

Poloniex and other Chinese exchanges capitalized on the new altcoin market by launching crypto-only trading platforms. Unlike Bitfinex, there was no need to interface with the fiat banking system. You could only deposit and withdraw crypto, which you used to trade against other cryptos. But this was suboptimal because traders instinctively want to trade shitcoin/USD pairs. Without the ability to accept fiat deposits and withdrawals, how could exchanges like Poloniex and Yunbi (the largest Chinese ICO platform until they get deaded by the PBOC in the fall of 2017) offer these trading pairs. Enter USDT!

USDT post Ethereum mainnet launch, could move on said network using an ERC-20 standard smart contract. Any exchange that supported Ethereum also could easily support USDT. Therefore crypto-only trading platforms could offer shitcoin/USDT pairs and satisfy the market. It also meant that digital dollars could flow seamlessly between the major exchanges like Bifinex, OKCoin, Huobi, BTC China, etc. where capital entered the ecosystem, and the more fun and speculative venues like Poloniex and Yunbi where degens frolicked.

The ICO mania birthed the juggernaut that would become Binance. CZ rage quit as the CTO of OKCoin a few years prior over a personal dispute with the CEO Star Xu. CZ left and started Binance with a goal to become the largest shitcoin exchange globally. Binance didn’t have a bank account, and to this day I don’t know if you can directly deposit fiat to Binance without going through some payment processor. Binance used USDT as its banking rails, quickly became the go to place to trade shitcoins, and the rest is history.

From 2015 to 2017 Tether achieved product-market fit and created a moat against future competitors. Due to the trust the Chinese trading community placed in Tether, USDT became accepted across all the major trading venues. At this point it wasn’t used for payments, but it was the most efficient way to move digital dollars in, out, and within the crypto capital markets.

By the end of the decade exchanges were having a very tough time keeping bank accounts. Taiwan became the de facto center of crypto banking for all the largest non-Western exchanges, which controlled the majority of global crypto trading liquidity. That is because a few Taiwanese banks allowed exchanges to open USD accounts and somehow were able to maintain their correspondent banking relationships with large money center US banks like Wells Fargo. However, this arrangement began to break down as the correspondent banks demanded these Taiwanese banks eject all their crypto clients or else lose access to the global dollar markets. As a result, by the end of the decade, USDT was the only way that dollars could move at scale in the crypto capital markets. This cemented its role as the dominant stablecoin.

The Western players, many of whom raised money on a narrative of crypto payments, scrambled to create Tether competitors. The only one that survived at scale was Circle’s USDC. However, Circle is at a distinct disadvantage because it is an American company based in Boston (yuck!) with no connection to the heart of crypto trading and usage in Greater China. Circle’s unsaid message was/is China = Scary; America = Safe. The message is funny because Tether never had an ethnically Chinese executive, however it always was/is associated with the north east Asian markets and today the Global South.

Social Media Wants In

Stablecoin mania is not new. In 2019 Facebook, now called Meta, decided it was time it launched its own stablecoin called Libra. The appeal was that Facebook through Instagram and Whatsapp could offer a USD bank account to the entire world ex-China. This is what I wrote about Libra in June 2019:

The event horizon has passed. With Libra, Facebook begins its foray into the digital asset industry. Before I begin my analysis, let’s get one thing straight; Libra is not decentralized nor censorship resistant. Libra is not a cryptocurrency. Libra will destroy all stablecoins, but who gives a fuck. I shed no tears for all those projects that somehow believed there was value in an unheard-of sponsor creating a fiat money market fund that rode on a blockchain.

Libra could lay commercial banks and central banks low. It might reduce their usefulness to a dumb regulated warehouse for digital fiat money. And that is exactly what should happen to these institutions in a digital age.

Libra and other stablecoins offered by other Web2 social media companies could have stolen the show. They owned the largest number of customers and had almost complete information on their preferences and behavior.

Ultimately the US political establishment swung into gear to protect the legacy banks from true competition in payments and forex. I had this to say back then:

I have no love lost for US Representative Maxine Waters’ idiotic statements and actions on the US House Financial Services Committee. But her and other government officials’ outbursts of concern are not driven by altruistic feelings towards their subjects, but rather a fear of the upending of the financial services industry that lines their pockets and keeps them in office. The speed at which government officials rushed to admonish Libra tells you there is some potential positive value to human society embedded in the project.

That was then, but now the Trump administration will allow competition in the financial markets. Trump 2.0 has no love for the banks that deplatformed his entire family during US President Biden’s administration. As such, social media companies are reviving projects to embed stablecoin technology natively in platforms.

For social media company shareholders this is great news. These companies can completely devour the legacy banking systems, payments and forex revenue streams. This however is terrible news for any entrepreneur creating a new stablecoin as social media companies will build everything needed to power their stablecoin business in house. Investors in newfangled stablecoin issuers must beware if the promoters tout partnering with or distributing through any social media company.

Other tech companies are jumping on the stablecoin trend as well. Social media platform X, Airbnb, and Google are all in early conversations about integrating stablecoins into their business operations. And in May, Fortune reported that Mark Zuckerberg’s Meta—which has unsuccessfully experimented with blockchain technology in the past—has been in discussions with crypto companies to introduce the use of stablecoins for payouts.

– Source: Fortune

Link to my essay “Libra: Zuck Me Gently”

Legacy Banking Extinction Level Event

Whether the banks like it or not, they will not be able to continue earning billions of dollars per year in revenue holding and transferring digital fiat nor will they be able to earn the same fees conducting forex transactions. I was speaking with a board member of a large bank recently about stablecoins and they said “we are fucked”. They believed that stablecoins are unstoppable and offered the situation in Nigeria as proof of that. I was not aware of the degree to which USDT penetrated that country, but they told me that ⅓ of Nigerian GDP is conducted in USDT even after very serious attempts by the central bank to ban crypto.

They continued to note that because adoption is from the ground up and not top down, regulators are powerless to stop it. By the time regulators take notice and try to do something it’s too late because adoption is endemic within the population.

Even though there are people like them in senior positions at every large legacy bank, the banking organism doesn't want to change because it means death to many of its cells, aka employees. Tether with no more than a 100 person staff can scale to conduct the critical functions of the entire global banking system by leveraging blockchain technology. For a point of contrast consider that JP Morgan, the best run commercial bank in the world, employs a little over 300,000 souls.

The banks are facing a moment of critical importance - adapt or die. But complicating their efforts to streamline their bloated workforce and offer the product a global digital economy requires, are prescriptive regulations on how many humans must be employed to perform certain functions. As an example, take my experience at BitMEX attempting to open a Tokyo office and obtain a crypto trading license. The management team considered whether we should open a local office and obtain a license to do some limited types of crypto trading outside our core derivatives business. The cost of complying with the regulations was the problem because you could not leverage technology to meet the requirements. The regulators stipulated that for each compliance and operational function outlined you must hire one person of a suitable experience level. I don’t remember the exact figures, but I believe it would have required something on the order of 60 people each earning at least $80,000 per annum for a total of $4.8 million per year to perform all the stipulated functions. All this work could have been automated for less than $100,000 per year in SaaS vendor fees. And I add, it would have been done with less errors than employing fallible humans. Oh … and you cannot fire anyone in Japan unless you close the entire office. Yikes!

The problem globally is banking regulations are make-work programs for an over educated population. They are over educated in bullshit, not in real things that actually matter. They are just highly paid box tickers. As much as a banking executive would love to slash their employee count 99% and increase productivity as a result, they cannot as regulated institutions.

Stablecoins will ultimately be adopted in a limited form at legacy banks. They will run two concurrent systems, the old slow expensive one, and the new fast cheap one. The degree to which they are allowed to truly embrace stablecoins will be decided in each office by prudential regulators. Remember JP Morgan is not one organism but each country instance of JP Morgan is regulated differently. Data and personnel many times cannot be shared between instances, which disallows company-wide technology driven rationalization. Good luck wanker bankers, regulations protect you from Web2, but will cement your death from Web3.

What these banks will certainly not do is partner with a third party in technological development or distribution of stablecoins. They will do all of this inhouse. In fact, the regulators might explicitly forbid it. It follows then that this distribution channel is closed to entrepreneurs building their own stablecoin technology. I don’t care how many Proofs of Concept a particular issuer claims to be conducting for a legacy bank. They will never lead to bank-wide adoption. Therefore, if you are an investor, run for the hills if a stablecoin issuer promoter claims that they will partner with a legacy bank to push their product out to market.

Now that you understand the difficulty a new entrant faces in obtaining distribution at scale of their stablecoin, let’s discuss the reason why they will attempt the impossible anyway. Because it’s fucking insanely profitable to be a stablecoin issuer.

USD Rates Play

Stablecoin issuer profitability rests on the amount of net interest income (NIM) available. The issuer’s cost base is fees paid to holders and revenue comes from cash investment returns in treasury debt (like Tether and Circle) or some sort of crypto markets arbitrage like cash-and-carry basis trading (like Ethena). Tether, the most profitable issuer, pays nothing to USDT holders or depositors, and earns the full NIM based on the level of treasury bill (T-bill) yields.

Tether is able to keep its full NIM because it has the strongest network effect, and its clients have no other option for a USD bank account. A prospective client would not choose another USD stablecoin over USDT because USDT is accepted throughout the Global South. A personal example is how I conduct payments in Argentina during the ski season. I spend a few weeks per year skiing in rural Argentina. The first time I went to Argentina in 2018, paying for things was a hassle if a vendor didn’t accept a foreign credit card. But by 2023, USDT had taken over as my guide, driver, and cook all accept USDT as payment. It’s glorious because even if I wanted to, I cannot pay in Pesos; the bank ATM dispenses a maximum of $30 worth of Pesos per transaction with a 30% fee. Fucking Criminal - Long Live Tether. For my staff it's great that they receive digital dollars stored on a crypto exchange or their mobile wallet, and can easily spend them on domestic and international goods and services.

Tether’s profitability is the best advertisement for social media companies and banks to create their own stablecoin. Neither cohort would have to pay for deposits because they already possess rock solid distribution networks, which means they capture the full NIM. Therefore, this could become a massive profit center for them.

Tether earns more money per year than this graph estimates. This assumes that all AUC is invested in twelve-month T-bills. The point is to show that Tether’s earnings are very correlated to US interest rates. You can see the massive jump in earnings from 2021 to 2022 due to the Fed hiking rates at the fastest pace since the early 1980s.

Here is a table published in my essay “Dust on Crust Part Deux” which demonstratively shows using 2023 data that Tether is the most profitable bank per employee in the world.

Distributing a stablecoin can be very expensive unless you are owned by a captive exchange, social media company, or legacy bank. The founders of Bitfinex and Tether were some of the same individuals. Bitfinex has millions of clients, and therefore out of the box Tether had millions of clients. Tether does not have to pay for distribution because it was partially owned by Bitfinex, all altcoins are traded vs. USDT.

Circle and any other stablecoins that came after had to pay for distribution through exchanges in some way shape or form. Social media companies and banks will never partner with a third party to build and operate their stablecoin; therefore, crypto exchanges are the only game in town. Crypto exchanges could build their own stablecoin, like Binance attempted with BUSD, but ultimately many of them decided building a payments network is too hard and is a distraction from their core business. Exchanges require equity in the issuer or a portion of the issuer’s NIM to allow the trading in their stablecoin. But even then, all crypto/dollar trading pairs most likely will be against USDT, which means Tether continues to dominate. This is why Circle had to cozy up to Coinbase to compete. Coinbase was the only major exchange not in Tether’s orbit as Coinbase’s customers are predominantly Americans and Western Europeans. Before Howard Lutnik, the US Commerce Secretary, took a shine to Tether and banked them through his firm Cantor Fitzgerald, Tether was constantly bashed in the Western press as some foreign created scam. Coinbase, whose existence is predicated on being in the good graces of the American political establishment, had to find an alternative. And thus, Jeremy Allaire assumed the position and accepted Brian Armstrong’s star-spangled dick sans lube.^[1]

The deal is that Circle pays 50% of its net interest income to Coinbase in exchange for distribution throughout the Coinbase network. Yachtzee!!

The situation for new stablecoin issuers is very dire. There are no open distribution channels. All the major crypto exchanges either own or partner with existing issuers Tether, Circle and Ethena. Social media companies and banks will build their own solution. Therefore, a new issuer must then pass on a substantial amount of their NIM to depositors in a bid to pry them away from other stablecoins with superior adoption. Ultimately this is why investors will lose their shirts by the end of the cycle on almost every stablecoin issuer or tech provider that publicly lists. But that’s not going to stop the party; let’s dig into why investors’ judgement will be clouded by the massive stablecoin profit generation potential.

The Narrative

There are three business models responsible for creating crypto wealth outside of just hodling Bitcoin and other shitcoins. They are mining, operating an exchange, and issuing a stablecoin. Taking myself as an example, my wealth comes from my ownership of BitMEX (a derivatives exchange), and Maelstrom’s (my family office) biggest position and largest generator of absolute return is Ethena, the stablecoin issuer of USDE. Ethena went from nothing to the third largest stablecoin in under a year during 2024.

The stablecoin narrative is unique in that it has the largest most obvious TAM for a TradFi muppet. Tether has already proven that an onchain bank that just holds people’s money and allows them to transfer it to and fro can become the most profitable financial institution per employee ever. Tether succeeded in the face of lawfare perpetrated by all levels of the American government. What would happen if the US authorities were at a minimum just not antagonistic towards stablecoins and allowed them some modicum of operational freedom to compete for deposits against legacy banks? The profit potential is insane.

Now let’s consider the current setup where the US Treasury staff believes stablecoin AUC could grow to $2 trillion. They also believe that USD stablecoins could be the tip of the spear to both advance/maintain USD hegemony and act as price insensitive buyers of treasury debt. Whoa, this is a serious macro tailwind. As a delicious bonus, remember that Trump has a simmering hatred of the large banks because they de-platformed him and his family after his first presidential term. He is in no mood to hold back the free market from offering a better, faster, and safer way to hold and transfer digital dollars. Even his sons jumped into the stablecoin game.

This is why investors are frothing at the mouth for investable stablecoin projects. Before we move onto my future prognosis for how this narrative will translate into opportunities to torch capital, let me define the criteria for an investable project.

The issuer in question is able to list in some way shape or form on a US public stock market. Next the issuer offers a product that moves digital US dollars; none of that foreign shit, this is ‘Murica. That’s it, as you can tell there is a lot of white space here to be creative.

The Road to Destruction

The most obvious issuer to IPO and kick off the party was Circle. They are a US firm that is the number two largest stablecoin issuer by AUC. Circle at this stage is insanely overvalued. Remember that Circle hands 50% of its interest income to Coinbase. However, Circle’s market cap is 39% of Coinbase’s. Coinbase is a one-stop crypto financial shop complete with multiple profitable business lines and tens of millions of clients globally. Circle is good at fellatio, and while a very valuable skill, they still need to upskill and mind the step-children.

Should you short Circle, ABSOLUTELY NOT! Maybe if you believe the Circle/Coinbase ratio is off, you should buy Coinbase. Even though Circle is overvalued, when we look back in a few years’ time at the stablecoin mania, many investors will wish they had just held Circle. At least they will still have some capital left.

The next wave of listings will be Circle copycats. In relative terms, these stocks will be even more overvalued on a Price/AUC ratio than Circle. In absolute terms, they will never eclipse Circle in revenue generation. The promoters will tout meaningless TradFi credentials in a bid to convince investors that they have the relationships and ability to disrupt the legacy banks in global dollar payments by partnering with them or using their distribution channels. The ruse will work; issuers will raise fuck tons of money. For those of us who have been in the trenches for some time it will be hilarious to watch the suited-up clowns that are able to hoodwink the investing public into investing in their dogshit companies.

After this first wave, the scale of grift is entirely dependent on the stablecoin regulation enacted in the US. The more freedom allowed to issuers in terms of what backs a stablecoin and whether they can pay yield to holders, the more financial engineering and leverage that can be used to mask a turd. If you assume a light to no touch stablecoin regulatory regime, then you could get a repeat of Terra/Luna in that an issuer creates some fugazi algorithmic stablecoin Ponzi. The issuer can pay high yield to holders and the yield comes from applying leverage to some holdings of assets.

As you can tell I have relatively little to say about the future. There is no real future because the distribution channels for new entrants are closed. Get that through your fucking muppet brain. Trade this shit like you would a hot potato.

But do not go short. These new stocks will rip the faces off of shorts. The macro and micro are in sync. As Chuck Prince, former CEO of Citibank said when asked about whether his firm was participating in Subprime mortgages said, “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

I’m not certain how Maelstrom is going to dance, but if there is money to be made, we will be making it.

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^[1] Jeremy Allaire is the CEO of Circle and Brian Armstrong is the CEO of Coinbase.