Original author: Arthur Hayes
Compiled and edited by: BitpushNews
Unveiling the secret waltz between Trump’s “fascist economy” and the crypto bull market — the deadly dance between Bitcoin and the “credit drum”, are you following the dance with your investment?
The highest praise that humans can give to the universe is the joy that comes from dancing. Most religions incorporate some kind of music and dance into their worship rituals. And the House Music that I believe in, where it moves your body, is not in the church on Sunday morning, but on the dance floor of Club Space at the same time.
In college, I joined a ballroom dance club and used my body to celebrate rhythm. Each ballroom dance has strict rules (for example, in the rumba, you cant put your weight on your bent leg), and the hardest part for beginners is to follow the beat and do the basic steps. The biggest difficulty is to first determine the time of a song and then know where each beat falls.
My favorite ballroom dance, the jive, is in 4/4, while the waltz is in 3/4. Once you know the time signature, your ears have to pick up on which instrument is on the accent and count the rest of the beats in the measure. If every piece of music was just the bass drum going “one, two, three, four,” it would be very monotonous and boring. What makes music fascinating is how composers and producers layer other instruments and sounds to add depth and richness to a song. But when dancing, listening to all those secondary sounds is redundant to putting your feet in the right place at the right time.
Just like music, price charts are the fluctuations of human emotions, and our portfolios dance to them. Just like ballroom dancing, our decisions to buy and sell different types of assets must follow the beat and rhythm of a particular market. If we are out of rhythm, we lose money. Losing money, like a dancer out of rhythm, is ugly. So the question is: if we want to stay beautiful and wealthy, which instrument in the financial markets must our ears listen to?
If there is a self-evident core idea in my investment philosophy, it is this: the most important variable for profitable trading is understanding how the fiat currency supply changes.
This is even more critical for cryptocurrencies because, at least for Bitcoin, it is a fixed supply asset. Therefore, the speed at which the fiat money supply expands determines the speed at which the Bitcoin price increases. Since the beginning of 2009, the massive amount of fiat money created to chase the relatively minuscule Bitcoin supply has made Bitcoin the best performing fiat-denominated asset in human history.
There is a tritone of sound created by a cacophony of financial and political events right now. The market is still moving higher, but there are some very serious, seemingly negative catalysts creating a dissonance. Should you shelter in place because of tariffs and/or war? Or are these just non-essential instruments? If so, can we hear the guiding force of the bass drum - credit creation?
Tariffs and wars are important because a single instrument or voice can ruin a piece of music. But the two issues are interrelated and ultimately irrelevant to Bitcoin’s continued rise. U.S. President Trump cannot impose meaningful tariffs on China because China will cut off the supply of rare earths to the “Beautiful Country” and its vassal states. Without rare earths, the United States cannot make weapons to sell to Ukraine, nor can it sell to Israel. So the United States and China are engaged in a crazy tango dance, with each side only testing the waters to a certain extent so as not to destabilize the entity too much economically or geopolitically. This is why the status quo, as sad and deadly as it is for people in both places, will not have a substantial impact on global financial markets at this time.
Meanwhile, the credit drum continues to mark time and rhythm. America needs industrial policy, a euphemism for state capitalism, technically known as that dirty word: fascism. America needs to move from a semi-capitalist to a fascist economic system because its industrial giants cannot produce war materials on their own accord in quantities sufficient for the current geopolitical environment.
Israel’s war with Iran lasted only twelve days because Israel ran out of U.S.-supplied missiles and could no longer operate its air defenses perfectly. Russian President Vladimir Putin was indifferent to the threat of deepening U.S. and NATO support for Ukraine because they could not produce weapons in the same quantities, speed, and at the same low prices as Russia.
The US also needs a more fascist economic arrangement to boost employment and corporate profits. From a Keynesian perspective, war is good for the economy. The sluggish organic needs of the people are replaced by the governments insatiable demand for weapons.
Ultimately, the banking system is also willing to extend credit to businesses because they are guaranteed a profit by producing products that the government needs. Wartime presidents are very popular, at least initially, because everyone seems to be better off. If we take a more comprehensive measure of economic growth, it becomes very clear that the war is extremely destructive in terms of net benefits. But that kind of thinking doesn’t win elections, and every politician’s primary goal is to be re-elected, if not for themselves then for their party members. Trump is a wartime president, like most of his American predecessors, and as such, he is putting the American economy on a war footing. Finding a rhythm becomes easy then; we have to find ways that credit is being pumped into the economy.
In Black or White, I explained how government-guaranteed profits lead to bank credit for “critical” industries. I called this policy “QE 4 Poor People” and it would create a fountain of credit. I predicted that this would be the Trump team’s way to boost the US economy, and the MP Materials deal was our first large-scale real-world example.
The first part of this article will describe how this deal expands the supply of dollar credit and will serve as a template for the Trump administration to follow as it attempts to produce critical commodities (semiconductors, rare earths, industrial metals, etc.) needed for 21st century warfare.
The war also requires the government to continue to borrow huge amounts of money. Even if capital gains tax revenues rise as the assets of the rich swell due to increased credit supply, the government will still face a widening fiscal deficit. Who will buy this debt? Stablecoin issuers.
As the total market capitalization of cryptocurrencies rises, a portion of it will be stored in stablecoins. The vast majority of the custody assets (AUC) of these stablecoins are invested in US Treasury securities.
Therefore, if the Trump administration can provide a favorable regulatory environment for traditional finance (TradFi) to participate in and invest in cryptocurrencies, the total market value of cryptocurrencies will soar. Then the custody assets of stablecoins will automatically increase, creating more purchasing power for treasury bills. U.S. Treasury Secretary Bessent will continue to issue treasury bills far exceeding treasury notes or bonds for stablecoin issuers to purchase.
Lets dance a credit waltz, and I will guide readers on how to perfectly dance the S-shaped snake step.
QE 4 Poor People
Central bank money printing does not produce a strong wartime economy. Finance replaced rocket engineering. To correct this failure of wartime production, the banking system was encouraged to provide credit to industries that the government deemed critical, rather than to corporate predators.
The US private sector is driven by profit maximization. From the 1970s to today, it has been more profitable to do “knowledge” work within the US while pushing production overseas. China is only too happy to upgrade its manufacturing skills by becoming the world’s low-cost, and over time, high-quality manufacturing plant. However, producing $1 Nikes does not threaten the elites of the “Beautiful Country”. The real problem is that the Beautiful Country cannot produce war materials at a moment when its hegemony is seriously threatened. Hence all the hoopla about rare earths.
Rare earths are not rare, but they are difficult to process, largely because of huge environmental externalities and huge capital expenditure requirements. More than 30 years ago, Chinese leader Deng Xiaoping decided that China would dominate rare earth production, and this foresight can now be exploited by the current leaders. All modern weapons systems now require rare earths; therefore, it is China, not the United States, that determines how long the war will last. To correct this situation, Trump is taking a page from Chinas economic system to ensure that American rare earth production increases so that he can continue his bellicosity.
Here are the highlights from Reuters on the MP Materials deal:
US Department of Defense to become largest shareholder in MP Materials
The deal would boost U.S. rare earth production, denting China’s dominance
The Ministry of National Defense will also provide a guaranteed price for key rare earth products
The guaranteed price will be twice the current market price in China
MP Materials shares surged nearly 50% following the announcement
This is all well and good, but where will the money to build the factory come from?
MP said JP Morgan and Goldman Sachs are providing a $1 billion loan to build a plant with 10 times its capacity.
Why are banks suddenly willing to lend to real industry? Because the U.S. government guarantees that this money-burning project is profitable for the borrower. The following T-account explains how this transaction creates credit out of thin air, thereby bringing economic growth.
MP Materials (MP) needs to build a rare earth processing plant and obtains a $1,000 loan from JPMorgan Chase (JPM). The act of taking out the loan creates $1,000 of new fiat money (wampum), which is deposited with JPMorgan Chase.
MP then builds a rare earth processing plant. To do this, it needs to hire workers, the Plebes. In this simplified example, I have assumed that all costs consist of labor. MP has to pay the workers, which results in a debit of $1,000 to the MP account and a credit of $1,000 to the Plebes in their JPM account.
The Department of Defense (DoD) needs to pay for these rare earths. The money is provided by the Treasury, which must issue debt to finance the DoD. JPMorgan converts its corporate loan assets to MP into reserves held at the Fed through the discount window. These reserves are used to purchase debt, which results in a credit to the Treasury General Account (TGA). The DoD then purchases the rare earths, which becomes revenue for MP and ultimately returns to JPMorgan in the form of deposits.
The ending balance (EB) of fiat currency is $1,000 higher than the amount JPMorgan originally loaned. This expansion is due to the money multiplier effect.
This is how government procurement guarantees finance commercial bank credit to build new factories and hire workers. I didn’t include this example, but JPMorgan Chase will now lend money to these “grassroots” to allow them to buy assets and goods (houses, cars, iPhones, etc.) because they have stable good jobs. This is another example of new credit creation that ends up in the hands of other American companies, and these revenues are deposited back into the banking system. As you can see, the money multiplier is greater than 1, and this wartime production leads to increased economic activity that is counted as “growth”.
Money supply, economic activity, and government debt all grow in sync. Everyone is happy. The “grassroots” have jobs, and the financiers/industrialists have government-guaranteed profits. If these fascist economic policies can provide benefits to everyone out of thin air, why hasn’t this become global economic policy for every nation state? Because it creates inflation.
The human resources and raw materials required to produce goods are limited. By encouraging the commercial banking system to create money out of thin air, the government is crowding out the financing and ultimate production of other goods. Eventually, this will lead to a shortage of raw materials and labor. However, there is no shortage of fiat money. Therefore, wage and commodity inflation will ensue, which will eventually cause pain to any person or entity not directly associated with the government or banking system. If you dont believe me, read the daily history of the two world wars.
The MP Materials deal is the first major example of a “poor man’s quantitative easing” policy at scale. The best thing about this policy is that it does not require congressional approval. The Department of Defense, at the direction of Trump and his successor in 2028, can issue guaranteed purchase orders in the normal course of its business. Profit-seeking banks will follow, doing their “patriotic” duty to finance companies that are dependent on the government. In fact, elected representatives from all political parties will be scrambling to argue why companies in their districts should get purchase orders from the Department of Defense.
If we know that there will be no political resistance to this form of credit creation, how can we protect our portfolios from the inflation that would ensue?
Blow bubbles, try to make them bigger
It’s not like politicians don’t know that stimulating “critical” industries by accelerating credit growth is inflationary. The challenge is to use the excess credit to blow up a bubble in an asset that won’t destabilize society. If the price of wheat had soared like Bitcoin has over the past 15 years, most governments would have been overthrown by popular revolution. Instead, governments encourage citizens (who instinctively feel their real purchasing power is decreasing) to profit by sharing in the credit game by investing in state-sanctioned inflation-hedge assets.
Lets look at a real-world example from a non-crypto world, back to China. China is the best example of a fascist economic system. From the late 1980s to today, their banking system has created the largest amount of credit in the shortest period of time in civilized human history, and allocated it primarily to state-owned enterprises. They have successfully become the worlds low-cost, high-quality factory; currently, one-third of the worlds manufactured goods are produced in China. If you still think that Chinese companies produce low-quality products, go test drive a BYD, and then test drive a Tesla.
China’s money supply (M2) has grown 5,000% since 1996. Grassroots people who want to escape this credit-driven inflation face very low bank deposit rates. As a result, they flock to apartments, which the government encourages as part of its urbanization strategy. Rising housing prices have helped curb people’s demand for hoarding other physical goods, at least until 2020. House prices in China’s first-tier cities (Beijing, Shanghai, Shenzhen, Guangzhou) have become the most expensive in the world in terms of affordability.
In 19 years, land prices have increased 80 times, with a compound annual growth rate (CAGR) of 26%.
This house price inflation did not destabilize society because the average middle-class citizen was able to borrow money to buy at least one apartment. Therefore, everyone participated. An extremely important second-order effect is that local governments finance social services primarily by selling land to developers, who then build apartments and sell them to the grassroots. As house prices rise, land prices and sales also rise, and taxes also rise.
This case tells us that if the Trump administration really intends to fully implement economic fascism, then excess credit growth must blow up a bubble that allows ordinary people to make money while simultaneously funding the government.
The bubble that the Trump administration will blow will be centered in the cryptocurrency space.
Before I dive into how the crypto bubble accomplishes the various policy goals of the Trump administration, let me first explain why Bitcoin and cryptocurrencies will soar as the United States becomes a fascist economy.
I created a custom index on the Bloomberg Terminal called <.BANKUS U Index> (white line). This is the sum of bank reserves held by the Fed and other deposits and liabilities of the banking system, a proxy for loan growth. Bitcoin is the gold line, both indexed to 100 based on January 2020. As credit growth doubles, Bitcoin grows 15x with it. The fiat price of Bitcoin is highly levered to credit growth.
At this point, neither retail nor institutional investors can deny that if you believe that more fiat currencies will be created in the future, Bitcoin is the best investment option.
Trump and Bessant have also been orange-pilled. From their perspective, the best thing about Bitcoin and crypto in general is that demographics that traditionally don’t own stocks (young, poor, and non-white) own crypto at higher rates than wealthy white baby boomers. So if crypto booms, it will create a broader, more diverse group of people who are comfortable with the ruling party’s economic platform.
Additionally, in an effort to encourage all types of savings to invest in cryptocurrencies, 401(k) retirement plans are now explicitly allowed to invest in crypto assets, per a recent executive order. These plans hold approximately $8.7 trillion in assets. Boom Shak-A-Laka!
The coup de grace is President Trump’s proposal to eliminate capital gains taxes on cryptocurrencies. Trump is offering crazy war-driven credit growth, regulatory approval for retirement funds to put their cash into cryptocurrencies, and — damn, no taxes! Hooray!
All of this is great, but there is a problem. The government must issue more and more debt to finance the procurement guarantees that the Department of Defense and other agencies provide to private industry. Who will buy this debt? Cryptocurrency wins again.
Once capital enters the crypto capital markets, it usually doesn’t leave. If an investor wants to sit on the sidelines, they can hold a stablecoin pegged to the U.S. dollar, such as USDT.
In order to earn a yield on its custodial assets, USDT invests in the safest traditional financial (TradFi) yield-earning instruments: Treasury bills. Treasury bills have a maturity of less than one year, so the interest rate risk is close to zero and they are as liquid as cash. The US government can print dollars for free in unlimited quantities, so there will never be a nominal default. Treasury bills currently yield between 4.25-4.50% depending on the maturity. Therefore, the higher the total market value of cryptocurrencies, the more funds accumulated by stablecoin issuers. Ultimately, the majority of these custodial assets will be invested in Treasury bills.
On average, for every $1 increase in the total cryptocurrency market cap, $0.09 flows into stablecoins. Let’s assume that Trump does his job and drives the total cryptocurrency market cap to $100 trillion by the time he leaves office in 2028. That’s about a 25x increase from current levels;
If you think this is impossible, you haven’t been in crypto long enough. This would create about $9 trillion in Treasury buying power, enabled by global inflows from stablecoin issuers.
For historical context, when the Fed and the Treasury needed to finance America’s World War II adventure, they also resorted to issuing far more Treasury bills than bonds.
Now, Trump and Bessant have circled the circle (solved the problem):
They copied the Chinese model and created a US fascist economic system to produce stuff.
The inflationary impulse of financial assets induced by credit growth is directed into cryptocurrencies, which soar, and the general public feels richer due to their staggering gains. They will vote Republican in 2026 and 2028… unless they have a teenage daughter… or maybe the public always votes with their wallets.
The rising crypto market has brought a large amount of money into stablecoins pegged to the US dollar. These issuers invest their custody assets in newly issued Treasury bills, which helps finance the widening federal deficit.
The kick drum is beating. Credit is pumping. Why arent you fully invested in crypto yet? Dont be afraid of tariffs, dont be afraid of the War, and dont be afraid of random social issues.
Trading strategies
It’s simple: Maelstrom is fully invested. Because we are degens, the altcoin space offers amazing opportunities to outperform Bitcoin, the crypto reserve asset.
The upcoming Ethereum bull run will completely detonate the market.
Ethereum has been the least loved of the big cryptocurrencies ever since Solana rose from $7 to $280 amid the ashes of FTX. But now it’s different; the Western institutional investor community, whose main cheerleader is Tom Lee, loves Ethereum.
Buy first, ask questions later. Or dont buy and be a sullen wretch in the corner of a club drinking ale that tastes like piss while a bunch of people you think are less intelligent than you spend tons of money on champagne at the next table.
This is not financial advice, so decide for yourself. Maelstrom is doing all things Ethereum, all things DeFi, and all things Degenerate powered by ERC-20 altcoins.
My year-end goals:
Bitcoin = $250,000
Ethereum = $10,000
Yacht freedom, damn!
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