This article, "The Ugly," is the first in a three-part series. "The Good" will focus on the rise of political memecoins, while "The Bad" will discuss how U.S. cryptocurrency holders may be affected by crypto regulatory policy. The risk of getting into trouble with the Trump administration.
Disclaimer : I invest in and serve as an advisor to Ethena, the parent company of the stablecoin $USDe mentioned several times in the article.
“Stop—keep 30 meters apart!” my guide instructed a few weeks ago when we were skiing up a dormant volcano, suddenly slowing down. Up until that point, the climb had been pretty easy. However, when we reached an altitude of 1600 meters, things changed.
As we stopped at the ridgeline, the guide said, "My stomach tightens on that last stretch. The avalanche risk is too high, so let's just ski down here." It won't feel the same, which is why I always ski cruise with a certified guide. The seemingly innocuous terrain threatened to bury me in snow and ice. No one is sure which terrain will trigger an avalanche, but if the risk exceeds an acceptable level, the best strategy is to stop, reassess, and adjust your route.
In my first post of the year, I expressed my optimism to you all, at least for the first quarter. However, as January comes to a close, my excitement has faded. Subtle changes in central bank balance sheets, bank credit growth, the relationship between the 10-year Treasury bond and stock and Bitcoin prices, and the crazy $TRUMP memecoin price action have left me feeling uneasy. This is a similar feeling to late 2021, before the crypto market crashed.
History does not repeat, but it always rhymes. I don't think this bull market is over. However, based on forward-looking probabilistic analysis, I think it is more likely that the Bitcoin price will first fall to $70,000 to $75,000 and then rise to $250,000 by the end of the year, rather than continue to rise without a significant correction.
Based on this judgment, Maelstrom has increased the pledge amount of its Ethena $USDe to a record level and continued to take profits on multiple shitcoin positions. We remain long overall, but if my hunch is correct, we will be heavily funded and ready to buy on a major pullback in Bitcoin as well as multiple premium shitcoins.
A pullback of this magnitude would be ugly because bullish sentiment in the market is so high right now. Trump continues to say the “right things” through executive orders, improve market sentiment by pardoning Ross Ulbricht, and ignite crypto market frenzy with the recent launch of memecoin. However, most of these things are expected, except for the launch of memecoin. What has gone under-noticed is that money supply growth in the United States, China and Japan is slowing.
The following article will delve into monetary policy and related data to explain why I reduced Maelstrom’s crypto asset allocation.
USA
My view of U.S. monetary policy is based on two strong beliefs:
- The 10-year Treasury yield will rise to between 5% and 6%, triggering a mini-financial crisis.
- Although Fed officials do not like Trump, they will take necessary actions to maintain the U.S.-led financial system.
Let me next explain the relationship between these two perspectives.
10-Year Treasury Bond
The U.S. dollar is the global reserve currency, and U.S. Treasury bonds are the reserve asset. This means that if you hold excess dollars, buying Treasury bonds is the safest way to park your money and earn income. Accountants consider Treasury bonds to be risk-free assets, so financial institutions can borrow against them with virtually unlimited leverage. Ultimately, if the value of the national debt declines rapidly, these "accounting fairy tales" will turn into an economic nightmare, and systemically important financial institutions may go bankrupt.
The 10-year Treasury note is the benchmark for pricing most medium- to long-term fixed-income instruments, such as mortgages or auto loans. It is the most important asset price in the "dirty fiat currency system", which is why the 10-year yield is so important.
Since 1913 (the creation of the Federal Reserve), every financial crisis has been "solved" by printing money, which has led to the accumulation of leverage in the system for more than a century. As a result, the yield threshold that led to the collapse of large financial institutions was gradually lowered. We know that when yields hit 5%, we will enter a crisis phase because when the 10-year Treasury yield briefly exceeded that level, "bad girl" Yellen (former U.S. Treasury Secretary) launched a secretive "Indian Treasury" "money policy", that is, issuing more and more short-term Treasury bonds (T-bills) to lower yields. This caused the 10-year yield to fall to 3.6%, a periodic low for this cycle.
If 5% is the tipping point, why do yields rise from about 4.6% to over 5%? To answer this question, we need to understand who the major marginal buyers of Treasury bonds are.
As the world knows, the United States is currently issuing debt at a rate unprecedented in the history of the empire. The current total U.S. debt is $36.22 trillion, compared with only $16.7 trillion at the end of 2019. So, who is buying these junk bonds?
Let's analyze the possible buyers one by one.
Federal Reserve : The Federal Reserve implemented a money-printing policy called quantitative easing (QE) from 2008 to 2022, purchasing trillions of dollars in Treasury bonds. However, starting in 2022, the Fed shut down the money printing press and switched to quantitative tightening (QT).
U.S. Commercial Banks : After buying Treasury bonds at high prices, these banks encountered "temporary inflation" and the Federal Reserve's fastest rate hike in 40 years. As a result, they were "cut off". To make matters worse, according to the capital adequacy regulations of Basel III, if commercial banks want to buy government bonds, they must invest more expensive equity capital as guarantee. So their balance sheets are stretched to the limit and can no longer buy Treasury bonds.
Major foreign surplus countries : Oil exporters such as Saudi Arabia, and commodity exporters such as China and Japan. Even as these countries' trade surpluses continue to grow, they are not buying more U.S. Treasuries. For example, as of November 2024, China's trade surplus was $962 billion, but China's U.S. Treasury bond holdings fell by about $14 billion during the same period.
Since the United States has forced its national debt into the global financial system but has not yet experienced a debt crisis, I ask again, who is buying these "rough single-ply toilet paper"? Whoever it was clearly had no respect for their own ass.
Let's give a round of applause to relative value (RV) hedge funds . These funds are mainly established in tax havens such as the United Kingdom, Cayman Islands and Luxembourg, and have become marginal buyers of national debt. How do I know? The recent Treasury Quarterly Refinancing Announcements (QRAs) clearly identified them as key buyers in driving down yields. Additionally, institutions in these regions hold large amounts of Treasury debt, according to the Treasury Department's monthly TIC report.
Here's how they trade: As long as the price of Treasury bonds in the cash market is lower than the price of the corresponding futures contract, the hedge funds can arbitrage. The arbitrage margin is small, so money can be made only by trading notional amounts of billions of dollars. Hedge funds themselves don’t have that much cash, so they need leverage from the banking system. The fund buys the bonds for cash but enters into a repurchase agreement (repo) with a large bank before having to pay out cash. The fund delivers bonds in exchange for cash, which it then uses to pay for the bond purchase. In this way, the fund uses "other people's money" to buy bonds. The only money invested in the fund is margin on a futures exchange, such as the Chicago Mercantile Exchange.
In theory, RV hedge funds can buy unlimited Treasury bonds as long as the following conditions are true:
- Banks have sufficient balance sheet capacity to support repurchase agreements.
- Repurchase yields are within an affordable range. If it is too high, basis trading will become unprofitable and funds will stop buying Treasuries.
- Margin requirements remain low. If hedge funds need to pay more margin to hedge bond purchases, they will reduce the size of their purchases. Funds have limited funds, and if most of the funds are occupied, their trading capabilities will be diminished.
RV hedge funds' buying power is under threat due to the factors described below.
Bank Balance Sheet/Repo Rate:
Under Basel III, the balance sheet is a finite resource. Supply and demand dictate that as balance sheet capacity limits are approached, the price of balance sheet space becomes higher.
So when the Treasury Department issues more debt, RV Hedge Funds do more basis trades, which requires more repurchase operations (repos) and takes up more balance sheet space.
At some point, the overnight repo rate (o/n repo) will rise sharply. Once that happens, buying suddenly stops, and a collapse in the Treasury market ensues. If you want to know the details of how these gold standard markets work, I recommend subscribing to Zoltan Pozar 's blog .
Exchange margin requirements:
Simply put, the more volatile the asset, the higher the margin requirement. When bond prices fall, volatility rises (see the MOVE index). When bond prices fall/yields rise and volatility spikes, margin requirements for bond futures increase and RV hedge funds' bond purchases quickly decrease.
These two factors will influence each other to form a reflexive effect. The question then becomes: Can this "Gordon knot" be resolved through monetary policy, allowing RV hedge funds to continue financing Treasury debt?
Solution:
Of course, our monetary policy gurus can always use accounting tricks to solve financial crises. In this case, the Fed could suspend the Supplementary Leverage Ratio (SLR). Suspending the SLR's relationship with Treasury holdings and related repurchase operations would allow banks to use unlimited leverage.
Pausing SLR has the following consequences:
- Banks can purchase treasury bonds without restrictions without investing capital guarantees, thereby freeing up balance sheet space.
- With an unrestricted balance sheet, banks can facilitate repo transactions at affordable prices.
The Treasury thus gained two marginal buyers: commercial banks and RV hedge funds. Bond prices rise, yields fall, and margin requirements fall. The market instantly returned to the "beautiful era".
If the Fed is more generous, it can also stop quantitative tightening (QT) and restart quantitative easing (QE), which will add another marginal buyer.
None of this is new to the Fed or the Treasury Department. The banking community has been calling for the restoration of SLR exemptions like those during the COVID-19 crisis in 2020. The recent Treasury Advisory Lending Committee (TABCO) report clearly stated that they need SLR exemptions and the Fed's restart of QE to solve the liquidity problem in the Treasury market. The only thing missing is the political will of the Federal Reserve, which brings me to my second point.
Politicized Fed
Comments from former and current Fed officials, as well as the Fed's actions during the Biden presidency, lead me to believe that the Fed will take steps to thwart Trump's policies. However, there are limits to the Fed's obstructionism. If the risk of bankruptcy of large financial institutions or the stability of the entire U.S. system requires changes in banking regulations, reduction of funding costs, or additional currency issuance, the Fed will not hesitate and will take decisive action.
What did they say to Trump?
The following are two quotes, the first from former Fed Governor William Dudley (New York Fed Chairman from 2009 to 2018), and the second from Fed Chairman Jerome Powell:
U.S. President Donald Trump's trade war with China continues to undermine business and consumer confidence and worsen the economic outlook. This man-made disaster has left the Federal Reserve with a dilemma: Should it provide countervailing stimulus to mitigate the damage, or should it refuse to cooperate? …Officials can make it clear that the central bank will not clean up the mess of an administration that keeps making bad choices on trade policy, and make it clear that Trump will be held accountable for the consequences of his actions… Some even argue that the election itself falls on Within the scope of the Federal Reserve's responsibilities.
After all, Trump's re-election clearly poses a threat to the U.S. and global economies, the Fed's independence, and its ability to achieve its employment and inflation goals.
——"The Fed should not enable Trump's behavior", William Dudley
Asked at a policy meeting press conference how the Fed would respond to Trump's latest victory, Jerome Powell responded: "Some have taken very preliminary steps to start incorporating highly conditional forecasts of policy-related economic impacts. “That’s interesting in the predictions for this meeting. Before the election, one set of economic estimates was used to lower interest rates to help Harris, but now with Trump's victory, another set of estimates is being considered. In fact, the Fed should have used the same estimates months before the election. But what do I know? I'm just a newbie to cryptocurrencies.
What have they done for Biden?
It started as "temporary inflation," remember? Powell declared with all seriousness that the inflation caused by the fastest money-printing campaign in U.S. history was just a blip and would soon disappear. Four years on, inflation remains higher than their own manipulated and dishonest indicators. They used this sophistry to delay the start of rate increases until 2022, knowing that raising rates could trigger a financial crisis or recession. They were right, the Fed directly caused the regional banking crisis in 2023.
Then the Fed pretended it knew nothing. Yellen began in September 2022 by depleting the reverse repurchase program (RRP) by issuing more short-term Treasury bills (T-bills), completely offsetting the Fed's monetary tightening actions. At least the Fed should stand up to the Treasury Department, which is supposed to be independent of the federal government.
By September 2023, when inflation is still above target, the Fed will stop raising interest rates. In September 2024, they even started a rate cut cycle to further inject liquidity into the market. Was inflation below target at that time? No.
The Federal Reserve talks about fighting inflation, but in fact acts under political demands to maintain low-cost government financing and push up financial asset markets. That’s because the Biden administration has been in trouble from the start. Half of Americans believe Biden is an "incompetent old man" and that his party cheated to win the election. In retrospect, the Republicans' accusations against Biden were partly correct. In any case, in order to prevent the Republicans from taking back the House and Senate and prevent Trump from being re-elected in 2024, the Federal Reserve has to take all necessary actions to avoid a financial and economic crisis.
What did they do for the system?
In some cases, the Fed has gone beyond its mandate to help Democrats. For example, in response to the regional banking crisis in early 2023, they created the Bank Term Financing Program (BTFP). The policy of raising interest rates and the subsequent bond market collapse caused banks to incur losses on Treasury bonds purchased at historically high levels in 2020-2021. The Fed took note of these issues and, after letting three crypto-friendly banks fail to appease Elizabeth Warren, effectively guaranteed $4 trillion in Treasury bonds and mortgage-backed securities on bank balance sheets.
In hindsight, BTFP may have been "over-remedial." However, the purpose of the Federal Reserve is to send a clear message to the market that if the U.S.-led financial system faces a major threat, they will use the money printing press in advance to respond with all their strength.
bad relationship
Powell is a traitor because he was appointed by Trump in 2018. This is not surprising, since the power of Trumpism was undermined by a group of disloyal lieutenants during his first term. Whether you think this is a good thing or a bad thing doesn't matter; the point is that the relationship between Trump and Powell is currently very toxic. Powell immediately put to rest any doubts that he might resign in the wake of Trump's recent election victory over Joe Biden, saying he intends to remain chairman until the end of his term in May 2026.
Trump has often said the Fed must cut interest rates to make America Great Again. Powell responded in his own way, saying the Fed is "data dependent," which basically means they do what they want and then let the interns in the basement make up a bunch of economic jargon to do it. Rationalize decisions. Remember DSGE, IS/LM and Ricardian equivalence? Except for the people in the Fed building, this stuff is bullshit.
How does Trump get the Fed to side with him?
Trump’s strategy is to allow a mini-financial crisis to occur. Possible operations are as follows:
- Sustained large deficits : This requires the Treasury to issue large amounts of debt. Trump chose Elon Musk to lead a “meme department” with virtually no power. The Department of Government Efficiency (DOGE) is not a true federal department because establishing such a department requires an act of Congress. This department has a nominal advisory role and reports to Trump. Elon’s power lies purely in the influence of meme culture. Yet memes, while powerful, cannot cut health care benefits or defense spending, which require direct action from lawmakers, something politicians are generally unwilling to risk losing elections in 2026.
- Stirring up the debt ceiling fight now : Bessent, the expected Treasury secretary, has many tools to delay the shutdown. For example, during her fight against the debt ceiling in the summer of 2023, Yellen used cuts to the Treasury General Account (TGA) to inject money into the market and keep the government running for several months, thereby delaying the deadline for political compromise. But Bessent could choose to sit on its hands and not use TGA funds. That would bring the Treasury market to a standstill, with traders selling Treasuries out of fear of default.
This "flammable cocktail" will quickly push the 10-year Treasury yield above 5%. That could happen within days if Bessent confirms the debt ceiling deadline and says it won't use TGA money to extend government operations.
As Treasury yields rise rapidly, the stock market will plummet, and some large financial institutions in the United States or overseas will face tremendous pressure. The Fed will be pushed into a political corner and in order to save the system they may do the following:
- Providing SLR exemption for Treasury securities
- big interest rate cut
- Stop quantitative tightening (QT)
- Restart quantitative easing (QE)
Trump will then praise the Fed for its commitment to the United States, and financial markets will get moving again.
The above issues could turn into a crisis due to uncertainty over the debt ceiling, either now or later, at a time Trump decides. The later the crisis begins, the more likely it is that Trump and Republicans will be blamed, and that the crisis was largely caused by the leverage accumulated during the Biden administration. In transactional terms, Trump must "kitchen sink it." Voters must blame Biden and the Democrats, not Trump and the Republicans, for the crisis, otherwise Trumpism and the Make America Great Again (MAGA) movement will become short-lived political movements that last less than two years until the Democrats Make a comeback in the 2026 midterm elections.
Large-scale money printing will eventually come, but only if the Fed sides with Trump. The Fed is not the only player; is the banking system creating credit?
The answer is no, as shown by my homemade bank credit index, which includes banks' reserves with the Fed combined with other deposits and liabilities.
Credit must flow. If the pace of credit creation disappoints, the market will give back the gains made by Trump's victory. Let's turn to China, because even if the United States is terrible at printing money, China's central bank is very good at using its "red money printing machine bazooka".
China (Choyna)
In the third quarter of last year, the People's Bank of China (PBOC) announced a series of measures aimed at injecting liquidity into the economy. This is a euphemism for what is actually printing money. They lowered banks’ reserve requirements, started buying Chinese government bonds (CGB), and helped local governments refinance to reduce their debt burdens. These measures triggered a violent rally in the A-share market.
If your TikTok brain hasn’t figured out when the People’s Bank of China and the central government will announce these measures, I’ve circled them on the picture for you. The picture above is the Shanghai Composite Index. The authorities hope that "comrades" can prepare for the red wave of money printing in advance and benefit from buying stocks. This publicity strategy really works.
In the article "Let's Go Bitcoin", I proposed that Xi Jinping is prepared to allow currency devaluation if necessary to coordinate with the yuan's money printing plan.
The U.S. dollar-Chinese yuan exchange rate (USDCNY) is allowed to rise, meaning the U.S. dollar is stronger and the yuan is weaker. Everything seemed to be going according to plan, but in early January, Xi Jinping changed course.
On January 9, the People's Bank of China announced that it would end its bond purchase program. As shown in the chart above, the People's Bank of China began to enter the market and control the appreciation of the RMB. On the one hand, the central bank cannot use the renminbi to ease financial conditions domestically; on the other hand, it can strengthen the currency (appreciate) at the expense of the renminbi (depreciation). The first personnel casualty of this contradiction is Zheng Wei, deputy director of the China Administration of Foreign Exchange; he recently "voluntarily" resigned.
There are many theories as to why Xi Jinping changed course. An article from the Jamestown Foundation, "The Four Major Groups Challenging Xi Jinping," points out that pro-Western former Politburo members, princelings, and People's Liberation Army generals are more inclined to strengthen integration with the West, thus limiting Xi Jinping's power and forcing him to give up his role as a leader. Liquidity is injected into the economy to maintain currency stability. Russell Napier believes that Xi Jinping is "storing ammunition" for intense negotiations with Trump, and some kind of big deal may be reached during the negotiations. He speculated that such a deal could be reached because both China and the United States need a weak currency and strong exports to improve their domestic economies. But for whatever reason, China has now chosen to strengthen the yuan rather than inject liquidity into the economy through printing money. Therefore, the RMB printing press will be temporarily closed until further notice.
Japan (Nippon)
The Bank of Japan (BOJ) has kept its promise to continue raising interest rates. At the most recent meeting, they raised the policy rate by 0.25% to 0.50%. One consequence of the interest rate normalization program is that central bank balance sheet growth has stalled.
As policy rates rise, Japanese government bond (JGB) yields have also reached levels not seen in nearly 15 years.
The growth rate of the money supply has slowed significantly, while its price (interest rates) has risen rapidly. This is not a suitable dashi environment for financial asset prices denominated in fiat currency.
The USD/JPY exchange rate is in the process of peaking. I think USD/JPY will hit 100 in the next 3 to 5 years (a weaker dollar, a stronger yen). As I have written many times, a stronger yen will prompt Japanese companies to repatriate trillions of dollars of capital, while anyone who borrows yen will have to sell assets as holding costs rise sharply.
The main concern in fiat financial markets is that this selling behavior will have a negative impact on Treasury bond prices. This is a structural headwind that Finance Minister Bessent must deal with. Eventually, this will be resolved through some form of dollar swap mechanism, but before that, pain must be experienced to provide the political cover to create the conditions for the needed monetary support.
I have already explained why the liquidity conditions of the U.S. dollar, yuan, and yen are not conducive to an increase in the price of fiat financial assets. Now, let me explain how this affects Bitcoin and crypto capital markets.
corrosivity correlation
We need to discuss the concerns bond investors have about a U.S.-led global system. I'll take a moment to draw conclusions from an excellent chart provided by Bianco Research that shows 1-year and 5-year stock and bond price correlations.
From the 1970s to the turn of the millennium, inflation has been a "nightmare" for American investors. Therefore, there is a correlation between stock and bond prices. When inflation takes hold and negatively affects the economy, investors sell both bonds and stocks. However, this situation changed after China joined the World Trade Organization (WTO) in 2001. American capitalists can outsource the U.S. manufacturing base to China in exchange for better domestic corporate profit growth reports. At this point, economic growth replaced inflation as the main concern. In this model, falling bond prices mean economic growth is accelerating, so stocks should perform well. The correlation between stocks and bonds disappears.
As you can see, the 1-year correlation rose sharply in 2021, when inflation re-emerged during the Flu-19 crisis and reached a 40-year high. As the Federal Reserve begins its interest rate hike cycle from early 2022, bond prices have fallen in tandem with stock prices. The relationship between stocks and bonds is back to the pattern from the 1970s to 2000 - with inflation once again the biggest concern .
This is very evident in the performance of the 10-year Treasury note. The Fed paused raising interest rates in September 2023 and began cutting rates in September 2024, while inflation remains above its 2% target.
Here are three charts: the Fed’s benchmark interest rate ceiling (white) and the 10-year Treasury yield (yellow)
As you can see, the market is worried about inflation and even though the Fed is easing monetary conditions, yields are still rising.
Compare this situation with the last interest rate cut cycle (which started in late 2018 and ended in March 2020). As you can see, when the Fed cuts interest rates, yields fall with it.
No matter what anyone says, currency prices always affect assets denominated in fiat currencies. Technology stocks are very sensitive to interest rates. You can think of them as a bond with an infinite maturity. Simple math tells us that as you increase the discount rate for an infinite cash flow, its present value decreases. When functional chaos in financial markets reaches a certain critical point, this mathematical effect will become very apparent.
The chart above shows the Nasdaq 100 Index (white) versus the 10-year Treasury yield (yellow) . When yields hit around 5%, stocks fell; as yields fell, stocks rebounded sharply. This is part of a financial model that focuses on inflation rather than growth.
In summary, the US dollar, RMB and Japanese yen are interchangeable in global financial markets. They all end up in some form in large U.S. tech stocks. Whether you like it or not, this is true. I have just explained step by step why, at least in the short term, the United States, China, and Japan have not accelerated the creation of fiat currencies and have even increased currency prices (interest rates) in some cases. As the world economy decouples, inflation remains elevated and is likely to rise further in the short term. This is why I expect the 10-year Treasury yield to rise. What will happen to stocks if yields rise on worries about inflation and growing U.S. debt, and there is a lack of marginal buyers in the market? The answer is simple - they will sell off.
Bitcoin and stock prices are not correlated in the long term, but they can be highly correlated in the short term. Above is Bitcoin’s 30-day correlation with the Nasdaq 100 Index. Correlations are rising, which doesn't bode well for short-term prices, especially as stocks get hammered by rising 10-year Treasury yields.
Another belief I believe is that Bitcoin is the only truly global free market that currently exists. It is extremely sensitive to global fiat liquidity conditions, so if there is an imminent fiat liquidity squeeze, Bitcoin's price will collapse before stocks and become a leading indicator of financial stress. If it were a leading indicator, Bitcoin would bottom before stocks, predicting the restart of the fiat money printing press.
If financial stress arises due to a crash in bond markets, the answer must be to print money. First, the Fed will work with the Trump team to fulfill its patriotic duty and press the button on the dollar printing press. Subsequently, China will inject liquidity simultaneously with the Federal Reserve without facing the risk of currency depreciation. Remember, everything is relative. If the Fed prints more dollars, the People's Bank of China can also print more yuan, and the dollar-yuan exchange rate will remain unchanged. The largest asset holdings of Japanese companies are U.S. dollar financial assets. Therefore, if the prices of these assets fall, the Bank of Japan will suspend its plans to raise interest rates and relieve financial pressure on the yen.
In short, a mini-financial crisis in the United States could bring the “monetary magic” the cryptocurrency market needs. This will also be very beneficial to Trump's political prospects. To sum up, I think there is a 60% chance of these scenarios happening in the first quarter or early second quarter.
Trading Probability and Expected Value
As mentioned in the introduction, overestimation of avalanche risk gives us pause when skiing. The point is not to take any chances. Extending this metaphor to the cryptocurrency market, Maelstrom would hedge against risk by reducing his exposure to the market. It’s all about expectations, not about whether I’m right or wrong.
How do I know I'm wrong? You never know for sure, but in my opinion, if Bitcoin breaks $110,000 (the price at the height of the $TRUMP memecoin craze) accompanied by strong trading volume and an increase in perpetual contract open interest, then I will throw in the towel and wait for more updates Re-buy risky assets at high levels. It’s important to highlight that the $TRUMP memecoin’s fully diluted market cap in 24 hours was nearly $100 billion, which is insane. I bought it within hours of its launch and sold it before the end of my weekend spa vacation, not only making back the cost of the trip but with a substantial profit. Trading shouldn't be this easy, but it is during manias. To me, $TRUMP is a classic market top signal, much like FTX sponsoring the MLB umpire logo, the apex mark of the 2021 bull market.
The key to trading is not being right, but how to operate based on perceived probabilities and maximize expected value. Here's my thought process: Obviously, these odds are subjective, but the nature of investing is making decisions with imperfect information.
Why do I predict a 30% correction for Bitcoin?
I have been trading in this market for over ten years and have lived through three bull market cycles. Bitcoin often experiences such pullbacks during bull markets, due to its high volatility. More importantly, after hitting an all-time high in March 2024, Bitcoin surged again in November 2024 after Trump won the election. Many people, myself included, have written that Trumpism heralds an increase in the pace of U.S. money printing, and that other countries will follow suit and launch their own monetary stimulus programs. However, this article believes that no matter whether it is the United States, China or Japan, these stimulus plans will not be launched currently unless there is a little chaos in the fiat currency system first. Therefore, I think the market will pull back to the previous all-time high, giving back the gains made after Trump's election victory.
mathematical derivation
60% probability of Bitcoin correcting by 30%;
There is a 40% probability that the bull market will continue and the Bitcoin price will rebound by 10%
Calculate expected value:
(60% * -30%) + (40% * 10%) = -14% expected value
This suggests I should reduce my risk. I reduce risk by selling Bitcoin and holding more dry powder ($USDe pledged at an annualized return of 10%-20%). If Bitcoin crashes, it will be the end of the Altcoin market, but that’s when I want to get in. Maelstrom has a number of liquid Altcoin positions that could plummet more than 50% if Bitcoin drops 30%. Bitcoin’s eventual “liquidation candle” will tell me when it’s time to go big on the cheap crypto asset.
final summary
If I'm wrong, my loss will simply be to take profit prematurely and sell some of the Bitcoin I acquired through Altcoin trading. But if I'm right, then I will be well-funded and able to quickly double or even triple my assets by buying high-quality Altcoin at super low prices after a massive sell-off.
Last but not least, as of the time this article was edited on Monday, January 27, 2025, the market was in a state of complete panic, and investors were reassessing their optimistic expectations for NVIDIA and U.S. technology stocks. The reason is the launch of DeepSeek. This is an AI model developed by a Chinese team. It is said that the training cost is reduced by 95%, but the performance exceeds the latest products of OpenAI and Anthropic. The thing about bubbles is that once investors start questioning their core optimistic assumptions, they start questioning everything. My biggest concern is that investors will begin to recognize the current poor fiat liquidity environment and the structural upward trend in 10-year Treasury yields.
Ironically, so-called "communist" China is embracing the open source movement, while "capitalist" America clings to its closed ecosystem. Competition is indeed a wonderful thing.
