Arthur Hayes: Bitcoin has rejoined the ranks of gold that “only rises but never falls”, and the alt season may soon follow

Here is the English translation: My Hokkaido ski season ended in mid-March this year, but the mountain experience lessons still apply to analyzing Trump's "tariff storm". The snow conditions were different every day, with many variables interacting - you never know which snowflake or turn might trigger an avalanche. All we could do was roughly estimate the probability of triggering an avalanche. A more precise technique for assessing slope stability is "ski cutting". Before descending, a skier in the team would cross the starting area horizontally, jumping up and down, trying to trigger an avalanche. If successful, how the avalanche spreads on the slope would determine whether the guide considers the slope safe. Even if an avalanche was triggered, we might still choose to ski, but would carefully select the slope direction to avoid triggering a larger slide. If we saw cracks spreading or large snow slabs collapsing, we would have to evacuate quickly. The key is to quantify the worst-case scenario based on current conditions and act accordingly. Trump's self-proclaimed "Liberation Day" on April 2nd was a ski cut on this steep, dangerous financial market slope. The Trump team borrowed tariff policies from an economics book called "Balanced Trade: The Enormous Costs of Ending U.S. Trade Deficits", taking an extreme stance. The announced tariff rates were worse than the worst predictions of mainstream economists and financial analysts. In avalanche theory terms, Trump triggered a persistent weak layer avalanche, threatening the entire "fake fractional reserve dirty fiat financial system". The initial tariff policy represented the worst outcome, as both the U.S. and China took opposing extreme positions. While financial asset markets plummeted, causing global losses of trillions of dollars, the real issue was the increased volatility in the U.S. bond market, measured by the MOVE index. The index approached a historical high of 172 before the Trump team quickly retreated. Within a week of announcing tariffs, Trump adjusted the plan, suspending tariffs for 90 days for all countries except China. A few days later, Boston Fed President Susan Collins wrote in the Financial Times that the Fed was prepared to take all necessary measures to ensure market functioning. Immediately after, U.S. Treasury Secretary Scott Besent claimed in a Bloomberg interview that his "guys" were strong, especially because the Treasury could significantly increase the scale and speed of government bond buybacks. I summarize this series of events as a shift from decision-makers' "everything is normal" to "everything is over, we must do something". The market subsequently surged, and most importantly, Bitcoin hit bottom. Yes, I declare that Bitcoin reached a local bottom at $74,500. Whether you view Trump's policy changes as a retreat or a clever negotiation strategy, the result is that the government deliberately triggered a financial market avalanche, severe enough that they had to adjust policies within a week. Now, as market participants, we understand several things: we know what bond market volatility looks like in the worst-case scenario; we recognize the volatility levels that trigger behavioral changes; we also know which monetary levers will be pulled to alleviate the situation. Based on this information, as Bitcoin holders and crypto investors, we know the bottom has been reached. Because the next time Trump escalates tariff rhetoric or refuses to reduce tariffs on China, Bitcoin will rise in anticipation of monetary authorities fully firing up the money printer to suppress bond market volatility. [The translation continues in the same manner for the remaining text, maintaining the specified translations for specific terms.]

From Bianco Research, the bottom shows the abnormal degree of 30-year bond yield changes over 3 days. The degree of change triggered by tariff panic is comparable to market volatility during financial crises such as the 2020 COVID-19 pandemic, the 2008 global financial crisis, and the 1998 Asian financial crisis. This is not a good thing.

RV funds' Treasury basis trading positions may be liquidated, which is a problem. How large is the scale of this trade?

February 2022 was a crucial moment for the Treasury market, as Biden decided to freeze Russian government bond holdings, the world's largest commodity producer. This effectively indicates that property rights are not a right, but a privilege. Consequently, foreign demand continued to decline, but relative value funds as marginal buyers filled this gap. The chart clearly shows the increase in repo positions, which can serve as a proxy for the basic trading volume in the market.

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The impact of repurchase on positive dollar liquidity is not as direct as the central bank printing money. Repurchase is neutral in budget and supply, which is why the Treasury can conduct repurchase indefinitely to create massive purchasing power for relative value funds. Ultimately, this enables the government to finance at affordable rates. The more debt created through bank system leverage rather than private savings purchases, the greater the growth in money supply. And when the amount of legal tender increases, the only asset we want to hold is Bitcoin. Let's get excited!

Clearly, this is not an unlimited source of dollar liquidity. The number of off-route bonds available for repurchase is limited. However, repurchase is a tool for Bezos to alleviate market volatility in the short term and finance the government at an affordable level. This is why the MOVE index has declined and concerns about systemic collapse after the stabilization of the Treasury market have subsided.

Current Situation

I compare the current trading situation to the third quarter of 2022. In the third quarter of 2022, Sam Bankman-Fried (SBF) collapsed; the Federal Reserve was still raising interest rates, bond prices were falling, and yields were rising. Yellen needed a way to stimulate the market so she could pry open the market's mouth with her red high heels and insert bonds without causing vomiting. In short, just like now - market volatility has increased due to the transformation of the global monetary system - this is not a good time to increase bond issuance.

Reverse Repo Balance (White) vs Bitcoin (Gold)

Similar to today, but for different reasons, Yellen couldn't count on Federal Reserve easing because Powell was immersed in his Paul Volcker-style ascetic performance. Yellen (or some clever staffer) correctly deduced that sterile funds in reverse repos held by money market funds could be drawn out by issuing more short-term Treasuries, as these funds are happy to hold them at slightly higher yields than reverse repos. This injected $2.5 trillion of liquidity into the market from the third quarter of 2022 to early 2025. Bitcoin rose nearly 6-fold during this period.

This is a quite bullish situation, but people are scared. They know high tariffs and the US-China "divorce" are not good for stock prices. They think Bitcoin is just a high-beta version of the Nasdaq 100. They short, not understanding how an seemingly harmless repurchase plan could lead to future dollar liquidity increases. They sit on the sidelines, waiting for Powell to ease. He cannot directly ease or provide quantitative easing like his predecessors from 2008 to 2019. Times have changed, and now the Treasury is doing heavy money printing. If Powell truly cared about inflation and the long-term strength of the dollar, he would neutralize its impact during Yellen and Bezos' actions. But he didn't then, and he won't now; he will sit in the "dominated" chair and accept domination.

Just like in the third quarter of 2022, when people thought Bitcoin might drop below $10,000 due to converging unfavorable market factors, Bitcoin touched a cycle low at $15,000. Today, some believe we will drop below $74,500 to below $60,000, and the bull market has ended. Yellen and Bezos are not playing around. They will ensure government financing at affordable rates and suppress bond market volatility. Yellen is issuing more short-term Treasuries instead of long-term ones to inject limited reverse repo liquidity; Bezos will repurchase old debt by issuing new debt, maximizing the relative value fund's ability to absorb increased bond supply. Neither of these is quantitative easing familiar to most investors. Therefore, they miss opportunities and can only chase high after confirmation of a breakthrough.

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Once Bitcoin breaks through the previous round's historical high of $110,000, it may further surge and increase its dominance. Perhaps it will be slightly below $200,000. Then, funds will shift from Bitcoin to shit coins. Shit coin season: Rise, little chickens!

Besides those shiny new shit coins, the best-performing tokens will be those related to profitable projects that give back profits to staking token holders. Such projects are rare. Maelstrom has been diligently accumulating positions in certain qualified tokens and has not yet bought enough. They are gems because they were hit hard in the recent sell-off like other shit coins, but unlike 99% of shit projects, these gems actually have paying customers. Due to the large number of tokens, it's almost impossible to convince the market to give your project another chance after launching on a centralized exchange (CEX) in "only drop" mode. Shit coin gold diggers want higher staking APY, and these returns come from actual profits because these cash flows are sustainable. To promote our positions, I will write a full article discussing some of these projects and why we believe their cash flow generation will continue and increase in the near future. Until then, get ready with trucks and buy everything!