Arthur Hayes' latest prediction: Bitcoin 250,000, Ethereum 10,000, by the end of the year

Author: Arthur Hayes

Compiled and organized by: BitpushNews

Unveiling Trump's "Fascist Economy" and the Secret Waltz of the Crypto Bull Market ------ The Deadly Dance of Bitcoin and the "Credit Drum," Are Your Investment Moves in Sync?

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

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

My favorite ballroom dance—the country dance—is in 4/4 time; while the waltz is in 3/4 time. Once you know the tempo, your ears must catch which instrument is accentuated and count the remaining beats of the measure. If every piece of music just had the bass drum hitting "one, two, three, four," it would be very monotonous. What makes music captivating is how composers and producers layer other instruments and sounds to add depth and richness to the song. But when dancing, listening to all these secondary sounds is unnecessary for placing your feet in the right spot at the right time.

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

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

For cryptocurrencies, this is even more critical because, at least for Bitcoin, it is a fixed supply asset. Therefore, the rate of fiat currency supply expansion determines the rate at which Bitcoin's price rises. Since early 2009, massive amounts of fiat currency have been created, competing for relatively insignificant Bitcoin supply, making Bitcoin the best-performing fiat-denominated asset in human history.

Currently, the jarring sounds emitted by financial and political events form a tritone. The market continues to rise, but there are some very serious, seemingly negative catalysts creating dissonance. Should you hedge on the spot because of tariffs and/or war? Or are these just unnecessary instruments? If so, can we hear the guiding force of the bass drum—credit creation?

Tariffs and war are important because a single instrument or sound can ruin a piece of music. But these two issues are interrelated and ultimately unrelated to Bitcoin's continued rise. President Trump cannot impose meaningful tariffs on China because China will cut off rare earth supplies to the "beautiful country" and its vassal states. Without rare earths, the U.S. cannot manufacture weapons to sell to Ukraine or Israel. Thus, the U.S. and China are engaged in a crazy tango, each probing to avoid overly destabilizing their economies or geopolitical standing. This is why the status quo, although tragic and deadly for people in both places, will not have a substantial impact on global financial markets at present.

Meanwhile, the credit bass drum continues to delineate time and rhythm. The U.S. needs industrial policy, a euphemism for state capitalism, technically referred to as that dirty word: fascism. The U.S. needs to shift from a semi-capitalist economic system to a fascist economic system because its industrial giants cannot produce war materials in sufficient quantities to meet the current geopolitical environment based on their own volition.

The war between Israel and Iran lasted only twelve days because Israel exhausted the missiles supplied by the U.S. and could not operate its air defense system perfectly. Russian President Putin is indifferent to the threats posed by the U.S. and NATO's deepening support for Ukraine because they cannot produce weapons in the same quantity, speed, and low price as Russia.

The U.S. also needs a more fascist economic arrangement to boost employment and corporate profits. From a Keynesian perspective, war is very beneficial to the economy. The organic demand of the populace is supplanted by the government's insatiable demand for weapons.

Ultimately, the banking system is also willing to extend credit to businesses because they are guaranteed profits by producing products the government needs. Wartime presidents are very popular, at least initially, because everyone seems to become wealthier. If we take a more comprehensive approach to measuring economic growth, it becomes very clear that war is net destructive. But that kind of thinking doesn't win elections, and every politician's primary goal is re-election, if not for themselves, then for their party members. Trump is a wartime president, like most of his American predecessors, and thus he is placing the U.S. economy in a wartime state. This makes finding the rhythm easier; we must look for ways credit is injected into the economy.

In my article "Black or White," I explained how government-guaranteed profits lead to "key" industries receiving bank credit. I call this policy "Quantitative Easing for Poor People" (QE 4 Poor People), which creates a fountain of credit. I predicted this would be Trump's team's method for boosting the U.S. economy, and the MP Materials deal is our first large-scale real-world case.

The first part of this article will explain how this deal expands the dollar credit supply and will become the template followed by the Trump administration in its attempt to produce the key goods needed for 21st-century warfare (semiconductors, rare earths, industrial metals, etc.).

War also requires the government to continue borrowing massive amounts of money. Even if the assets of the rich swell due to increased credit supply, leading to higher capital gains tax revenue, the government will still face an ever-expanding fiscal deficit. Who will buy this debt? Stablecoin issuers.

As the total market value of cryptocurrencies rises, part of it will be stored in the form of stablecoins. The vast majority of these stablecoins' assets under custody (AUC) are invested in U.S. Treasury bills.

Therefore, if the Trump administration can provide a favorable regulatory environment for traditional finance (TradFi) to participate in and invest in cryptocurrencies, the total market value of cryptocurrencies will soar. The custodial 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.

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

Quantitative Easing for Poor People (QE 4 Poor People)

Central bank money printing does not create a powerful wartime economy. Finance has replaced rocket engineering. To correct this failure of wartime production, the banking system is encouraged to provide credit to industries deemed key by the government, rather than to corporate raiders.

American private enterprises aim for profit maximization. Since the 1970s, they have engaged in "knowledge" work domestically while pushing production overseas for higher profits. China is very willing to enhance its manufacturing skills by becoming the world's low-cost, and over time, high-quality manufacturing hub. However, producing a $1 Nike does not threaten the elites of the "beautiful country." The real problem is that at a time when the "beautiful country" is severely threatened in its hegemony, it cannot produce war materials. Hence, all the fuss about rare earths arises.

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

Here are the key points from Reuters regarding the MP Materials deal:

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

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

MP Materials stated that JPMorgan and Goldman Sachs are providing a $1 billion loan to build its tenfold capacity factory.

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

MP Materials (MP) needs to build a rare earth processing plant and obtains a $1,000 loan from JPMorgan (JPM). The loan creates $1,000 of new fiat currency (wampum), which is deposited into JPMorgan.

MP then builds the rare earth processing plant. To do this, it needs to hire workers, the "plebes." In this simplified example, I assume all costs consist of labor fees. MP must pay the workers, which results in a debit of $1,000 from the MP account and a credit of $1,000 to the plebes' accounts at JPM.

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

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

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

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

The human resources and raw materials needed to produce goods are limited. The government is crowding out financing and ultimate production of other goods by encouraging the commercial banking system to create money out of thin air. Ultimately, this will lead to shortages of raw materials and labor. However, fiat currency will not be in short supply. Therefore, wage and goods inflation will follow, ultimately causing pain for any individual or entity not directly connected to the government or banking system. If you don't believe me, read the daily history of the two World Wars.

The MP Materials deal is the first large-scale, significant case that embodies the "Quantitative Easing for Poor People" policy. The best part of this policy is that it does not require congressional approval. The DoD, under the direction of Trump and his successor in 2028, can issue guaranteed procurement orders in the course of its normal business. Profit-seeking banks will follow suit, fulfilling their "patriotic" duty to provide funding for those businesses attached to the government. In fact, elected representatives from all parties will rush to argue why the companies in their districts should receive procurement orders from the DoD.

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

Blow Bubbles, Work Hard to Inflate

Politicians are not unaware that stimulating "key" industries by accelerating credit growth will cause inflation. The challenge is to inflate a bubble with excess credit in an asset that will not disrupt social stability. If the price of wheat were to soar like Bitcoin has over the past 15 years, most governments could be overthrown by popular revolutions. Instead, the government encourages the populace (who instinctively feel their actual purchasing power is declining) to share in the credit game by investing in state-sanctioned inflation-hedging assets to profit.

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

China's money supply (M2) has grown by 5000% since 1996. The "plebes" hoping to escape this credit-driven inflation face very low bank deposit interest rates. As a result, they have flooded into apartments, and the government has encouraged this behavior as part of its urbanization strategy. Rising housing prices, at least until 2020, helped suppress the demand for the populace to hoard other physical goods. The housing prices in China's first-tier cities (Beijing, Shanghai, Shenzhen, Guangzhou) have become the most expensive in the world when calculated for affordability.

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

This housing price inflation has not disrupted social stability because ordinary middle-class citizens can borrow money to purchase at least one apartment. Thus, everyone is involved. An extremely important secondary effect is that local governments primarily fund social services by selling land to developers, who then build apartments to sell to the "plebes." As housing prices rise, land prices and sales also increase, leading to rising tax revenues.

This case tells us that if the Trump administration truly intends to fully implement economic fascism, then excess credit growth must inflate a bubble that allows ordinary people to profit while simultaneously funding the government.

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

Before I delve into how the crypto bubble will achieve various policy goals of the Trump administration, let me first explain why Bitcoin and cryptocurrencies will soar as the U.S. becomes a fascist economy.

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

At this point, neither retail nor institutional investors can deny that if you believe more fiat currency will be created in the future, Bitcoin is the best investment choice.

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

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

The killer blow is President Trump's proposal to eliminate capital gains tax on cryptocurrencies. Trump is offering war-driven crazy credit growth, regulatory permission for retirement funds to put cash into cryptocurrencies, and—TMD—no taxes! Hooray!

All of this is great, but there is one problem. The government must issue more and more debt to fund the procurement guarantees provided to private enterprises by the DoD and other agencies. Who will buy this debt? Cryptocurrencies win again.

Once capital enters the crypto capital markets, it typically does not leave. If an investor wants to sit on the sidelines, they can hold stablecoins pegged to the dollar, such as USDT.

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

On average, for every $1 increase in the total market value of cryptocurrencies, $0.09 flows into stablecoins. Let’s assume Trump diligently pushes the total market value of cryptocurrencies to $100 trillion by the time he leaves office in 2028. This is about a 25-fold increase from current levels;

If you think this is impossible, it shows you haven't been in the crypto space long enough. This will create about $9 trillion in purchasing power for Treasury bills, realized through global capital inflows by stablecoin issuers.

Historically, when the Federal Reserve and Treasury needed to fund America's WWII adventures, they also resorted to issuing far more Treasury bills than bonds.

Now, Trump and Bessent have "closed the loop":

• They replicated the Chinese model, creating a U.S. fascist economic system to produce materials.
• The inflationary impulse of financial assets triggered by credit growth is directed toward cryptocurrencies, causing them to soar, making the populace feel wealthier due to their staggering returns. They will vote for the Republican Party in 2026 and 2028… unless they have a teenage daughter… or maybe people always vote with their wallets.
• The continuously rising crypto market brings a massive influx of funds into stablecoins pegged to the dollar. These issuers will invest their custodial assets in newly issued Treasury bills, funding the ever-expanding federal deficit.

The bass drum is beating. Credit is being pumped. Why haven’t you fully invested in cryptocurrencies yet? Don’t fear tariffs, don’t fear war, and don’t fear randomly occurring social issues.

Trading Strategy

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

The upcoming Ethereum bull market will completely ignite the market.

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

Buy first, ask questions later. Or don’t buy, and then like a gloomy guy, sip on a light beer that tastes like urine in the corner of the club while a group of people you think are less intelligent than you spend lavishly on champagne at the table next to you.

This is not financial advice, so decide for yourself. Maelstrom is doing everything about Ethereum, everything about DeFi, and everything driven by ERC-20 altcoin plays.

My year-end targets:

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

Yacht freedom, TMD!

Recommended Reading:

Coinbase Deep Dive: Ethereum vs Solana, Are Institutional Investors in a "Either-Or" Dilemma?

Still Alive After Twelve Years, Pantera Capital Makes Bold Moves in the Coin Stock Frenzy