Original Article Title: Time Signature

Original Article Author: Arthur Hayes, BitMEX Co-Founder

Original Article Translation: xiaozou, Golden Finance

The highest praise of humanity to the universe is the joy born of dance. Most religions incorporate music and dance into worship rituals. The "Big Room Music Education" I believe in does not take place in the Sunday morning church's "move your body" session but in the almost timeless Club Space.

During my university years, I joined a ballroom dancing club. Each ballroom dance has strict guidelines (for example, in the standard rumba, one must not step while bending the knees). For beginners, the most challenging part is to dance the basic steps to the beat, with much effort spent on finding the rhythm.

My favorite dance music is in 4/4 time, while the waltz is in 3/4 time. Once the beat is mastered, the ears must also catch the downbeat of the main instrument and count the remaining bars of the instrumental sections. If all music were just a mechanical repetition of beats like "one, two, three, four," it would undoubtedly be dull and monotonous. It is the composer and producer layering different instruments and sound effects that give depth and richness to the music. However, these irrelevant sounds during dancing do not contribute to precisely following the beat.

Similar to music, price charts are a manifestation of human emotional fluctuations, and our investment portfolios dance along. Like ballroom dancing, the decision to buy and sell various assets must align with the specific market's rhythm. Once the rhythm is missed, losses will follow. Similar to a dancer making the wrong step, losing money is always regrettable. The question is: to maintain elegance and wealth, which instrument in the financial markets should we listen to?

If there is one core belief that supports my investment philosophy, it is this: Understanding the changes in fiat currency supply is the most critical variable in profitable trading. This is even more crucial for cryptocurrencies—at least for Bitcoin as a fixed-supply asset, its price appreciation directly depends on the pace of fiat currency supply expansion. Since the beginning of 2009, relative to Bitcoin's minuscule supply, the flood-like creation of fiat currency has made Bitcoin the best-performing asset in history when priced in fiat currency.

The cacophony of current financial and political events is like a dissonant note in music. While the market continues to rise, it is accompanied by severe negative catalysts that may generate discordant sounds. Faced with threats of tariffs and war, should we hold our ground? Or are these just irrelevant distractions? If it is the latter, can we hear the bass drum that points the way—namely, credit creation?

The impact of tariffs and war is quite significant, much like how an important instrument being out of tune can ruin an entire music piece. However, these two issues are interconnected but have no effect on Bitcoin's steady upward trend. U.S. President Trump could not implement substantial tariffs on China because China would cut off the rare earth supply to the "Land of the Free" and its vassal states. Without rare earth, the U.S. would be unable to manufacture weapons to sell to Ukrainian President "Slavic Butcher" Zelensky, nor could it supply Israeli Prime Minister "Benedict Executioner" Netanyahu. As a result, the U.S. and China are engaged in a deadly tango, maintaining a delicate balance at the economic and geopolitical levels. This is why the current situation, while cruelly fatal to the people in both wars, will not have a substantial impact on the global financial markets in the short term.

Meanwhile, the drum of credit continues to beat the rhythm. The U.S. needs an industrial policy—essentially a euphemism for national capitalism, that dirty term: fascism. The U.S. must transition from semi-capitalism to a fascist economic system because the war materials produced by its industrial giants independently cannot meet current geopolitical needs. The Iraq War lasted only twelve days because Israel depleted the missile stocks provided by the U.S. and could no longer maintain an impeccable air defense system. Russian President Putin disregards the threat of increased assistance to the U.S. from NATO because they cannot match Russia's weapons output, keep up with production pace, or have Russia's cost advantage.

The U.S. also needs a more fascistic economic arrangement to boost employment and corporate profits. From a Keynesian perspective, war is very beneficial to the economy. The soft organic demand of the people is replaced by the endless demand for weapons production by the government. Most importantly, the banking system is willing to provide credit to businesses because producing goods needed by the government can ensure profits. War-time presidents are often very popular (at least initially) because everyone seems to become wealthier. If a more comprehensive economic growth accounting method is adopted, the destructive nature of war on net benefits is clearly evident. However, this kind of thinking cannot win elections—every politician's primary goal is reelection (if not for oneself, then for party members).

This is when the rhythm becomes clear: we must track the channels through which credit is injected into the economy.

In my article "Black or White" (refer to a previous article by Golden Finance "If Trump's 'America First' Plan Succeeds, BTC Will Reach $1 Million"), I explained how the government's profit guarantee for "vital" industries led to a bank credit expansion. I referred to this policy as "Quantitative Easing for the Poor," which can create a credit fountain. I predicted that this would become a means for the Trump team to stimulate the economy, and the MP Materials deal is the first large-scale real-world example. The first part of this article will analyze how this deal expanded the U.S. dollar credit supply—this template will be used by the Trump administration to produce key materials needed for 21st-century warfare: semiconductors, rare earths, industrial metals, etc.

War also required the government to continue borrowing massive debt. Even though capital gains tax increased as wealthy assets appreciated with credit expansion, the fiscal deficit would continue to soar. Who will buy this debt? Stablecoin issuers.

As the total market capitalization of cryptocurrency rises, a portion of it will be stored in the form of stablecoins. Most of these custodied stablecoin assets are invested in U.S. Treasury bonds. Therefore, if the Trump administration can create a favorable regulatory environment for Traditional Finance (TradFi) to participate in crypto investments, the cryptocurrency market capitalization will skyrocket. Subsequently, the custodied stablecoin assets will automatically increase, creating more purchasing power for U.S. Treasury bonds. Treasury Secretary Bezent will continue to issue Treasury bonds far exceeding the scale of Treasury bills and bonds, exclusively for stablecoin issuers to subscribe to.

Let's dance the Credit Waltz, and I will guide the readers through the perfect interpretation of this financial dance.

1. Quantitative Easing for the Poor

Central bank money printing cannot foster a robust wartime economy. The financial industry replaced rocket engineering. To remedy wartime production failure, the banking system was encouraged to provide credit to government-designated key industries (rather than corporate snipers).

American private enterprises operate based on profit maximization. From the 1970s to the present, engaging in "knowledge" work domestically while outsourcing production overseas has been more profitable. China was once willing to upgrade its manufacturing technology by becoming a global low-cost (evolving into high-quality over time) factory. However, what threatens the "American Century" elite rule is not a $1 Nike shoe but the empire's inability to produce war materials when faced with a severe challenge to its hegemony. This is the root cause of the uproar over rare earth elements.

Rare earth elements are not rare, but their large-scale processing faces significant environmental externalities and capital expenditure requirements. Over thirty years ago, China made the decision to lead rare earth production, and today's China benefits from this foresight. To reverse the situation, Trump is borrowing from the Chinese economic system to ensure that the U.S. increases rare earth production to sustain the empire's bellicose nature.

According to a Reuters report, here are the key points regarding the U.S. rare earth producer MP Materials transaction:

● The U.S. Department of Defense will become the largest shareholder of MP Materials

● The transaction will boost U.S. rare earth production, weakening China's dominance

● The Department of Defense will also set a floor price for critical rare earths

● The floor price will be twice the current market price in China

● MP Materials stock price surged nearly 50% on the news of the transaction

All of this may seem wonderful, but where does the construction funding come from?

MP Materials has stated that JPMorgan Chase and Goldman Sachs will provide a $1 billion loan to build a facility with 10 times the current capacity.

Why are banks suddenly willing to lend to a real-world industry? Because the U.S. government is backing this "show project" to ensure that the borrower cannot lose. The T-shaped diagram below will explain how this transaction, driven by the alchemy of credit creation, spurs economic growth.

MP Materials (MP) needs to construct a rare earth processing facility, and it receives a $1000 loan from JPMorgan (JPM). This lending activity creates $1000 of new fiat currency, which is deposited into JPMorgan's account.

Subsequently, MP begins building the rare earth processing facility, requiring the hiring of common laborers (Plebes). In this simplified model, let's assume all costs are labor costs. MP must pay the workers' wages, resulting in a debit of $1000 from its account and a credit of $1000 to the common laborers' account at JPMorgan.

The Department of Defense (DoD) needs to pay for these rare earths. The funding is provided by the Treasury Department, which must issue bonds to finance the DoD. JPMorgan converts the MP corporate loan asset into reserves held by the Federal Reserve through the discount window. These reserves are used to purchase bonds, leading to a credit to the Treasury General Account (TGA). The DoD then purchases the rare earths, with this payment becoming MP's revenue, ultimately flowing back to JPMorgan as a deposit.

The final fiat balance (EB) exceeds the initial JPMorgan loan amount by $1000. This expansion is a result of the money multiplier effect.

Government procurement guarantees work in this way, leveraging commercial bank credit to fund new facility construction and job creation. Although not discussed in this example, JPMorgan is now extending loans to employed common laborers (Plebes) for asset and commodity purchases (real estate, cars, iPhones, etc.). This creates new credit, which eventually flows to other U.S. businesses and returns to the banking system as deposits. With a money multiplier inevitably>1, this wartime production will stimulate economic activity, categorized as "economic growth."

The money supply, economic activity, and government debt all inflate synchronously. Everyone is happy—the commoners have jobs, and financiers/industrialists enjoy government-backed profits. If such economic policies can create welfare out of thin air for everyone, why have they not become a universal policy worldwide? Because they would trigger inflation.

The human resources and raw material supply needed to produce goods are finite. The government, through the commercial banking system, creating money out of thin air, squeezes out financing channels and even production capacity for other goods, eventually leading to shortages of raw materials and labor. However, the fiat supply is endless, and the inevitable result is wage and commodity inflation, leaving those individuals and entities not directly connected to the government or banking system in a predicament. If in doubt, feel free to peruse the daily records of the two World Wars.

The MP Materials transaction is indeed the first typical case of the "poor man's version of quantitative easing" policy. The cleverness of this policy lies in not requiring congressional approval—under the leadership of Trump and his successor in 2028, the Department of Defense can directly issue guaranteed procurement orders in its regular operations. Profit-seeking banks will naturally follow suit, funding government-backed enterprises to fulfill their "patriotic duty." In fact, representatives from both parties will eagerly argue why companies in their own districts should receive Department of Defense orders.

Since this credit creation model can bypass political resistance, how can we protect our portfolio from the ensuing inflationary erosion?

II. Crypto Bubble

Politicians are well aware: stimulating credit growth to drive "critical" industries will inevitably cause inflation. The real challenge is guiding excess credit to inflate an asset bubble that will not undermine societal stability. If wheat prices surged as wildly as Bitcoin has in the past 15 years, most governments would have long been overthrown by the people. Therefore, governments encourage the populace—these groups whose actual purchasing power is continuously shrinking—to participate in the credit game by investing in government-endorsed inflation-resistant assets.

Let's look at a non-crypto example in the real world: since the late 1980s, China's banking system has created the largest scale of credit in the shortest time in the history of human civilization, mainly channeled to state-owned enterprises. They successfully built globally low-cost, high-quality factories, and today one-third of the world's industrial products are made in China. If you still think Chinese manufacturing is of poor quality, you might want to test drive a BYD and then compare it to a Tesla.

From 1996 to present, China's M2 money supply has surged by 5000%. Commoners seeking to escape credit inflation face extremely low bank deposit rates, so they flock to the real estate market—a strategy encouraged by the government's urbanization efforts. By 2020, the continuously rising house prices effectively suppressed people's desire to hoard physical goods. Measured by the income-to-house price ratio, the house prices in China's first-tier cities (Beijing, Shanghai, Shenzhen, Guangzhou) are among the highest globally.

Land prices have increased by 80 times in 19 years, with a compound annual growth rate of 26%.

This type of housing price inflation has not shaken social stability because ordinary middle-class comrades can purchase at least one apartment through loans. Thus, everyone is involved. A crucial secondary effect is that local governments mainly fund social services by selling land to developers, who then build apartments to sell to the public. As house prices rise, land prices and land sales tax revenues increase in sync.

Perhaps we can draw the following conclusion: The Trump administration's excessive credit growth must fuel a bubble that allows both ordinary people to make money and provides funding for the government. The bubble that the Trump administration is about to create will have cryptocurrency at its core. Before delving into how the crypto bubble will help achieve the Trump administration's policy goals, let me first explain why, as the U.S. moves towards a fascist economic model, Bitcoin and cryptocurrency will surge.

I have created a custom index named <.BANKUS Index> on the Bloomie platform (in white). This index combines the banking reserves held by the Federal Reserve System with the sum of other deposits and liabilities in the banking system, serving as an alternative indicator of loan growth. Bitcoin is highlighted in gold, and both benchmark lines are set at 100 basis points in January 2020. As credit doubles, Bitcoin has seen a 15x increase — its fiat price is highly leveraged to credit expansion. At this point, no retail or institutional investor can deny: if you believe more fiat will be printed in the future, Bitcoin is the best investment target.

Trump and Bessemer have also been conquered by the "orange pill" (i.e., Bitcoin). From their perspective, the most significant advantage of Bitcoin and cryptocurrency is that the ownership of cryptocurrency by groups traditionally not holding stocks (young people, low-income individuals, and non-white individuals) now exceeds that of wealthy white baby boomers. Therefore, the prosperity of cryptocurrency will garner broader and more diverse support for the ruling party's economic agenda. More crucially, according to the latest executive order, to encourage various savings to flow into the crypto space, 401k retirement plans are now explicitly allowed to invest in crypto assets — these plans manage about $8.7 trillion in assets. It's like an instant takeoff!

The ultimate move is the cryptocurrency capital gains tax exemption proposal put forward by the "Trump Emperor." Trump is pushing for: war-driven insane credit expansion + regulatory green light for pension fund market entry + full tax exemption policy. It's truly a cause for celebration!

All of this may seem perfect, but there is one fatal problem: the government must issue more debt to fulfill guarantees made to private companies for procurement by departments such as defense. Who will take over this debt? Cryptocurrency will once again emerge as the winner.

Once capital enters the crypto market, it generally does not leave. If investors want to wait and see temporarily, they can hold USD-pegged stablecoins like USDT. And in order to earn custody funds income, USDT must invest in the safest traditional financial interest-bearing instruments: short-term government bonds. These bonds have a term of less than one year, almost zero interest rate risk, and liquidity comparable to cash. The US government can print money indefinitely for free, nominally never facing default. The current short-term bond yield is between 4.25% and 4.50%. Therefore, the higher the total crypto market capitalization, the more funds stablecoin issuers will attract — ultimately, most of these custody funds will flow into the short-term government bond market.

On average, for every $1 increase in the total cryptocurrency market cap, $0.09 flows into stablecoins. Assuming Trump successfully drives the crypto market cap to $100 trillion by the end of his term in 2028 — a 25x increase from current levels — if you think this is impossible, it only shows your shallow understanding of the crypto market. By then, global inflows will cause stablecoin issuers to have around $9 trillion in short-term Treasury purchasing power.

Looking back at history, the Federal Reserve and Treasury dramatically increased short-term Treasury issuance instead of long-term bonds to fund America's participation in World War II.

Today, Trump and Bezos have completed a perfect loop:

1. They built an American-style fascist economic system to produce the wartime supplies needed for indiscriminate bombing;

2. The credit-fueled financial asset inflation impulse directly pointed to cryptocurrency, and the price of cryptocurrency has been soaring, enabling many people to gain immense profits, feeling wealthier. They will vote for the Republican Party in 2026 and 2028... unless they have teenage daughters... but the grassroots always vote with their wallets.

3. The booming cryptocurrency market has brought massive inflows into stablecoins pegged to the US dollar. These issuing institutions invest the US dollar stablecoins they custody in newly issued Treasury bonds to offset the ever-expanding federal deficits.

4. The drums beat loudly, with credit limits continuing to rise. Why aren't you fully investing in cryptocurrency? Don't be scared by tariffs, war, or various social issues.

III. Trading Strategy

Very simple: Maelstrom is already fully invested. Because we are degens, the altcoin market offers an opportunity beyond Bitcoin (crypto reserve asset).

The upcoming Ethereum bull market will completely reshape the market. Since Solana surged from $7 to $280 from the ashes of FTX, Ethereum has become the most hated large-cap cryptocurrency. But now it's different — Western institutional investors led by Tom Lee have fallen in love with Ethereum. Regardless, buy first and think later. Or you can choose not to buy, then act like a bitter sourpuss, hiding in a nightclub corner sipping on weak beer, watching a group of people you think are less intelligent than you spending money on sparkling water at the next table. This is not financial advice, so do as you please. Maelstrom's strategy is: All in on Ethereum, All in on DeFi, All in on ERC-20 altcoins driving the degen ecosystem.

My End-of-Year Price Targets:

Bitcoin: $250,000

Ethereum: $10,000

Original Article Link

Welcome to join the official BlockBeats community:

Telegram Subscription Group: https://t.me/theblockbeats

Telegram Discussion Group: https://t.me/BlockBeats_App

Official Twitter Account: https://twitter.com/BlockBeatsAsia