Arthur Hayes, co-founder and former CEO of BitMEX, said in his latest article published on the 26th that many readers and encryption keyboard warriors often criticized him for getting everything wrong, but he believes that if we look back at the events from November 2023 to the present, Judging from the performance record, short-term macroeconomic forecasts are not important, so what if they are struck out? The point is "I still make money."
The following is the key translation of Arthur Hayes’ original text by Block Guest:
Today, we will discuss cryptocurrency volatility and its absence in TradFi. I want to discuss how the elites print money to create a calm economy. And, I want to talk about how Bitcoin is a release valve for printing fiat currency in an attempt to suppress volatility to unnatural levels. But first, I want to illustrate the point that short-term macroeconomic forecasts don't matter by reviewing my track record from November 2023 to today.
It's better to open it 50-50
Many readers and Crypto-X keyboard warriors often lambast me for getting everything wrong. How did I perform on big conference calls over the past year?
November 2023 (win +1): I wrote an article titled "Bad Gurl". In this article, I predict that U.S. Treasury Secretary Yellen will issue more Treasury bills (T-bills) to drain funds from the Fed's reverse repurchase program (RRP). Liquidity is injected into the economy.
From November 2023 to March 2024, MSRP (white) fell 59%, Bitcoin (gold) rose 77%, the S&P 500 (green) rose 21%, and gold (magenta) rose 5%. The index of each dataset is 100 .
I added more cryptocurrency exposure after reading the contents of the U.S. Treasury Department’s Quarterly Refund Announcement (QRA). In hindsight, it was a great decision.
March 2024 (Loss +1): In my article Yellen or Tolkien, I assumed that BTFP would not be updated due to its obvious inflationary element. I don't think allowing banks to enter the discount window will be enough to avoid another US banking crisis that is not too big to fail (TBTF).
The expiration of BTFP did not have a significant impact on the market. I lost money on a small position in Bitcoin puts.
April 2024 (Win +1): In my article “Heat Wave,” I predicted that tax season in the United States would cause cryptocurrency prices to drop as U.S. dollar liquidity disappears from the system. Specifically, I said I would hold off on adding any additional cryptocurrency exposure between April 15th and May 1st.
Between April 15 and May 1, RRP (white) was up 33%, Bitcoin (gold) was down 9%, the S&P 500 (green) was down 1%, and gold (magenta) was down 3%. The index of each dataset is 100 .
May 2024 (Loss +2):
Just in time for the northern hemisphere's summer vacation, I published Mayday based on several macroeconomic factors. I have these predictions: (1) Did Bitcoin hit a local low around $58,600 earlier this week? Yes. (2) What is your price prediction? The price rebounded above $60,000 before swinging between $60,000 and $70,000 until August.
Bitcoin hit a low of around $54,000 on August 5 as a round of dollar-yen carry trade unwinding took place. My grades dropped 8%.
During this time, Bitcoin’s price range ranged from approximately $54,000 to $71,000.
I did add some altcoin exposure during the weak period over the summer. Some of the tokens I purchased are trading for less than the price I paid for them, some more.
June and July 2024 (loss +1):
When Japan's fifth-largest bank admitted huge losses on its foreign bonds, I wrote an article on the importance of the dollar-yen exchange rate titled "Shikata Ga Nai." I predict that the Bank of Japan will not raise interest rates because this would endanger the banking system. This turned out to be a naive assumption. On July 31, the Bank of Japan raised interest rates by 0.15%, triggering a vicious unwinding of the U.S. dollar-yen carry trade. I tracked the unwinding mechanics of the USD/JPY carry trade in my article Spirited Away.
While USDJPY proved to be the most important macroeconomic variable, I was wrong about the Bank of Japan. The policy response was not what I expected. The Bank of Japan did not provide U.S. dollars through the central bank's swap line, but assured the market that it would not raise interest rates or adjust its money printing policy if it would lead to increased market volatility.
August 2024 (loss +1):
Two big events happened this month: the release of the U.S. Treasury’s QRA for Q3 2024, and Powell’s pivot to jobs data at Jackson Hole.
I predict that Yellen's net reissuance of Treasury bonds will provide dollar liquidity to the market. But the two forces turned against each other after Powell pivoted to confirming a rate cut in September. Initially, I thought net Treasury issuance would increase liquidity as it would drain RRP to zero, but then Treasury yields fell below RRP and I predicted RPP would rise and drain liquidity.
I didn't expect Powell to cut rates before the election and risk a burst of inflation when voters go to the polls.
After the Jackson Hole meeting, the RRP (reverse repurchase agreement) balance increased directly and re-entered the upward trajectory. So, I still think that as Treasury yields continue to fall, it will be a slight drag on liquidity as the market anticipates further rate cuts from the Fed at its November meeting.
The results are yet to be determined; it's too early to tell whether I'm right.
September 2024 (loss +1):
When I left the Patagonian mountains, I wrote an article, "The Age of Boom…Delayed," and was on the speaking circuit at Korea Blockchain Week and Singapore Token2049, predicting what the market would do if the Fed cut interest rates. Negative reaction. Specifically, I argue that a narrowing of USD/JPY spreads will lead to further yen strength and reignite carry trade unwinding. This will cause global markets, including cryptocurrencies, to fall, ultimately requiring the printing of more money for Humpty Dumpty to regroup.
The Federal Reserve cut interest rates and the Bank of Japan kept interest rates unchanged, narrowing interest rate spreads; however, the yen weakened against the U.S. dollar and risk markets performed well.
Based on the above results, there were 2 correct predictions and 6 incorrect predictions. So the accuracy is 0.250. This is too bad for the average person, but as the great Henry “Hank” Louis Aaron said, “My motto has always been to keep swinging. No matter where I’m at, Sluggish, not feeling great, or having trouble off the field, the only thing to do is keep swinging." With a lifetime batting average of 0.305, Aaron is considered one of the best baseball players of all time.
So, so what if I strike out, I still make money. Why?
Huge assumptions
The exercise I do when I write these macro articles is to try to predict the specific events that will lead to policy responses from our corrupt people in power. We know that they were unable to cope with any kind of volatility in financial markets because the entire post-1971 Bretton Woods trading and financial system was too highly leveraged. We — and I mean the traditional finance (TradFi) stooges and the Satoshi disciples — all agree that when things get really, really bad, the “Brrrr” button is pushed. This has always been their policy response.
If I could predict triggers beforehand, my self-esteem would get a boost and maybe I'd be able to shave off some extra profits by being a little ahead of time. But as long as my portfolio can profit from printing fiat currency to dampen the natural fluctuations of human civilization, even if every one of my event-driven predictions is wrong, it doesn't matter as long as the policy response is as expected.
Next, I’ll show you two charts to help understand the sheer amount of fiat that will be needed to keep volatility at all-time lows.
Volatility
Beginning in the late 19th century, the elites who controlled the world's governments struck a deal with ordinary people. If ordinary people surrender more and more freedoms, the "smart" people who run the country will create a calm universe by suppressing entropy, chaos, and fluctuations. As the decades progressed and the role of government grew in importance in every citizen's life, maintaining an ever-increasing semblance of order became prohibitively expensive as our knowledge of the universe increased and the world grew more complex.
Previously, the books of several authors were regarded as authoritative sources of truth about the workings of the universe. They kill or ostracize anyone who does science. But as we break away from the shackles of organized religion and think critically about the universe we inhabit, we realize that we know nothing and that there is more to it than just reading the Bible, the Torah, and the Koran. What other books believe is much more complex. As a result, people turned to politicians (mostly men, a few women) who replaced priests, rabbis, and imams (always men), offering a way of life that promised security and an understanding of the workings of the universe. frame. However, whenever volatility surges, the response is to print money and cover up the various problems that exist in the world to avoid admitting that no one knows what will happen in the future.
Just like when you hold an inflated ball underwater, the energy required to maintain its position increases the deeper you push the ball. The global distortions are so extreme, especially for American hegemony, that the amount of printed money required to maintain the status quo is growing rapidly every year. This is why I can confidently say that the amount of money required to be printed between now and the eventual system reset will far exceed the total amount printed from 1971 to the present. This is just a law of mathematics and physics.
The first chart I'll show is the MOVE Index (white), which measures volatility in the U.S. bond market versus the federal funds cap rate (green). As you know, I think volume is more important than price, but in this case, using price paints a very clear picture.
Some of you may remember the rise and crash of the tech bubble in 2000. As you can see, the Fed will raise interest rates to pop the bubble until something goes wrong. Bond market volatility surged after the 9/11 attacks in 2000 and 2001. Once volatility rises, the Fed cuts interest rates. After volatility fell, the Fed thought it could normalize interest rates, however, they punctured the subprime real estate market, leading to the 2008 Global Financial Crisis (GFC). Interest rates were quickly cut to zero for nearly seven years to suppress volatility. Once again it was time to normalize interest rates, and then COVID happened, which caused the bond market to crash and volatility to surge. The Fed cut interest rates to zero as a result. COVID-fueled inflation ignited bond markets starting in 2021, leading to increased volatility. The Fed raised interest rates to curb inflation but had to stop during the non-"too big to fail" banking crisis in March 2023. Finally, the current Fed easing cycle occurs during a period of heightened volatility in bond markets. If 2008 to 2020 were considered “normal,” current bond market volatility is nearly twice our comfort level.
Let's introduce a dollar volume indicator. The red line is an approximation of total bank credit, which consists of excess bank reserves and other deposits and liabilities (ODL) held by the Fed, which is a good indicator of commercial bank loan growth. Remember from basic economics courses that it is the banking system that creates money by issuing credit. As the Fed engaged in quantitative easing (QE), excess reserves increased, and as banks issued more loans, ODL also increased.
As you can see, 2008 was a major turning point. The financial crisis was so huge that the scale of the credit money spurt obscured what happened when the tech bubble collapsed after 2000. No wonder our Lord and Savior Satoshi Nakamoto created Bitcoin in 2009. Since then, the total amount of bank credit has never completely decreased. This fiat credit cannot be extinguished or the system will collapse under its own weight. Furthermore, in every crisis, banks must create more and more credit to suppress volatility.
I could show a similar chart showing FX volatility for USD/CNY, USDJPY, EURJPY, etc. versus government debt levels, central bank balance sheets, and bank credit growth. relation. In comparison, they are not as clear as the chart I just showed. U.S. hegemony cares about bond market volatility because it is the asset that supports the global reserve currency, the U.S. dollar. All other allies, vassals, and enemies are concerned with the volatility of their own currencies relative to the U.S. dollar, as this affects their ability to trade with the world.
reaction
All of this fiat currency has to go somewhere, and Bitcoin and cryptocurrencies are the release valve for this flow. The fiat currency needed to curb volatility will flow into cryptocurrencies. Assuming the technology behind the Bitcoin blockchain is sound, Bitcoin will always benefit from elites continuing to try to defy the laws of physics. There has to be an equalizer; you can't create something from nothing. In this modern digital world, Bitcoin happens to be the most technologically reliable way to counterbalance the profligate behavior of the ruling elite.
As an investor, trader, and speculator, your goal is to acquire Bitcoin at the lowest cost. This could mean pricing your hourly labor in Bitcoin, putting excess cheap energy into Bitcoin mining, borrowing fiat currency at low interest rates and buying Bitcoin (calling Michael Saylor), or using a portion of your fiat savings to buy Bitcoin. The volatility between Bitcoin and fiat currencies is your asset, don't waste it by using leverage to buy Bitcoin you plan to hold for the long term.
Are there any risks?
It is very difficult to profitably speculate on short-term price fluctuations. As you can see from my track record, my success rate is 2 to 6. If I were going long and short every time I made a call, Maelstrom would probably be broke by now. Randall and Kyle Davies are right; there is indeed a supercycle in terms of elites suppressing volatility. They were impatient and borrowed fiat currency to buy more Bitcoin, and as the cost of fiat currency funding changed (which always happens), they got stuck and lost everything. However, that's not all - I saw photos of Randall throwing lavish parties at his mansion in Singapore. But don't worry - it was in his children's names to avoid being garnished by the bankruptcy court.
Assuming you don't abuse fiat currency leverage, the real risk is that volatility will return to natural levels when the elite can no longer suppress it. At that point, the system will reset. Will this be a revolution like in Bolshevik Russia, where bourgeois holders are completely wiped out, or, as is more often the case, one group of corrupt elites is replaced by another, and popular suffering continues under the new "ism"? Everything will fall anyway, and Bitcoin will fall even less relative to the ultimate asset: energy. Even though your overall wealth decreases, you still outperform others. Sorry, nothing in the universe is without risk. Security is an illusion, one peddled by charlatans eager to get you to vote on Election Day.
Trading strategies
USA:
We know from the Fed's historical response to "high volatility" that once it starts cutting interest rates, it usually doesn't stop until rates are close to 0%. In addition, bank credit growth must accelerate with interest rate cuts. I don't care how "strong" the economy is, how low the unemployment rate is, or how high inflation is, the Fed will keep cutting rates and the banking system will free up more dollars. From now until the foreseeable future, no matter who wins the US presidential election, the government will also continue to borrow as much as possible to win over the people.
European Union:
Unelected EU bureaucrats are destroying the economy in a suicidal way, eschewing cheap and abundant Russian energy and dismantling it with “climate change”, “global warming”, “ESG” or other meaningless slogans energy production capacity, thus achieving economic suicide. The European Central Bank will respond to the economic depression by lowering euro interest rates. Governments will begin forcing banks to lend more to local businesses so they can provide jobs and rebuild crumbling infrastructure.
China:
The dollar will weaken as the Federal Reserve cuts interest rates and U.S. banks extend more credit. This allows the Chinese government to accelerate credit growth while maintaining a stable dollar-yuan exchange rate. Chinese President Xi Jinping's main concern about accelerating bank credit growth is the pressure on the yuan to depreciate against the dollar. If the Fed prints money, the People's Bank of China (PBOC) can also print money. This week, the People's Bank of China announced a series of interest rate cuts across the country's monetary system. This is just the beginning; the real “final” will come when Xi Jinping instructs banks to extend more credit.
Japan:
If other major economies are now easing monetary policy, there will be less pressure on the Bank of Japan to raise interest rates quickly. Bank of Japan Governor Kazuo Ueda stressed that he will normalize interest rates. But given that other countries are dropping interest rates to low levels, Japan doesn't have to catch up so quickly.
The moral of the story is that global elites are once again trying to dampen the volatility of a country or economic group by lowering the price of money and increasing the quantity of money. If you're already invested in cryptocurrencies, sit back, relax, and watch the fiat value of your portfolio. If you have "spare money", quickly deploy it into cryptocurrency. For Maelstrom, we will accelerate projects that have delayed token issuance due to poor market conditions. We'd love to see those green cross stars in our Christmas stockings. The guys in the fund want to get big bonuses in 2024, so please help them!
〈Arthur Hayes: I’m often scolded by keyboard warriors for being wrong, but I still make money! 〉This article was first published in "Block Guest".
