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In his latest essay<\/a> titled \u201cBlack or White?\u201dArthur Hayes, co-founder and former CEO of crypto exchange BitMEX, lays out an analysis predicting that Bitcoin could soar to $1 million. Hayes argues that forthcoming US economic policies under the second term of Donald Trump could set the stage for unprecedented Bitcoin growth.<\/p>\n Hayes draws parallels between the economic strategies of the United States and China, coining the term \u201cAmerican Capitalism with Chinese Characteristics.\u201d He suggests that, similar to China\u2019s approach under Deng Xiaoping and continued by Xi Jinping, the US is moving toward a system where the government\u2019s primary goal is to retain power, regardless of whether policies are capitalist, socialist, or fascist.<\/p>\n \u201cSimilar to Deng, the elite that rule Pax Americana<\/a> care not whether the economic system is Capitalist, Socialist, or Fascist, but whether implemented policies help them retain their power,\u201d Hayes writes. He emphasizes that America ceased being purely capitalist in the early 20th century, noting, \u201cCapitalism means that the rich lose money when they make bad decisions. That was outlawed as early as 1913 when the US Federal Reserve was created.\u201d<\/p>\n Hayes critiques the historical shift from \u201ctrickle-down economics\u201d to direct stimulus measures, particularly those implemented during the COVID-19 pandemic. He distinguishes between \u201cQE for the rich\u201d and \u201cQE for the poor,\u201d highlighting how direct stimulus to the general population spurred economic growth, whereas quantitative easing primarily benefited wealthy asset holders.<\/p>\n \u201cFrom 2Q2020 until 1Q2023, Presidents Trump and Biden bucked the trend. Their Treasury departments issued debt that the Fed purchased using printed dollars (QE), but instead of handing it out to rich [individuals], the Treasury mailed checks out to everyone,\u201d he explains. This led to a decrease in the US debt-to-nominal GDP ratio, as the increased spending power of the average citizen stimulated real economic activity.<\/p>\n Looking ahead, Hayes anticipates that Trump\u2019s return<\/a> to power will usher in policies focused on re-shoring critical industries to the US, financed by expansive government spending and bank credit growth. He references Scott Bassett, whom he believes will be Trump\u2019s pick for Treasury Secretary, noting that Bassett\u2019s speeches outline plans to \u201crun nominal GDP hot by providing government tax credits and subsidies to re-shore critical industries.\u201d<\/p>\n \u201cThe plan is to run nominal GDP hot by providing government tax credits and subsidies to re-shore critical industries (shipbuilding, semiconductor fabs, auto manufacturing, etc.). Companies that qualify will then receive cheap bank financing,\u201d Hayes states.<\/p>\n He warns that such policies would lead to significant inflation and currency debasement, adversely affecting holders of long-term bonds or savings deposits. To hedge against this, Hayes advocates for investing in assets like Bitcoin and gold. \u201cInstead of saving in fiat bonds or bank deposits, purchase gold<\/a> (the boomer financial repression hedge) or Bitcoin (the millennial financial repression hedge),\u201d he advises.<\/p>\n Hayes supports his argument by analyzing the mechanics of monetary policy and bank credit creation. He illustrates how \u201cQE for the poor\u201d can stimulate economic growth through increased consumer spending, as opposed to \u201cQE for the rich,\u201d which inflates asset prices without contributing to real economic activity.<\/p>\n \u201cQE for poor people stimulates economic growth. The Treasury handing out stimmies encouraged the plebes to buy trucks. Due to the demand for goods, Ford was able to pay its employees and apply for a loan to increase production,\u201d he elaborates.<\/p>\n Furthermore, Hayes discusses potential regulatory changes, such as exempting banks from the Supplemental Leverage Ratio (SLR), which would enable them to purchase an unlimited amount of government debt without additional capital requirements. He argues that this would pave the way for \u201cinfinite QE\u201d directed at productive sectors of the economy.<\/p>\n \u201cIf Treasuries, central bank reserves, and\/or approved corporate debt securities were exempted from the SLR, a bank could purchase an infinite amount of debt<\/a> without having to encumber themselves with any expensive equity,\u201d he explains. \u201cThe Fed has the power to grant an exemption. They did just that from April 2020 to March 2021.\u201d<\/p>\n Hayes believes that the combination of aggressive fiscal policies and regulatory changes will result in an explosion of bank credit, leading to higher inflation and a weakening US dollar:<\/p>\n The combination of legislated industrial policy and the SLR exemption will result in a gusher of bank credit. I have already shown how the monetary velocity of such policies is much higher than that of traditional QE for rich people overseen by the Fed. Therefore, we can expect that Bitcoin and crypto will perform as well, if not better, than they did from March 2020 until November 2021.<\/strong><\/p>\n<\/blockquote>\n In such an environment, he asserts that Bitcoin stands to benefit the most due to its scarcity and decentralized nature. \u201cThis is how Bitcoin goes to $1 million, because prices are set on the margin. As the freely traded supply of Bitcoin dwindles, the most fiat money in history will be chasing a safe haven,\u201d he predicts. Hayes backs this claim by referencing his custom index that tracks US bank credit supply, demonstrating that Bitcoin has outperformed other assets when adjusted for bank credit growth.<\/p>\n \u201cWhat is [..] important is how an asset performs when deflated by the supply of bank credit. Bitcoin (white), the S&P 500 Index (gold), and gold (green) have all been divided by my bank credit index. The values are indexed to 100, and as you can see, Bitcoin is the standout performer, rising over 400% since 2020. If you can only do one thing to counter the fiat debasement, it is Bitcoin. You can\u2019t argue with the math,\u201d he asserts.<\/p>\n In concluding his essay, Hayes urges investors to position themselves accordingly in anticipation of these macroeconomic shifts. \u201cGet long, and stay long. If you doubt my analysis of the impact of QE for poor people, just read up on the Chinese economic history of the past thirty years, and you will understand why I call the new economic system of Pax Americana, \u201cAmerican Capitalism with Chinese Characteristics,\u201d he advises.<\/p>\n At press time, BTC traded at $87,660.<\/p>\n Featured image from YouTube, chart from TradingView.com<\/p>\n<\/p><\/div>\nWhy The Fiat System Is Broken<\/h2>\n
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How Bitcoin Could Reach $1 Million<\/h2>\n
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