This article is also available in Spanish.
In his latest work article Titled “Black or White?”, Arthur Hayes, co-founder and former CEO of cryptocurrency exchange BitMEX, provides an analysis predicting that Bitcoin could rise to $1 million. Hayes argues that upcoming US economic policies under Donald Trump’s second term could pave the way for unprecedented growth in Bitcoin.
Hayes compares the economic strategies of the United States and China, coining the term “American capitalism with Chinese characteristics.” He notes that the United States, similar to the approach adopted by China under Deng Xiaoping and continued under Xi Jinping, is moving toward a system where the government’s primary goal is to retain power, regardless of whether policies are capitalist, socialist, or fascist.
Why was the fiat system broken
“Like Deng, the elite that governs the Pax Americana cares not about whether the economic system is capitalist, socialist, or fascist, but whether the policies implemented help them maintain their power,” Hayes writes. He asserts that America stopped being purely capitalist in the early twentieth century, noting that “capitalism means that the rich lose their money when they make bad decisions. This was banned as early as 1913 when the US Federal Reserve Bank was created.
Hayes criticizes the historic shift from “trickle-down economics” to direct stimulus measures, especially those implemented during the COVID-19 pandemic. It distinguishes between “quantitative easing for the rich” and “quantitative easing for the poor,” and highlights how direct stimulus to the general population has stimulated economic growth, while quantitative easing has primarily benefited wealthy asset owners.
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“From the second quarter of 2020 through the first quarter of 2023, Presidents Trump and Biden bucked this trend. Treasury departments issued debt that the Fed purchased using printed dollars (QE), but instead of delivering them to wealthy individuals, the Treasury mailed checks to everyone. This led to a decline in the debt-to-nominal GDP ratio in the United States, with the increasing purchasing power of the average citizen stimulating real economic activity.
Looking ahead, Hayes expects that Trump’s return to power will lead to policies focused on bringing critical industries back to the United States, financed by broad government spending and bank credit growth. He points to Scott Bassett, who he believes will be Trump’s choice for Treasury Secretary, noting that Bassett’s speeches outline plans to “turn on nominal GDP by providing government tax credits and subsidies to re-support critical industries.”
“The plan is to boost nominal GDP by providing government tax breaks and subsidies to re-support critical industries (shipbuilding, semiconductor factories, car manufacturing, etc.) Eligible companies will then receive cheap bank financing,” says Hayes. .
He warns that such policies would lead to significant inflation and currency depreciation, which would negatively affect holders of long-term bonds or savings deposits. To hedge against this, Hayes advocates investing in assets such as Bitcoin and gold. “Instead of saving in paper bonds or bank deposits, buy gold (a boom hedge) or Bitcoin (a millennial hedge),” he advises.
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Hayes supports his argument by analyzing the mechanisms of monetary policy and the creation of bank credit. It shows how “quantitative easing for the poor” can stimulate economic growth by increasing consumer spending, as opposed to “quantitative easing for the rich,” which inflates asset prices without contributing to real economic activity.
“Quantitative easing for the poor stimulates economic growth. The Treasury, which distributed pensions, encouraged the public to purchase trucks. Given the demand for goods, Ford was able to pay the salaries of its employees and apply for a loan to increase production.”
Furthermore, Hayes discusses potential regulatory changes, such as exempting banks from the additional leverage ratio (SLR), which would enable them to purchase an unlimited amount of government debt without additional capital requirements. He believes that this would pave the way for “endless quantitative easing” directed at productive sectors of the economy.
“If Treasuries, central bank reserves and/or approved corporate debt securities were exempt from the rate of rise in the standard of living, the bank could buy an infinite amount of debt without having to encumber itself with any expensive stocks,” he explains. “The Fed has the authority to grant relief. They did just that from April 2020 to March 2021.
How can Bitcoin reach $1 million?
Hayes believes that the combination of aggressive fiscal policies and regulatory changes will lead to an explosion in bank credit, leading to higher inflation and a weaker US dollar:
The combination of legislated industrial policy and relief from sea level rise would lead to a flood of bank credit. I have already shown how the monetary velocity of such policies is much faster than the velocity of traditional QE for the wealthy overseen by the Fed. Therefore, we can expect Bitcoin and cryptocurrencies to perform as well, if not better, than they did from March 2020 through November 2021.
In such an environment, he asserts that Bitcoin will benefit the most due to its scarcity and decentralized nature. “This is how Bitcoin gets to $1 million, because prices are determined on the margin. As the freely circulating supply of Bitcoin dwindles, most fiat money in history will chase a safe haven.” Hayes supports this claim by pointing to his A provision that tracks the credit supply of US banks, showing that Bitcoin has outperformed other assets when adjusted for bank credit growth.
“What is important (..) is how the asset performs when it shrinks due to bank credit supply. I have Bitcoin (white), S&P 500 (gold), and gold (green) split on my bank credit index. The values are indexed to 100, and as You can see, Bitcoin is the standout performer, up more than 400% since 2020. If you can do only one thing to counter the depreciation of fiat currencies, it’s Bitcoin “You can’t argue with math,” he stresses.
In concluding his article, Hayes urges investors to take an appropriate stance in anticipation of these macroeconomic shifts. “Get long, stay long. If you doubt my analysis of the impact of quantitative easing on the poor, just read Chinese economic history over the past thirty years, and you will understand why I call the new economic order “Pax Americana,” “American capitalism.” With Chinese characteristics, it is recommended.
At press time, Bitcoin was trading at $87,660.
Featured image from YouTube, chart from TradingView.com