In his latest essay titled “Black or White?” Arthur Hayes, co-founder and former CEO of BitMEX, offers a compelling analysis predicting that Bitcoin could soar to $1 million. He bases this forecast on anticipated U.S. economic policies during a potential second term for Donald Trump, which he believes could set the stage for an unprecedented surge in Bitcoin’s value.
Hayes draws intriguing parallels between the economic strategies of the United States and China, coining the term “American Capitalism with Chinese Characteristics.” He suggests that, akin to China’s approach under Deng Xiaoping and continued by Xi Jinping, the United States is shifting towards a system where the government’s primary objective is to retain power, irrespective of whether the policies are capitalist, socialist, or fascist.
“Similar to Deng, the elite that rule Pax Americana care not whether the economic system is Capitalist, Socialist, or Fascist, but whether implemented policies help them retain their power,” Hayes writes, emphasizing that America ceased being purely capitalist in the early 20th century. He notes, “Capitalism 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.”
Hayes critiques the historical move from “trickle-down economics” to direct stimulus measures, particularly during the COVID-19 pandemic. He differentiates between “QE for the rich” and “QE for the poor,” noting how direct stimulus to the general population spurred economic growth, in contrast to quantitative easing, which mainly benefited wealthy asset holders.
“From 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,” he explains. This resulted in a decrease in the US debt-to-nominal GDP ratio, as the increased spending power of the average citizen boosted real economic activity.
Looking forward, Hayes anticipates that Trump’s return to power will bring policies focused on re-shoring critical industries to the US, funded by expansive government spending and bank credit growth. He references Scott Bassett, whom he believes will be Trump’s pick for Treasury Secretary. Bassett’s speeches outline plans to “run nominal GDP hot by providing government tax credits and subsidies to re-shore critical industries.”
“The 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,” Hayes states.
Hayes warns that such policies would lead to significant inflation and currency debasement, negatively impacting holders of long-term bonds or savings deposits. To hedge against this, he advocates for investing in assets like Bitcoin and gold. “Instead of saving in fiat bonds or bank deposits, purchase gold (the boomer financial repression hedge) or Bitcoin (the millennial financial repression hedge),” he advises.
Supporting his argument, Hayes analyzes the mechanics of monetary policy and bank credit creation. He illustrates how “QE for the poor” can stimulate economic growth through increased consumer spending, unlike “QE for the rich,” which inflates asset prices without fostering real economic activity.
“QE 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,” he elaborates.
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 “infinite QE” directed at productive sectors of the economy.
“If Treasuries, central bank reserves, and/or approved corporate debt securities were exempted from the SLR, a bank could purchase an infinite amount of debt without having to encumber themselves with any expensive equity,” he explains. “The Fed has the power to grant an exemption. They did just that from April 2020 to March 2021.”
Hayes believes that the combination of aggressive fiscal policies and regulatory changes will result in a surge of bank credit, leading to higher inflation and a weakening US dollar. He asserts that in such an environment, Bitcoin stands to benefit the most due to its scarcity and decentralized nature. “This 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,” he predicts.
Backing this claim, Hayes references his custom index tracking US bank credit supply, demonstrating that Bitcoin has outperformed other assets when adjusted for bank credit growth. “What 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’t argue with the math,” he asserts.
In concluding his essay, Hayes urges investors to position themselves accordingly in anticipation of these macroeconomic shifts. “Get 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 ‘American Capitalism with Chinese Characteristics,'” he advises.
At press time, BTC was trading at $87,660 on TradingView.com.
