This episode features Arthur Hayes dissecting the seismic shifts in global monetary policy, predicting how US capital controls will supersede tariffs, and forecasting a future where money printing sends Bitcoin and gold to unprecedented highs.
Understanding ETH's Recent Surge
- Arthur Hayes, a prominent macro investor and former CEO of BitMEX, attributes Ethereum's (ETH) recent 50% price increase primarily to market sentiment. He suggests that ETH, having been a "hated asset" for a considerable period while assets like Solana saw massive gains, was due for a rebound.
- Hayes humorously dismisses specific technical catalysts like the "Petra upgrade" or Vitalik Buterin's increased social media activity as primary drivers, stating, "There's like no other explanation for this. There's nothing that user saluts have found in the order books or anything."
- While acknowledging the positive price movement, Hayes remains focused on more significant price targets, indicating that the real conversation begins when ETH reaches $10,000 or $15,000.
- Strategic Implication: For investors, this highlights the role of sentiment cycles in crypto markets. Assets that have underperformed or faced negative sentiment can experience rapid reversals, suggesting that contrarian views can be profitable.
The Evolving Global Monetary Structures: A Historical Perspective
- Ryan, the host, sets the stage by referencing Arthur Hayes's thesis that we are in a transition to a new monetary system, a phase change that figures like Donald Trump are accelerating.
- Hayes outlines three key monetary structures since World War II:
- Bretton Woods (1944): Established post-WWII, this system pegged global currencies to the US dollar, which was, in turn, pegged to gold. The US promised central banks gold in exchange for dollars. This system aimed to rebuild allied economies and contain Soviet Russia. Hayes notes that John Maynard Keynes had proposed a "customs union" with mechanisms to rectify trade imbalances and capital controls, an idea not adopted at the time but relevant to current discussions.
- Petro Dollar (1971): Following the US delinking the dollar from gold (the "Nixon Shock"), the Petro Dollar system emerged. This system was characterized by an informal but strong link between the US dollar and oil, particularly through a deal with Saudi Arabia to price oil in dollars in exchange for US military support and weapons. Nations needed dollars to buy oil, the lifeblood of modern economies, thus reinforcing the dollar's global dominance.
- Petro Yuan (1994): Hayes identifies a shift around 1994, which he terms the Petro Yuan era. This period saw China and other Asian "Tiger" economies become manufacturing powerhouses, exporting goods and accumulating US Treasuries. These Treasuries were crucial for these export-oriented nations to secure dollar-denominated commodity imports like oil and food. This system was fueled by devaluations (like China's in 1994) and a mercantilist policy of cheap labor, leading to de-industrialization in the West but lower inflation and higher corporate profits.
- Speaker Analysis: Hayes presents a clear, chronological narrative of monetary history, drawing connections between past policy decisions and current economic conditions. His perspective is that these systems have finite lifespans, typically 30-40 years, and we are at another inflection point.
The Current Monetary Phase Change: Financial Repression and National Capitalism
- The discussion posits that the Petro Yuan system is unsustainable, leading to a new monetary phase characterized by financial repression and national capitalism, a concept also discussed by strategist Russell Napier.
- Hayes argues that the Trump administration, and figures like JD Vance, consciously aim to dismantle the post-1971 system where the US Treasury bond was the primary global reserve asset. He states, "effectively US treasuries are no longer the reserve asset and it's... a direct policy choice that Trump and his... council of advisers believe that the post 1971 situation where the US treasury bond was a reserve asset has led to all these bad social situations."
- A distinction is made between the reserve currency (the currency in which goods are priced, e.g., USD) and the reserve asset (what entities hold after earning that currency, e.g., US Treasuries, gold, Bitcoin). The administration's goal is to shift away from Treasuries as the dominant reserve asset.
- Actionable Insight: Investors should understand that a potential shift away from US Treasuries as the primary global reserve asset has profound implications for capital flows and asset valuations, favoring alternatives like gold and Bitcoin.
Tariffs vs. Capital Controls: The Policy Tools for Rebalancing
- Hayes explains that trade account deficits (requiring tariffs to address) are mirrored by capital account surpluses (requiring capital controls).
- Tariffs:
- The Trump administration initially pursued tariffs (e.g., "Liberation Day" tariffs in April, escalating with China) to rectify trade imbalances.
- However, Hayes views tariffs as politically destabilizing. They act as a tax on demand, increasing prices for consumers (e.g., goods from Shein or Temu) without immediately creating higher-paying domestic jobs, leading to voter dissatisfaction.
- The recent 90-day truce on tariffs between the US and China is seen by Hayes as a tacit admission of their political unsustainability. He tweeted "buy everything, chai America lives" in response, suggesting a temporary reprieve but not an end to the underlying "divorce" between US and Chinese economic interests.
- Capital Controls:
- Hayes predicts the administration will pivot to capital controls to achieve the same rebalancing with less immediate political fallout. Capital controls are measures taken by a government to regulate the flow of finance capital into and out of a country.
- He cites economists like Michael Pettis and policy advisors like Steven Mnuchin (referencing a paper by Stephen Miran, Chairman of a Trump economic advisory council) who advocate for capital controls.
- Examples of capital controls could range from "user fees" on foreign ownership of US assets (stocks, bonds, real estate) to more direct restrictions, like Texas banning nationals from certain countries (China, Iran, North Korea, Russia) from buying land.
- Strategic Implication: The shift from tariffs to capital controls is a key prediction. Crypto investors should monitor developments in US capital control policies, as these could significantly impact global capital flows and demand for non-sovereign assets.
The Impact of Capital Controls on Markets and the "Money Printing" Response
- Hayes argues that capital controls, such as a 2% yearly tax on the $33 trillion of foreign-held US assets, could generate substantial revenue (approx. $660 billion), potentially allowing the elimination of income tax for 90% of Americans. This would be a politically popular move.
- The consequence of capital controls is that foreigners would be incentivized to sell US assets (stocks, bonds, property) to avoid these fees or restrictions. This outflow of capital would put downward pressure on US markets.
- Hayes's core thesis emerges: "Again, what do we know happens whenever the markets go down, especially the bond market and the volatility goes up? They print the money."
- To counteract the market downturn caused by capital flight, the Treasury, the Fed, and politicians will be forced to "print money" (i.e., engage in monetary expansion) to provide liquidity and support asset prices.
- This money printing, in turn, will cause gold and Bitcoin to "go through the moon."
- Actionable Insight: If capital controls are implemented, expect initial market volatility in traditional assets, followed by significant monetary stimulus. This environment is highly bullish for scarce, non-sovereign assets like Bitcoin and gold.
The Future Monetary System: A Bipolar World and the Role of Neutral Assets
- The discussion explores the potential for a dual monetary system: a US-led bloc and a China-led bloc. China might bolster its system by acquiring more gold, potentially backing its currency with it.
- Hayes believes that in such an uncertain, fragmented world, rational capital will seek neutral reserve assets. He states, "Why bet on either system when I can say I'm going to hold my money in gold or Bitcoin because then I'm not... taking a bet on either system."
- He is adamant that owning long-duration government bonds is a losing proposition, as these will be the primary instruments of financial repression. Short-term T-bills are seen as cash equivalents, but not long-term stores of value.
- Strategic Implication: Investors should consider diversifying into assets like gold and Bitcoin that are not tied to the fate of any single national currency or monetary system. The traditional 60/40 portfolio is likely to underperform significantly.
The Fed's Role and the Inevitability of Quantitative Easing (QE)
- Hayes dismisses the public rhetoric of Fed officials like Jerome Powell regarding fighting inflation as "Kabuki theater." He points to the Fed's actions, such as buying 10-year bonds within a supposed Quantitative Tightening (QT) regime, as evidence of their true mandate: funding the US government. Quantitative Easing (QE) is a monetary policy where a central bank injects liquidity into money markets by purchasing assets without the goal of lowering the policy interest rate. Quantitative Tightening (QT) is the reverse, where a central bank reduces its balance sheet.
- He highlights that influential figures like Jamie Dimon project the restart of QE by 2026.
- The Move Index, a measure of bond market volatility, is a key indicator. When it spikes (e.g., above 135-140), it triggers immediate policy responses aimed at calming markets, often involving liquidity injections.
- Actionable Insight: Do not take Fed pronouncements at face value. Focus on their actions and the underlying pressures forcing them towards monetary expansion. High bond market volatility (Move Index) is a leading indicator of impending liquidity injections.
Stablecoins, Crypto Regulation, and Global Liquidity
- Stablecoins: While acknowledging the US government's growing interest in stablecoins (with Treasury officials like Scott Bessant discussing their potential), Hayes is skeptical that they will solve the Treasury's funding problems unless regulations force stablecoin issuers to buy long-duration bonds, not just short-term T-bills.
- Crypto Regulation: Hayes criticizes the current push for crypto regulation in the US, arguing it primarily benefits large, centralized incumbents like Coinbase and BlackRock by creating regulatory moats. He advocates for a "permissionless innovation" approach, similar to the early days of the internet, to truly make America a crypto hub. "Trump doesn't have a ideology around crypto. He just wants to win. And if you say, 'Do this and you win,' then he'll do it."
- Global Liquidity: Hayes emphasizes that global liquidity is the primary driver for Bitcoin's price ("Bitcoin is technology plus liquidity"). He monitors liquidity by looking at metrics like excess reserves at the Fed, bank lending, and the fiscal policies of major economic blocs (US, China, Japan, EU), rather than a single indicator like M2.
- Strategic Implication: While regulatory clarity might seem positive, investors should be aware of how it could favor incumbents. The overarching driver for crypto remains global liquidity expansion, which current policies are likely to necessitate.
Market Outlook and Portfolio Allocation
- Hayes anticipates a Bitcoin run to the $150,000-$200,000 range by summer, followed by a correction, and then a move towards $250,000 by year-end. He sees ETH potentially reaching $5,000.
- He expects an "alt season" but warns it might not favor currently overvalued, low-float VC coins. Instead, he believes the market will increasingly focus on projects with real cash flows and utility, where revenue is shared with token holders.
- Maelstrom, Hayes's fund, is currently allocated roughly 60% to Bitcoin, 20% to ETH, with the remainder in other altcoins and token deals. His non-crypto holdings include physical gold, gold miners, and T-bills.
- A new initiative for Maelstrom is a leveraged buyout fund targeting profitable, non-tokenized crypto companies to take public via SPACs (Special Purpose Acquisition Companies) – shell companies that raise capital through an IPO to acquire an existing company.
- Actionable Insight: Focus on Bitcoin and ETH as core holdings. For altcoins, prioritize projects with demonstrable cash flow and user adoption. Be wary of hype-driven, low-float tokens. The potential for crypto companies to enter public markets via SPACs presents a new avenue for investment.
Conclusion: Navigating a World of Money Printing and Shifting Power
- Arthur Hayes paints a picture of inevitable global monetary rebalancing driven by US policy shifts towards capital controls, leading to massive money printing. For crypto investors and researchers, this signals a highly bullish environment for scarce, non-sovereign assets like Bitcoin, while traditional bond markets face significant headwinds.
