In his latest thought-provoking essay, “Black or White?”, Arthur Hayes, co-founder and former CEO of BitMEX, presents a compelling analysis predicting Bitcoin’s potential to skyrocket to $1 million. Hayes posits that future US economic policies, particularly under a second term of Donald Trump, may lay the groundwork for unprecedented Bitcoin growth.
American Capitalism with Chinese Characteristics
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 transitioning toward a system where the primary governmental goal is power retention, whether through capitalist, socialist, or fascist policies.
Understanding the Broken Fiat System
Hayes argues that the elite governing Pax Americana prioritize power retention over adhering to a purely capitalist system. He notes that America strayed from pure capitalism in the early 20th century, highlighting, “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.”
Critiquing the historical shift from “trickle-down economics” to direct stimulus measures, particularly those during the COVID-19 pandemic, Hayes distinguishes between “QE for the rich” and “QE for the poor.” He explains how direct stimulus to the general population fueled economic growth, whereas quantitative easing largely benefited wealthy asset holders.
Economic Impact of Direct Stimulus
From the second quarter of 2020 to the first quarter of 2023, Presidents Trump and Biden broke traditional economic patterns. Their Treasury departments issued debt purchased by the Fed using printed dollars (QE), but rather than distributing funds to the wealthy, the Treasury mailed checks to the general populace. This increased consumer spending power stimulated real economic activity, subsequently reducing the US debt-to-nominal GDP ratio.
Anticipating Economic Policies Under Trump’s Return
Looking ahead, Hayes predicts that Trump’s return to power will bring policies focused on re-shoring critical industries to the US, financed by expansive government spending and bank credit growth. He references Scott Bassett, who he believes will be Trump’s choice 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.”
Hayes warns that such policies could lead to significant inflation and currency debasement, negatively impacting holders of long-term bonds or savings deposits. To hedge against this, he advocates investing in assets like Bitcoin and gold. “Instead of saving in fiat bonds or bank deposits, purchase gold or Bitcoin,” he advises.
Monetary Policy and Bank Credit Creation
Supporting his argument, Hayes delves into the mechanics of monetary policy and bank credit creation. He demonstrates how “QE for the poor” can stimulate economic growth through increased consumer spending, contrasting it with “QE for the rich,” which inflates asset prices without real economic contribution.
Hayes discusses potential regulatory changes, such as exempting banks from the Supplemental Leverage Ratio (SLR), which would enable them to purchase unlimited government debt without additional capital requirements. He argues that this would facilitate “infinite QE” directed at productive sectors of the economy.
The Path to Bitcoin Reaching $1 Million
Hayes believes aggressive fiscal policies and regulatory changes will lead to an explosion of bank credit, causing higher inflation and a weakened US dollar. He asserts that 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.
Hayes supports his claim by referencing his custom index tracking US bank credit supply, showcasing Bitcoin’s superior performance when adjusted for bank credit growth. “What is important is how an asset performs when deflated by the supply of bank credit. Bitcoin is the standout performer, rising over 400% since 2020. If you can only do one thing to counter fiat debasement, it is Bitcoin.”
Conclusion: Preparing for Macroeconomic Shifts
In concluding his essay, Hayes urges investors to strategically position themselves 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, Bitcoin traded at $87,660.
