jakiro
Author: Arthur Hayes, founder of BitMEX; compiled by AIMan@Bitchain Vision
For me, the Hokkaido ski season ended in mid-March this year.However, lessons learned from the hills can still be applied to President Trump’s “tariff rage.”It’s different every day, there are so many variables that interact – no one knows which snowflake or which turn of the ski will cause an avalanche.The best we can do is estimate the probability of causing an avalanche.One technique to more accurately assess slope instability is ski slope cutting.
Before going downhill, one of the skiers on the team would cross the starting area and jump up and down, trying to trigger an avalanche.If successful, the way the avalanche spreads on the slope will determine whether the guide considers the slope suitable for skiing.Even if an avalanche is triggered, we can still continue skiing, but choose the direction of the sliding to avoid causing more serious consequences than loose powdery landslides.If we see cracks or huge snowboards loose and crack, hurry up and leave.
The key is to try to quantify the worst-case scenario based on current conditions and take corresponding actions.Trump’s self-proclaimed “Liberation Day” on April 2 is a ski-style cut to the steep and dangerous side of global financial markets.Trump’s team’s tariff policies draw on a trade economics book called “Balanced Trade: Ending the Unbearable Cost of the U.S. Trade Deficit” and took an extreme stance.The announced tariff rates are worse than the worst-case estimates for mainstream economists and financial analysts.In the words of the avalanche theory, Trump triggered a persistent weak avalanche, threatening to destroy the entire fugazi (the US military originated from the Vietnam War, referring to false things) of part of the reserves.
The initial tariff policy represented the worst outcome, as both the United States and China took extreme positions, opposing each other.Despite the sharp fluctuations in the financial asset market, causing trillions of dollars to lose globally, the real problem is the rise in volatility in the U.S. bond market (measured by the MOVE index).The index once rose to an all-time high of 172 points during the session, and then the Trump team escaped from the dangerous area.Within a week after the tariff policy was announced, Trump eased his plan to suspend the imposition of tariffs on all countries except China for 90 days.Subsequently, Boston Fed Director Susan Collins wrote in the Financial Times that the Federal Reserve is ready to do everything possible to ensure the market is functioning properly.A few days later, volatility has not declined significantly.at last,U.S. Treasury Secretary Scott gave an interview to Bloomberg and claimed to the world that his department is huge, especially because his department can significantly increase the speed and scale of Treasury bond buybacks (See Bitlink Vision’s previous report “Arthur Hayes: I believe BTC can reach $250,000 by the end of the year because the U.S. Treasury has dominated the Federal Reserve”).I describe this series of events as a shift from “everything is OK” to “everything is terrible, we have to act”, markets soar and, most importantly, Bitcoin bottoms out.That’s right, everyone, I predict $74,500 to be a local low.
Whether you describe Trump’s policy changes as a retreat or a shrewd negotiation strategy, the result is the administration’s intentional avalanche of financial markets, and the situation is so serious that they adjusted their policies a week later.Now, as a market, we know a few things.We understand what happens to volatility in the bond market in the worst-case scenario, we recognize the level of volatility that triggers behavioral changes, and we also know what currency leverage will be taken to mitigate this situation.Using this information, we as Bitcoin holders and cryptocurrency investors know that the bottom has come, because next time Trump raises tariff rhetoric or refuses to lower tariffs on China, Bitcoin will rise as people expect currency officials to run the money printing machine at the maximum level to ensure bond market volatility remains low.
This article will explore why extreme stances on tariff issues can lead to dysfunction in Treasury markets (measured by the MOVE index).Then I will discuss how the solution of U.S. Treasury Secretary Bessent – Treasury Repurchase – will add a lot of dollar liquidity to the system, although technically, purchasing old bonds by issuing new bonds itself does not increase dollar liquidity to the system.Finally, I will discuss why the current situation in Bitcoin and the macroeconomics is similar to what Bessent’s predecessor Yellen did when he increased Treasury issuance in the third quarter of 2022 to exhaust the Reverse RePo (RRP).Bitcoin hit a local low after FTX in the third quarter of 2022, and now, after Bessent launched his “non-quantitative easing” quantitative easing policy, Bitcoin hit a local low in this bull cycle in the second quarter of 2025.
The greatest pain
I want to reiterate that Trump’s goal is to lower the U.S. current account deficit to zero.It takes painful adjustments to achieve this quickly, and tariffs are the usual trick of its government.I don’t care if you think this is good or if Americans are ready to work for more than 8 hours in the iPhone factory.Trump’s election is partly because his supporters believe globalization has harmed them.His team is determined to fulfill their campaign promises, and in their words, to give priority to the “Main Street” priority to “Wall Street”.It all depends on the premise that those around Trump can be re-election through this path, but this is not a foregone conclusion.
The reason for the financial markets to plummet on the Liberation Day is that if foreign exporters earn less or no dollar income at all, they cannot buy that many or even any U.S. stocks and bonds.Additionally, if exporters have to change their supply chains, or even rebuild their supply chains within the U.S., they must provide part of the funding for the reconstruction by selling their current assets, such as U.S. bonds and stocks.That’s why the U.S. market and any market that is overly dependent on U.S. export revenue collapsed.
At least in the initial stage, the silver lining was that fearful traders and investors flocked to the U.S. Treasury market.Treasury bond prices rise and yields fall.The 10-year Treasury yield dropped sharply, which is a good thing for Bessent because it helped him put more bonds into the market.butSevere volatility in bond and stock prices has exacerbated market volatility, which is undoubtedly a death knell for some types of hedge funds.
Hedge funds, hedges…sometimes, but always use a lot of leverage.Relative Value (RV) Traders usually identify the relationship or spread between two assets, and if the spread widens, they use leverage to buy one asset and sell another, with the expected mean regression.Generally speaking, most hedge fund strategies are implicitly or explicitly shorting market fluctuations at the macro level.When volatility drops, mean regression occurs.When volatility rises, things get messy and the stable “relationship” between assets breaks down.That’s why risk managers of banks or exchanges that provide leverage to hedge funds raise margin requirements as market volatility rises.When hedge funds receive margin notifications, they must close their positions immediately or they will be liquidated.Some investment banks are happy to bankrupt customers by adding margin during times of intense market volatility, take over their bankrupt clients’ positions, and then make a profit when policymakers are bound to print money to suppress the volatility.
What we really care about is the relationship between stocks and bonds.Since U.S. Treasury bonds are nominally risk-free assets and are also global reserve assets, the price of U.S. Treasury bonds will rise when global investors flee the stock market.This makes sense, because fiat currency must exist to obtain profits, and the US government will never voluntarily go bankrupt in US dollars because it can print money without any effort.The actual value of Treasury bonds may decline, and it does, but policy makers do not care about the actual value of those junk fiat currency assets that are pouring in globally.
In the first few trading days after the “Liberation Day”, the stock market fell and bond prices rose/yields fell.Then something happened, and the bond price fell simultaneously with the stock market.The 10-year Treasury yield fluctuated back and forth in a magnitude that had never been seen since the early 1980s.The question is, why?The answer, or at least the answer that policy makers think, is extremely important.Are there structural problems in the market that must be fixed by printing money in some form by the Federal Reserve and/or the Treasury Department?
From Bianco Research, the bottom shows the abnormality of the 3-day change in the 30-year bond yield.The degree of change caused by the tariff panic is comparable to market fluctuations during financial crises such as the COVID-19 pandemic in 2020, the global financial crisis in 2008, and the Asian financial crisis in 1998.This is not a good thing.
The RV fund’s Treasury Fund trading positions may be closed, which is a problem.How big is this transaction?
February 2022 is crucial to the U.S. Treasury market, as U.S. President Biden decided to freeze the holdings of Russia, the world’s largest commodity producer.This actually shows that no matter who you are, property rights are no longer rights, but a privilege.As a result, overseas demand continues to weaken, but RV funds, as marginal buyers of U.S. Treasury bonds, fill this gap.The figure above clearly shows the increase in buyback positions, which can be used as a representative of the size of the market’s in-base trading position.
Overview of basis trading:
Treasury bond basis trading refers to buying spot bonds and selling bond futures contracts at the same time.The margin impact of banks and exchanges is crucial.The holding size of RV funds is limited by the cash amount required by margin.Margin requirements will vary with market volatility and liquidity factors.
Bank margin:
To obtain the cash required to purchase the bond, the fund conducts a repo transaction.The bank agreed to pay a small fee and immediately advance the cash to settle the bonds to be purchased as collateral.The bank will require a certain amount of cash margin to deal with the repurchase.
The more the bond price fluctuates, the higher the margin the bank needs.
The worse the liquidity of a bond, the more margin the bank needs.Liquidity is always concentrated on certain periods of the yield curve.For the global market, 10-year Treasury bonds are the most important and have the highest liquidity.When the latest 10-year Treasury bond is auctioned, it becomes a “new” (on-the-run) 10-year bond.It is the most liquid bond.Then, over time, it is increasingly away from the liquidity center and is considered “non-new”.Over time, new issues will naturally become “non-new issues”. While funds are waiting for the basis to collapse, the amount of cash required to provide funds for repurchase transactions will also increase.
Essentially, during periods of high market volatility, banks worry that if they need to clear bonds, prices will fall too quickly and liquidity is not enough to absorb their market sell orders.Therefore, they increase margin limits.
Futures Exchange Margin:
Each bond futures contract has an initial margin level that determines the amount of cash margin required for each contract.This initial margin level will fluctuate with market fluctuations.
The exchange focuses on its ability to close positions before the initial margin is fully used up.The faster the price fluctuates, the harder it is to ensure solvency; therefore, when market volatility intensifies, margin requirements will also increase.
Eliminate fear:
The huge impact of Treasury bond basis trading on the market and the financing methods of major players have always been hot topics in the Treasury bond market.The U.S. Treasury Borrowing Advisory Committee (TBAC) provided data in its past quarterly refinancing announcement (QRA) that confirmed the following statement that since 2022, marginal buyers of U.S. Treasury bonds have been RV hedge funds involved in such basis transactions.The following is a detailed link to the Commodity Futures Trading Commission (CFTC), the paper is based on data provided by TBAC since April 2024.
The chain of reflexive market events is amplified in a terrifying way in each cycle, with the following content:
1. If the bond market volatility increases, RV hedge funds will need to deposit more cash into banks and exchanges.
2. When it reaches a certain level, these funds will be unable to bear the additional margin requirements and must close the positions at the same time.This means selling emerging bonds and repurchasing bond futures contracts.
3. As market makers reduce the quotation scale of a given price spread to protect themselves from harmful one-way flows, liquidity in the spot market declines.
4. As liquidity and prices decline together, market volatility further increases.
Traders are well aware of this market phenomenon, and regulators themselves and their financial journalists’ thugs have been sending warning signals about it.As a result, as the bond market volatility intensifies, traders will rush to buy first before being forced to sell, which has exacerbated downward volatility and caused the market to collapse faster.
If this is a known source of market pressure,What policies can the U.S. Treasury implement within its sectors to keep funds (i.e. leverage) flowing to these RV funds?
Treasury bond purchase
A few years ago, the U.S. Treasury Department launched a bond buyback program.Many analysts look to the future and think about how this will fuel or encourage certain money printing practices.I will elaborate on my theory on the impact of repurchases on money supply.But first, let’s take a look at how the program works.
The Ministry of Finance will issue new bonds and use the issuance proceeds to repurchase off-the-run bonds (off-the-run bonds).This will lead to the value of old coupons rising, possibly even exceeding fair value, as the Treasury will become the largest buyer in the poorly liquid market.RV funds will see the basis narrowing between old bonds and bond futures contracts.
Baseline Trading = Long Spot Bonds + Short Bond Futures
As the Ministry of Finance is expected to purchase bonds, the long-term cash bond price will rise as the price of old bonds rises.
Therefore, RV funds will lock in profits by selling old bonds that are currently more expensive and closing their short bond futures contracts.This frees up valuable funds from banks and exchanges.Since RV funds are profitable, they will directly invest in basis trading at the next Treasury auction.As prices and liquidity rise, volatility in the bond market will decrease.This reduces the fund’s margin requirements and allows it to hold larger positions.This is the best manifestation of procyclical reflexivity.
Knowing that the Ministry of Finance is providing more leverage to the financial system, the market will relax now.Bond prices rise; everything is fine.
U.S. Treasury Secretary Besset boasted about his new tools in an interview, because the Treasury could theoretically conduct unlimited buybacks.Without the expenditure bill approved by Congress, the Treasury Department cannot issue bonds at will.However, the essence of repurchase is that the Ministry of Finance issues new bonds to repay old bonds, while the Ministry of Finance has issued new bonds to repay the principal of the maturing bonds.Since the Treasury buys and sells bonds in the same name as a primary dealer bank, the cash flow of such transactions is neutral, so it does not require the Fed to borrow money to buy back.Therefore, if reaching the repurchase level can alleviate market concerns about the collapse of the Treasury market and lead to the market accepting lower yields of unissued bonds, the Ministry of Finance will do its best to repurchase.I can’t stop, nor will I stop.
Note on the supply of government bonds
Besset knew in his heart that the debt ceiling would rise sometime this year and the government would continue to squander with an increasingly fierce momentum.He also knew that Elon Musk was not cutting spending quickly enough through his Government Efficiency Department (DOGE), which stems from various structural and legal reasons.Specifically, Musk’s estimate of spending cuts this year has dropped from a $1 trillion annual forecast to a puny $150 billion (at least considering the massive deficit).This leads to an obvious conclusion: the deficit may actually widen, forcing Besset to issue more Treasuries.
At present, the deficit in the 25th fiscal year ended March is 22% higher than the deficit in the same period of the reported year.Trust Musk – I know some of you would rather listen to the song of Grimes burning Tesla than believe it – he has only been working for two months.What is even more worrying is that the uncertainty of the intensity and impact of corporate tariffs, coupled with the decline in stock markets, will lead to a sharp decline in tax revenue.This will point to a structural reason that the deficit will continue to expand even as DOGE successfully cuts more government spending.
Besset was worried that due to these factors, he would have to raise his borrowing expectations for the rest of the year.As the upcoming torrent of Treasury bond supply approaches, market participants will demand a substantial increase in yields.Besset needs RV funds to increase investment, use the maximum leverage, and completely buy out the bond market.Therefore, repurchase is imperative.
The positive impact of repurchases on US dollar liquidity is not as direct as the central bank’s printing of money.Repurchases are neutral to budget and supply, so the Ministry of Finance can repurchase unlimitedly to create huge RV purchasing power.Ultimately, this allows the government to raise funds for itself at affordable rates.The more debts are issued, the more they are purchased not with private savings, but with leveraged funds created through the banking system, the greater the increase in the amount of money.Then we know that when the number of fiat currencies increases, the only asset we want to own is Bitcoin.come on!
Obviously, this is not an unlimited source of US dollar liquidity.There are limited numbers of unissued government bonds available for purchase.However, a buyback is a tool that can help Besset ease market volatility in the short term and provide funding to the government at an affordable level.This is why the MOVE index fell.As the Treasury bond market stabilizes, concerns about the collapse of the entire system have also followed.
Same scenario
I compare this trading strategy to the strategy for the third quarter of 2022.In the third quarter of 2022, a “decent” white boy like Sam Bankman-Fried (SBF) went bankrupt; the Fed is still raising interest rates, bond prices fall, and yields rise.Yellen needs to find a way to stimulate the market so that she can open the market’s throat with a red-soled stiletto shoe and drain the bonds without causing a vomiting reflex.In short, just like now – with the intensified market volatility due to the shift in the global monetary system – it is a bad time to step up bond issuance.
RRP balance (white) and Bitcoin (golden)
Like today, but for different reasons, Yellen can’t expect the Fed to relax monetary policy as Powell is taking part in his Paul Volcker-inspired juggling ban tour.Yellen, or some extremely smart aides, correctly infer that the invalid funds held by money market funds in RRP (reverse repo) can be attracted to the leveraged financial system by issuing more US Treasuries, and these funds are happy to hold these Treasuries because the yield is slightly higher than RRP.This allows her to inject $2.5 trillion in liquidity into the market from the third quarter of 2022 to early 2025.During this period, the price of Bitcoin rose nearly 6 times.
This sounds like a rather optimistic setting, but people are panicking.They know that high tariffs and the China-Merica dividend are not good for the stock price.They think Bitcoin is nothing more than a high beta version of the Nasdaq 100 index.They are bearish and do not think that a harmless buyback program can increase future dollar liquidity.They stood by and waited for Powell to relax his policies.He cannot directly relax policies or implement quantitative easing like his successive Fed chairs from 2008 to 2019.Times have changed, and now the burden of printing money by the Ministry of Finance is getting heavier and heavier.If Powell really cares about inflation and the long-term strength of the dollar, he would eliminate the impact of the Treasury actions taken under Yellen and now Becente.But he didn’t do this at the time, and he wouldn’t do it now; he would be overwhelmed in the “turtle” chair and be manipulated.
Just like in the third quarter of 2022, it is believed that Bitcoin may fall below $10,000 due to a series of unfavorable market factors after hitting a cycle low of around $15,000.Now some people believe that the price of Bitcoin will fall below $74,500 and below $60,000, and the bull market has ended.Yellen and Bescent are not just a joke.They will ensure that the government obtains funds at affordable interest rates and curb volatility in the bond market.Yellen issued more short-term Treasury bonds than long-term Treasury bonds, injecting limited RRP liquidity into the system;Becente will repurchase old bonds by issuing new bonds and maximize the ability of RV funds to absorb new bond supply.Neither of these are quantitative easing policies that most investors are well-known and recognized by quantitative easing policies..Therefore, they turned a blind eye to this and once Bitcoin confirms a breakthrough, they have to chase the rise.
verify
For repurchases to play a net stimulus role, the deficit must continue to rise.On May 1, we will learn about the upcoming borrowing plans and comparisons with previous estimates through the U.S. Treasury Department’s Quarterly Refunding Announcement (QRA).If Becente has to borrow more or expects to borrow more, it means tax revenue is expected to decline; therefore, this will lead to an expanded deficit while spending remains the same.
Then, in mid-May, we will get official April deficit or surplus data from the Treasury, which contains actual data on April 15 taxes.We can compare the year-on-year changes in FY25 to see if the deficit is expanding.If the deficit increases, bond issuance will increase, and Becente must do everything possible to ensure that the risk aversion fund can increase its basis trading position.
Trading strategy
While Trump skied, the steep slope suddenly dropped, triggering an avalanche.Now, we finally know the extent of pain or volatility the Trump administration can withstand before eases the implementation of any policy that the market believes will have a negative impact on the cornerstone of the fiat financial system (MOVE index).This will trigger a policy response, and its impact will increase the supply of US dollar fiat currency that can be used to purchase U.S. Treasury bonds.
If the increase in repurchase frequency and scale is not enough to calm the market, the Fed will eventually find a way to relax policies.They have said they will do so.Most importantly, they lowered the interest rate for quantitative tightening (QT) at their most recent March meeting, which is forward-looking for the liquidity of the dollar.However, the Fed can do more than quantitative easing.Here is a short list of procedural policies that are not quantitative easing but can enhance the market’s ability to absorb new Treasury bond issuance; one of them may be announced at the Federal Reserve meeting from May 6 to 7:
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Bank supplementary leverage ratio (SLR) requirements exempt from Treasury bonds.This allows banks to use unlimited leverage to buy Treasury bonds.
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Implement the “QT Reversal” to reinvest funds raised by the imminent mortgage-backed securities (MBS) in newly issued Treasury bonds.The size of the Fed’s balance sheet remains unchanged, but this will bring $35 billion in marginal buying pressure to the Treasury market every month over the next few years until all MBS stocks mature.
The next time Trump presses the tariff button — he will do to ensure countries respect his authority — he will be able to ask for more concessions and Bitcoin will not be as badly as some stocks.Bitcoin knows that deflation policy cannot be maintained for a long time given the current and future crazy levels of debt required by the dirty financial system to function.
The collapse of the ski resort of Mt. Sharpe World (referring to the financial market) triggered a secondary market avalanche, which could have been rapidly upgraded to Level 5, which is the highest level.But the Trump team responded quickly, changed the course and pushed the empire to the other extreme.The foundation of the avalanche is solidified by crystallized dollar bills provided by US Treasury bond repurchases, and is reinforced by the drier and most humid “pow pow”.It’s time to go from climbing the mountain hard with a backpack full of uncertainty to jumping off a powdery pillow and cheering how high Bitcoin will fly.
As you can see,I am very optimistic about Bitcoin.At Maelstrom, we have maximized our cryptocurrency positions.Now, everything revolves around buying and selling different cryptocurrencies to accumulate Bitcoin.During a downturn when Bitcoin price fell from $110,000 to $74,500, the most bought was Bitcoin.Bitcoin will continue to lead the market as it is the direct beneficiary of more dollar circulation brought about by the currency liquidity injected into mitigating the impact of China-US decoupling.Today, the international community believes that Trump is a lunatic who wields tariff weapons roughly.Any investor holding U.S. stocks and bonds is looking for something of anti-establishment value.In fact, that is gold.Digitally speaking, that is Bitcoin.
Gold has never been seen as a high beta version of U.S. tech stocks; therefore, as the oldest anti-establishment financial hedge, it performed well as the oldest anti-establishment financial hedge as the overall market collapses.Bitcoin will break away from its ties with US technology stocks and rejoin the ranks of gold’s “only rise but not fall”.
So what about altcoins?
Once Bitcoin breaks through the all-time high of $110,000, it is likely to soar, further consolidating its dominance.Maybe it won’t rise to $200,000.Then, Bitcoin starts rotating into junk coins.The Rise of AltSzn: Chikun, Come on!
In addition to those shining new junk coins metadata,The best performing tokens are those that both make profits and return them to the pledger.There are only a handful of such projects.Maelstrom has been working hard to accumulate positions in certain qualified tokens and has not yet completed the purchase of these gems.They are gems because they have been hit hard like all other junk coins in the recent sell-off, but unlike 99% of shit items, these gems actually have paid customers.Due to the huge number of tokens, it is impossible to convince the market to give you another chance after launching tokens on CEX in the Down Only model.Junk Coin Diving Treasure Hunters want higher pledge APYs, where the rewards come from actual profits, as these cash flows are sustainable.To promote our products, I will write a complete article on some of these projects and why we think their cash flow will continue to grow in the near future.Before that, hurry up and rewind the truck and buy everything!
