Arthur Hayes's new article: In recent years, my macroeconomic prediction accuracy has only been 25%, but crypto investments are still profitable
Despite experiencing many losses, I am still profitable overall.Author: Arthur Hayes
Compiled by: Deep Tide TechFlow
(This article reflects the author's personal opinions and should not be considered as the basis for investment decisions, nor should it be viewed as a recommendation or advice for engaging in investment trading.)
This week has been truly shocking. If you missed the Token2049 conference held in Singapore last week, I feel sorry for you. Over 20,000 enthusiastic participants expressed their excitement in various ways. I have attended almost every event since the Singapore night F1 race began, but I have never seen the city so vibrant.
The attendance at Token2049 doubled compared to last year. I heard that some lesser-known projects charged up to $650,000 for speaking slots on smaller stages.
The party scene was bustling. Marquee is a club that can accommodate thousands of people. Imagine the scene of over three hours of waiting to get into the event. Every night, different crypto projects or companies booked this club. The booking fee for Marquee is $200,000, excluding any drinks.
There were all kinds of events. Iggy Azalea invited a group of strippers from Los Angeles to create a pop-up "experience." Who would have thought that strippers could also understand how to operate in a volatile market?
Even Su Zhu, known as the "Randall of the cryptocurrency world," couldn't help but want to "let the money dance." Randall, why do you look so uncomfortable in this video? Losing money is your forte. When you finally submit your assets to the bankruptcy court in the British Virgin Islands and resolve the lawsuits, I would be happy to host you at Magic City and teach you how to operate.
I am considering having Branson Cognac and Le Chemin du Roi sponsor my next party, just as 50 Cent said:
Every hotel was fully booked, and even mid-range restaurants were the same. When the data for 2024 comes out, I suspect we will find that the cryptocurrency community brought more business to airlines, hotels, restaurants, conference venues, and nightclubs than any other event in Singapore's history.
Fortunately, Singapore tries to maintain geopolitical neutrality. This means that as long as you believe in Satoshi, you can basically celebrate with your brothers and sisters.
The energy and enthusiasm of cryptocurrency people stand in stark contrast to the dullness and boredom of traditional finance conference participants. The Milken Institute also holds a conference in the same week. If you walk around the Four Seasons hotel, where the conference is held, you will find that every man and woman is dressed similarly, in monotonous business casual or formal attire. The attire and behavior of traditional finance are deliberately kept calm and unchanged. They want the public to feel that "there's nothing to see here," while in reality, they are stealing human dignity through the inflation imposed by their institutions. Volatility is their enemy because when things start to get turbulent, ordinary people can see through the mirror to the true degradation of their masters.
Today, we will discuss the volatility of cryptocurrencies and the lack of volatility in traditional finance. I want to explore how the elites print money to create a smooth economic environment. At the same time, I want to illustrate how Bitcoin acts as a release valve to cope with the fiat currency printed to suppress volatility to unnatural levels. But first, I want to make the key point that short-term macroeconomic forecasts are not important by reviewing my records from November 2023 to now.
Fifty-Fifty
Many readers and keyboard warriors in the cryptocurrency space often criticize me for making incorrect judgments. So, how have I performed on major judgments over the past year?
November 2023:
I wrote an article titled Bad Gurl. In this article, I predicted that U.S. Treasury Secretary "Bad Girl" Yellen would issue more Treasury bills (T-bills) to withdraw funds from the Federal Reserve's reverse repurchase program (RRP). The decline in RRP would inject liquidity into the market, driving up risk assets. I believed the market would soften in March 2024 when the Bank Term Funding Program (BTFP) would expire.
From November 2023 to March 2024, the reverse repurchase program (RRP, white) decreased by 59%, Bitcoin (gold) increased by 77%, the S&P 500 index (green) increased by 21%, and gold (red) increased by 5%. Each dataset is benchmarked at 100.
Victory point +1.
After carefully reading the U.S. Treasury's quarterly financing announcement (QRA), I decided to increase my cryptocurrency risk. In hindsight, this decision was very correct.
March 2024:
In my article Yellen or Talkin, I speculated that the Bank Term Funding Program (BTFP) would not be renewed because it clearly had inflationary characteristics. I believed that merely allowing banks to use the discount window would not be enough to avoid another "too big to fail" (TBTF) banking crisis in the U.S.
The expiration of BTFP had no substantial impact on the market.
Loss point +1.
I lost some money on Bitcoin put options.
April 2024:
In my article Heatwave, I predicted that the U.S. tax season would lead to a decline in cryptocurrency prices as dollar liquidity would be withdrawn. Specifically, I stated that between April 15 and May 1, I would refrain from increasing any additional cryptocurrency risk.
From April 15 to May 1, the reverse repurchase program (RRP, white) increased by 33%, Bitcoin (gold) decreased by 9%, the S&P 500 index (green) decreased by 1%, and gold (magenta) decreased by 3%. Each dataset is benchmarked at 100.
Victory point +1.
May 2024:
As I headed to my summer vacation in the Northern Hemisphere, I published an article Mayday based on several macroeconomic factors. I had the following predictions:
Did Bitcoin reach a local low of around $58,600 earlier this week? Yes.
What is your price prediction? I expect Bitcoin to rise above $60,000, then oscillate between $60,000 and $70,000 until August.
Bitcoin dropped to about $54,000 on August 5 due to a pullback in dollar-yen arbitrage trades. I predicted incorrectly, with an 8% deviation.
Loss point +1.
During this period, Bitcoin's price fluctuated between $54,000 and $71,000.
Loss point +1.
During the weak summer period, I did increase some "altcoin" risk. Some of the coins I purchased are currently trading below my purchase price, while others are above.
June and July 2024:
When Japan's fifth-largest bank acknowledged its massive losses on foreign currency bonds, I wrote an article titled Shikata Ga Nai discussing the importance of the dollar-yen exchange rate. I predicted that the Bank of Japan (BOJ) would not raise interest rates as it would jeopardize the banking system. However, this assumption proved to be overly naive. On July 31, the BOJ raised rates by 0.15% and initiated a fierce pullback in dollar-yen arbitrage trades. I followed up on the mechanism of the dollar-yen arbitrage pullback in my subsequent article Spirited Away.
While the dollar-yen proved to be the most important macroeconomic variable, my judgment on the BOJ was incorrect. The policy response did not unfold as I had predicted. The BOJ did not provide dollars through central bank swap lines but assured the market that it would not take measures that would exacerbate market volatility if interest rates were raised or monetary printing policies adjusted.
Loss point +1.
August 2024:
Two significant events occurred this month: the U.S. Treasury released the QRA for the third quarter of 2024, and Powell's employment data turned at Jackson Hole.
I predicted that Yellen's reissuance of Treasury bills (T-bills) would provide dollar liquidity to the market. However, after Powell's turn, he confirmed a rate cut in September, which pitted these two forces against each other. Initially, I believed that the net issuance of T-bills would increase liquidity as it would bring the reverse repurchase agreements (RRP) down to zero, but then the yields on T-bills fell below the RRP level, and I predicted that the repurchase agreements (RPP) would rise and withdraw liquidity.
I did not anticipate that Powell would cut rates before the election, risking triggering an inflation explosion during the voting period.
Loss point +1.
After the Jackson Hole meeting, the RRP (reverse repurchase agreements) balance increased directly, re-entering an upward trajectory. Therefore, I still believe this will have a slight drag on liquidity as T-bill yields continue to decline, and the market expects the Fed to cut rates further in the November meeting.
The outcome is still uncertain; it is too early to judge whether I was correct.
September 2024:
As I left the Patagonia mountains, I wrote an article Boom Times … Delayed and predicted during my speeches at Korea Blockchain Week and Singapore Token2049 that if the Fed cuts rates, the market will react negatively. Specifically, I pointed out that the narrowing dollar-yen spread would lead to further appreciation of the yen and reignite the unwinding of arbitrage trades. This would lead to declines in global markets, including cryptocurrencies, ultimately requiring more monetary printing to let "Humpty Dumpty" reassemble.
The Fed cut rates while the BOJ kept rates unchanged, narrowing the spread; however, the yen depreciated against the dollar, and risk markets performed well.
Loss point increased +1.
Results:
2 correct predictions
6 incorrect predictions
So the batting average is .250. This is quite poor for the average person, but as the great Hank Aaron said, "My motto has always been to keep swinging. Whether I'm in a slump, feeling bad, or having trouble off the field, the only thing to do is keep swinging." Aaron's career batting average was .305, and he is considered one of the greatest baseball players of all time.
Despite experiencing many losses, I am still overall profitable.
Why?
Huge Assumptions
When writing these macro articles, I try to predict specific events that will lead our corrupt rulers to take policy responses. We know that due to the over-leveraged trade and financial system after the Bretton Woods system in 1971, they cannot cope with any form of volatility in financial markets. We—by which I mean the puppets of traditional finance and the believers in Satoshi—agree that when things get bad, they will hit the "Brrrr" button. This has always been their policy response.
If I could predict the triggers in advance, my self-esteem would be boosted, and perhaps I could gain extra profits by being ahead of the curve. But as long as my portfolio can benefit from the printing of fiat currency to suppress the natural volatility of human civilization, it doesn't matter if every event-driven prediction I make is wrong, as long as the policy response unfolds as expected.
I will show you two charts to help you understand the vast amount of fiat currency needed to suppress historically low volatility.
Volatility
Since the late 19th century, the elites who control global governments have made a deal with the common people. If the common people surrender more and more freedom, the "smart" people managing the state will create a calm universe by suppressing entropy, chaos, and volatility. Over decades, the role of government in every citizen's life has become increasingly important, and maintaining an apparently ever-increasing order has become very expensive, as our knowledge of the universe continues to grow and the world becomes more complex.
In the past, the books of a few authors were seen as authoritative truths about how the universe operates. They killed or excluded anyone engaged in science. But as we broke free from the shackles of organized religion and critically examined the universe we inhabit, we realized we know nothing, and things are much more complex than you would believe just by reading the Bible, the Torah, and the Quran. Thus, people turned to politicians (mostly men, with a few women), who replaced priests, rabbis, and imams (always men), offering a promised way of life that ensures safety and a framework for understanding how the universe operates. However, whenever volatility surges, the response is to print money, covering up the various problems that exist in the world to avoid admitting that no one knows what will happen in the future.
Just like when you push an inflatable ball underwater, the deeper you push the ball down, the more energy is required to maintain its position. The global distortions are so extreme, especially for American hegemony, that the amount of printed fiat currency needed to maintain the status quo is growing rapidly each year. This is why I can confidently say that the amount of printed fiat currency required from now until the eventual system reset will far exceed the total amount printed from 1971 to the present. This is simply a matter of mathematics and physics.
The first chart I will show is the MOVE index (white), which measures the volatility of the U.S. bond market against the upper limit of the federal funds rate (green). As you know, I believe quantity is more important than price, but in this case, using price can paint a very clear picture.
You may remember the rise and fall of the tech bubble in 2000. As you can see, the Fed popped the bubble by raising rates until problems arose. In 2000 and after the September 11 attacks in 2001, volatility in the bond market surged. Once volatility increased, the Fed lowered rates. After volatility decreased, the Fed believed it could normalize rates; however, they popped the subprime real estate market, leading to the 2008 global financial crisis (GFC). Rates were quickly lowered to zero and remained there for nearly seven years to suppress volatility. When it was time to normalize rates again, COVID happened, leading to a collapse in the bond market and a surge in volatility. The Fed then lowered rates to zero. The inflation triggered by COVID ignited the bond market starting in 2021, leading to increased volatility. The Fed raised rates to curb inflation but had to stop during the March 2023 "too big to fail" banking crisis. Ultimately, the current Fed easing cycle is occurring during a period of heightened volatility in the bond market. If we consider the period from 2008 to 2020 as "normal," the current volatility in the bond market is nearly twice our comfort level.
Let's introduce a measure of the dollar amount. The red line is an approximation of total bank credit, composed of excess bank reserves held by the Fed and other deposits and liabilities (ODL), which is a good indicator of commercial bank loan growth. Remember what was mentioned in your basic economics course: it is the banking system that creates money by issuing credit. As the Fed engages in quantitative easing (QE), excess reserves increase, and as banks issue more loans, ODL also grows.
As you can see, 2008 was a significant turning point. The financial crisis was so enormous that the scale of credit money creation overshadowed what happened after the tech bubble burst in 2000. No wonder our Lord and Savior Satoshi created Bitcoin in 2009. Since then, the total amount of bank credit has never fully decreased. This fiat credit cannot be extinguished; otherwise, the system would collapse under its own weight. Moreover, in every crisis, banks must create increasingly more credit to suppress volatility.
I could show a similar chart illustrating the relationship between forex volatility (USD/CNY, USD/JPY, EUR/JPY, etc.) and government debt levels, central bank balance sheets, and bank credit growth. In comparison, their clarity is not as good as the chart I just showed. American hegemony cares about volatility in the bond market because it is the asset that supports the global reserve currency—the dollar. All other allies, vassal states, and enemies care about the volatility of their own currencies against the dollar because it affects their ability to trade with the world.
Response
All this fiat currency must go somewhere, and Bitcoin and cryptocurrencies serve as the release valve for this flow. The fiat currency needed to suppress volatility will flow into cryptocurrencies. Assuming the technology of the Bitcoin blockchain is reliable, Bitcoin will always benefit from the elites' continued attempts to violate the laws of physics. There must be a balancer; you cannot create something from nothing. In this modern digital world, Bitcoin happens to be the most technically reliable way to balance the profligate behavior of ruling elites.
As an investor, trader, and speculator, your goal is to acquire Bitcoin at the lowest possible cost. This may mean pricing your hourly labor in Bitcoin, using excess cheap energy for Bitcoin mining, borrowing fiat currency at low interest rates to buy Bitcoin (call Michael Saylor), or using a portion of your fiat savings to purchase Bitcoin. The volatility between Bitcoin and fiat currency is your asset; do not waste this by using leverage to buy Bitcoin that you plan to hold long-term.
Are there risks?
Speculating for profit in short-term price fluctuations is very difficult. As you can see from my record, my success rate is 2 out of 6. If I had hedged my entire portfolio every time I made a judgment, Maelstrom might have gone bankrupt by now. Randall and Kyle Davies are right; there is indeed a supercycle in the elites' suppression of volatility. They lack patience and instead borrow fiat currency to buy more Bitcoin, getting trapped as the cost of fiat currency fluctuates (which always happens), losing everything. However, not all of them—I have seen photos of Randall hosting lavish parties in his mansion in Singapore. But don't worry—that was done in his child's name to avoid being seized by the bankruptcy court.
Assuming you do not abuse fiat currency leverage, the real risk is when the elites can no longer suppress volatility, and volatility will return to its natural level. At that point, the system will reset. Will it be a revolution like Bolshevik Russia, where bourgeois holders are completely wiped out, or will it be a more common scenario where one group of corrupt elites is replaced by another, with the suffering of the masses continuing under a new "ism"? Regardless, everything will decline, and Bitcoin will decline less relative to the ultimate asset—energy. Even though your overall wealth decreases, you will still perform better than others. Sorry, nothing in the universe is risk-free. Safety is just an illusion, peddled by those who want you to vote for them on election day.
Trading Strategy
United States
Based on the Fed's historical response to "high volatility," we know that once they start cutting rates, they typically continue until rates are close to 0%. Additionally, bank credit growth must also accelerate in sync with rate cuts. I don't care how "strong" the economy is, how low the unemployment rate drops, or how high inflation is; the Fed will continue to cut rates, and the banking system will release more dollars. Regardless of who wins the U.S. presidential election, the government will continue to borrow as much as possible to gain the support of the populace for the foreseeable future.
European Union
The non-elected bureaucrats of the EU are destroying the economy in a suicidal manner, refusing cheap and abundant Russian energy, and dismantling their energy production capabilities under the slogans of "climate change," "global warming," "ESG," or other nonsense. The economic downturn will be addressed by the European Central Bank lowering euro interest rates. National governments will also begin to force banks to lend more to local businesses so they can provide jobs and rebuild increasingly deteriorating infrastructure.
China
As the Fed cuts rates and U.S. banks issue more credit, the dollar will depreciate. This allows the Chinese government to increase credit growth while maintaining stability in the dollar-yuan exchange rate. The primary concern of Chinese President Xi Jinping regarding accelerating bank credit growth is the pressure of the yuan depreciating against the dollar. If the Fed prints money, the People's Bank of China (PBOC) can also print money. This week, the PBOC rolled out a series of interest rate cuts across the entire monetary system. This is just the beginning; the real "big move" will come when banks issue more credit.
Japan
If other major economies are now easing monetary policy, the pressure on the Bank of Japan (BOJ) to raise rates quickly will diminish. BOJ Governor Kazuo Ueda has clearly stated that he will normalize interest rates. However, since rates in other countries have dropped to his low levels, he does not need to catch up so quickly.
The moral of the story is that global elites are once again suppressing volatility in their countries or economic blocs by lowering the price of money and increasing the money supply. If you are fully invested in cryptocurrencies, sit back and relax as the fiat value of your portfolio rises. If you have excess fiat currency, hurry to put it into cryptocurrencies. As for Maelstrom, we will push those projects that have delayed token issuance due to unfavorable market conditions to accelerate their progress. We hope to see those green candlestick patterns in our Christmas stockings. And the fund brothers hope for a good bonus in 2024, so please help them out!
