Trump Bubble: What’s Next for Bitcoin?

Author: @packyM, Not boring

Compiled by: Baihua Blockchain

As we all know, one of the biggest risks facing current crypto companies is that government regulation may slow their development or even lead to stagnation. Over the past week, I have been closely following the political developments in the United States and found that the current situation bears many similarities to the topics I usually discuss, and is more optimistic than expected. My intuition tells me that we are standing at the beginning of all bubbles—a bubble machine that nurtures countless bubbles: the Trump bubble.

One of the most shocking things about last week's presidential election was that many people seemed unusually excited about Trump's victory, while some were extremely enthusiastic about a certain future vision, which is precisely a sign that a bubble is beginning to form.

Over the weekend, I read "Boom: Bubbles and the End of Stagnation" by Byrne Hobart and Tobias Huber. The core argument of the book is that certain types of bubbles play a huge role in pushing the world forward. They believe that bubbles are a good remedy for the problem of stagnation.

While reading this book, I noticed that the post-election reactions were strikingly similar to those productive bubbles described in the book: the Manhattan Project, the Apollo Program, Moore's Law, the golden age of corporate R&D, the shale gas revolution, and Bitcoin.

Byrne and Tobias summarized five common characteristics of all the technologies and top projects they studied:

• Obvious optimism and a focus on fear of missing out (FOMO) and living in the moment (YOLO)
• Excessive risk-taking and over-investment
• Parallelization and coordination
• Reflexivity and hyperstition

Defending Bubbles

The term "Trump bubble" may sound concerning. When most people hear the word "bubble," they usually associate it with "something that is overinflated and destined to burst," a term that often carries negative connotations, especially when it originates from some bad bubbles. However, not all bubbles are of this type. In "Boom," Byrne and Tobias describe two types of bubbles:

1) Mean-reversion bubbles: "The basic bet is that the future will continue along the current trend." For example, the subprime mortgage crisis. If you bet that the future will remain roughly unchanged, you can increase your stake by leveraging.

2) Turning-point bubbles: "Investors believe that the future will be significantly different from the past." For example, the internet bubble. If you believe that significant changes will occur in the future, you will buy assets that can benefit from those changes.

They argue that turning-point bubbles drive progress. This view is similar to what I mentioned in "Infinity Missions": turning-point bubbles drive progress by directing vast resources to important projects that cannot be executed under normal cost-benefit analysis.

Take the Apollo Program as an example:

In May 1961, President John F. Kennedy declared, "This nation should commit itself to achieving the goal, before this decade is out, of landing a man on the Moon and returning him safely to the Earth," at a time when no one knew how to achieve this goal. Rockets, launch pads, spacesuits, hardware, software, and zero-gravity food—none of these existed, and there were no experts in the relevant fields. Not only did the space program lack the conditions necessary to achieve a moon landing—scientists at the time were even uncertain whether it was possible.

Turning-point bubbles drive future progress by concentrating massive amounts of financial and human capital on very specific future visions, allowing for wasteful exploration and parallelization that would not normally occur in the pursuit of that goal.

Without bubbles, some things might never happen. Byrne and Tobias point out that Moore's Law itself is a classic bubble phenomenon: "The industry exhibits classic bubble behavior: predictions about the future—especially bold and nearly irrefutable predictions—ultimately drive the actions that make those predictions come true." For example, expectations of continuous improvements in chips prompted the design of products that could utilize better chips, which in turn made chip manufacturers aware of the demand, stimulating investment in continuous improvements in chips.

In other words, a sufficiently compelling vision can make it a reality. As Stripe Press wrote on the "Boom" website, "Optimism can become a self-fulfilling prophecy."

Source: Boom Website

As Peter Thiel, Byrne, and Tobias emphasize, not all optimism is positive. Excessive optimism—merely assuming that everything will go smoothly—can be as destructive as pessimism. Therefore, the first common characteristic of productive bubbles is clear optimism: believing that the future will be better and having a concrete plan to achieve that.

What Exactly is a Bubble?

In the early post-election period, I began to notice the common characteristics of bubbles, and I observed that the only unresolved question was its clarity—specifically, where the focus of attention lies.

Simply "making everything better," such as "making America great again," is too vague and imprecise to fit the book's definition of a positive bubble: "The key is whether this vision includes a specific and actionable plan to transition from the present to the future."

For example, producing an atomic bomb before the Germans (or Soviets) had it was a clear and specific goal: landing on the Moon within a decade. Every bubble discussed by Byrne and Tobias was also clear and specific. But what about Trump's bubble? What kind of bubble is it?

Elon Musk played a significant role in Trump's victory and is likely to continue to exert influence during the presidency. He referred to Tesla's Gigafactory as "the machine that makes the machines." If the Gigafactory operates well, producing cars will become simple. And America, as "the machine that makes the machines," has just accumulated dirt in its gears.

America can still create excellent companies that produce outstanding products. However, the slogan "Make America Great Again" does not resonate with me because I have always believed that America is still the greatest country in the world, even though it is now slower and clumsier than before. Comparisons with other countries obscure a deeper fact: America has not reached the greatness it should have achieved.

If Trump's bubble takes shape, it will be about upgrading and clearing the dirt from "the machine that makes the machines," allowing America's machine to operate at full speed. For those who believe in America, capitalism, and the self, there is no more inspiring vision than this. This vision seems strong enough to inflate the strongest bubble in history.

Signs of a Bubble

While the Manhattan Project and the Apollo Program are two directly government-regulated cases in the book, I believe Trump's bubble is more likely to develop like Moore's Law.

As Byrne and Tobias wrote: "Moore's Law may be the most persuasive and enduring example of a bidirectional bubble, where the expectations of progress in one field drive the development of another, which in turn promotes growth in the first field."

There is also a bidirectional relationship in the Trump bubble. The message conveyed by the Trump administration is that building, investing, and achieving big goals will become easier, and this expectation itself has already sparked greater enthusiasm among people to build, invest, and achieve big goals. The more energy and excitement people invest, the easier it becomes for the government to fix the machine.

Augustus Doricko of Rainmaker expressed this sentiment perfectly: "We have four years to go all out as much as possible."

With control of the Senate, House of Representatives, and the executive branch, the government promises to streamline processes and eliminate friction. In return, the private sector plans to increase risk, investment, and innovation.

While the actual difficulty of streamlining processes and eliminating friction may far exceed expectations, merely generating the belief in this possibility is enough to trigger a bubble.

Armed with the belief that anything is possible, people are sharing what they think the government could do.

Notice this meme: Make America X Again. Bryan Johnson posted a photo of himself with RFK Jr. and captioned it "MAHA," which stands for Make America Healthy Again.

Bryan Johnson is a tech founder, and if he can connect with key figures responsible for the American health system, will people start to feel that the government might be willing to listen to his suggestions about health and other matters?

You might think this is a good thing or a bad thing, but what we need to focus on now is the dynamics of the bubble. The characteristic of a bubble is that people begin to feel that they are just a tweet away from influencing government policy. This also means that more and more people are starting to share their policy suggestions on Twitter. Interestingly, some of these ideas might actually become a reality.

Of course, the government cannot see all the proposals, and only a small fraction will be considered, with even fewer being implemented. But just like with lotteries or incentive mechanisms, it is almost certain that the government will attempt to push some previously unimaginable proposals, some of which may succeed. And when these successes occur—such as addressing global warming through sulfate injection—the government will become bolder in trying things that were previously unthinkable.

By making people believe that change is possible—even if it is just projecting their hopes onto that change—the Trump administration is making it "cool" to collaborate with the government. Bryan Johnson is one of them, and the world's richest person, Elon Musk, who just caught a 22-story rocket with chopsticks, is also in the mix. Those geniuses who had never thought of collaborating with the government are now looking for opportunities to get involved. Sean Maguire from Sequoia revealed that he received inquiries from some PhDs in physics asking how they could work in the Trump administration.

This is parallelization and coordination at the national level. Parallelization is that more and more entrepreneurs want to build within a more efficiently operating American machine; coordination is that more and more talented individuals want to participate in the work of fixing this machine because they believe there is now an opportunity to do so.

These phenomena reaffirm the self-fulfilling prophecy. More and more talent is being invested in the work of fixing the government, and they are receiving strong public support, which will make them more likely to succeed in fixing the government. This, in turn, will allow those committed to building complex enterprises—whether in cryptocurrency or energy—to achieve more success in constructing their "machines."

People believe that ambitious projects striving to advance within the existing government framework will ultimately succeed, and this belief triggers real "fear of missing out" (FOMO). This phenomenon is particularly evident in the cryptocurrency market, where the high liquidity and rapid price fluctuations of cryptocurrencies amplify this anxiety.

As of November 12, 2024, Source: Artemis Terminal

Investors are asking what achievements cryptocurrencies could achieve if the SEC no longer tries to exclude them through currently undefined legislative means.

Interestingly, this process has also given birth to a mini-bubble. Byrne and Tobias mention Bitcoin in "Boom," noting: "The value, security, and network effects of any currency are driven by adoption, and Bitcoin is no exception."

a16z Crypto has been emphasizing the price innovation cycle in cryptocurrencies: when prices rise, it attracts more attention and developers, who then begin to build products, making cryptocurrencies more valuable over time.

2024 Cryptocurrency Status, Source: a16z crypto

This cycle is particularly evident in the cryptocurrency space because cryptocurrencies inherently possess liquidity, but similar dynamics are also playing out across various industries: rising prices attract talent, and talent creates things that support rising prices. This is the manifestation of hyperstition and reflexivity.

I believe the strength of the Trump bubble lies in its ability to spawn these "little bubbles" everywhere, like a "bubble machine."

When the construction of cryptocurrencies becomes legitimate, more people will dive in to create more valuable crypto products; when the approval process for new nuclear reactors becomes feasible, more companies will begin to build these reactors; when SpaceX can launch rockets freely without FAA interference, it will launch more rockets.

This also brings us back to the concepts of FOMO and YOLO. If you are paying attention to these trends, it is hard not to feel that something significant is happening, and you urgently need to participate. I also feel that I am not participating enough, of course, I mean financially, but I also refer to something deeper, a kind of spiritual feeling. I feel that I have done enough, but only now do I realize that I should do more and need to double my efforts to catch up—and this mindset is a characteristic of a bubble.

Byrne and Tobias mention in "Boom" that bubbles are often accompanied by a spiritual pursuit, writing: "To identify the fields of future technological advancement, one can start from the transcendence they bring on a spiritual level."

It indeed feels like we are facing an unprecedented opportunity to truly build the future we envision, to realize future visions ahead of time. It’s just that no matter how much you invest, there will always be someone who invests more than you. It is precisely this atmosphere filled with dynamism that will coordinate thousands, even millions of people, pushing them to participate in this great project, whether it is improving existing systems or creating a brand new, more achievable system. All of this is almost destined to trigger excessive risk-taking and overheating of investment, which is also a hallmark of bubbles.

Although "hardcore technology" (such as vertically integrated companies) is increasingly valued, many investors still tend to act cautiously, believing that the construction of these technologies is fraught with uncertainty and capital-intensive, even though once successful, the returns are extremely lucrative. However, I expect that in the coming months, we may see phenomena of over-investment similar to those in the cryptocurrency market across various fields, from nuclear energy to aerospace.

But this is actually a good thing! The allure of bubbles lies in the fact that even if some investors may incur losses, it will not trigger a systemic collapse, and the world will still make progress in solving major problems. Ultimately, those companies that might not have survived will stand out and push the world in a better direction.

Of course, all of this will not be smooth sailing and will inevitably be filled with volatility and uncertainty. But I firmly believe that this process will yield extraordinary results.

How Bubble Machines Form

In 2021, Musk shared his five-step method for improving manufacturing and design processes in a very famous video with "Everyday Astronaut":

Source

• Make requirements more reasonable
• Eliminate unnecessary parts or processes
• Simplify or optimize
• Accelerate cycle time
• Automate

If you view America as "the machine that makes the machines," then Musk's approach to building SpaceX as "the machine that makes the machines" is not only worth noting but is also a very interesting point. Because this approach is very similar to the plans proclaimed by the Trump administration:

• Make requirements more reasonable → Regulatory reform (e.g., NEPA, NRC)
• Eliminate unnecessary parts/processes → Eliminate agencies like the Department of Education
• Simplify/optimize → Streamline remaining processes
• Accelerate cycle time → Increase approval speed
• Automate → Modernize government systems

Clearly, these changes may bring some risks! For example, SpaceX's rockets sometimes explode, indicating that overly aggressive innovation may encounter problems.

However, once these improvements and optimizations are implemented, many things will become smoother. This is also why people are filled with enthusiasm because they believe this is the first government in years to truly challenge limits and test the boundaries of the existing system.

But more critically, this "breaking the norm" approach symbolizes a renewed embrace of risk.

Conclusion

On November 13, Trump announced that Elon Musk and Vivek Ramaswamy would jointly lead the newly established "Department of Government Efficiency."

According to Trump, DOGE will "clear bureaucratic obstacles for my government, cut excessive regulations, reduce wasteful spending, and reshape federal agencies." He also stated that this would "pioneer an unprecedented entrepreneurial approach to government management" and "unleash our economic vitality." In simple terms, the goal is to fix "the machine that makes the machines" and drive a series of reforms.

Can you understand why people are so excited? I mentioned Musk's machine-fixing process in the previous section, and at that time, I felt this metaphor was somewhat "too apt," and then right after I finished writing, Trump appointed Musk to co-lead the organization responsible for "fixing the machine." Musk is undoubtedly the best candidate for this position, and he gladly accepted the task.

Although many point out that DOGE has no actual decision-making power and can only make suggestions, that is not the point. The key is that both supporters and opponents are beginning to believe that the government might really become more efficient. Even if Musk and Vivek cannot directly cut agencies and regulations, they can at least reveal the most wasteful parts of the federal government and push for change through public power.

This is a long-awaited opportunity, and people feel they might be able to personally participate in making the "big machine" of America run more smoothly. Musk also stated on the X platform that they would publicly share all actions of DOGE.

Vivek stated on Twitter that DOGE would collect public opinions through crowdfunding: "Americans vote to support comprehensive government reform, and they should have the opportunity to participate in fixing the government."

This is exactly what was mentioned earlier; any good, healthy bubble can inspire people's sense of participation. People will feel that they can really fix the government, and thus invest more energy in trying to improve it. This may manifest in submitting suggestions or calling congressional representatives to urge them to adopt DOGE's recommendations.

Whether the final outcome is exactly as expected is not the most important thing. The key is that when a bubble forms, people firmly believe that things will move in that direction, and this belief itself will shape their actions.

The current issue is no longer the Democrats versus the Republicans, regardless of the dissatisfaction and divisions in people's hearts; more importantly, it is the actions of those who believe that the American people can change the status quo and make America and the world better, versus those who think that the bureaucratic system should do these things for us. This is far more important than mere political struggles!

No one wants to pay more taxes to fund a wasteful bureaucracy. No one wants to feel that their country is in trouble but feels powerless. No one wants to see things progress 100 times slower than they should or cost 100 times more than they should. In many ways, we can actually reach a consensus.

This is a "meta-bubble" that may give rise to turning-point bubbles in the coming decades; welcome to the Trump bubble.