Arthur Hayes's 2028 Prediction: Bitcoin To Hit One Million, Altcoins To Shed Blood

Original Title: Fatty Fatty Boom Boom

Original Author: Arthur Hayes

Original Translator: DeepTech TechFlow

Surprisingly, there are many similarities between the advocate of "Fat Acceptance," singer Lizzo, and the economic imbalance of the "Pax Americana." Make no mistake, whether you believe in the "aesthetics of plumpness" is irrelevant. However, the metabolic issues caused by obesity, while sometimes seemingly "beautiful," are ultimately deadly. Similarly, while the American economy benefits some, the extreme societal imbalance may ultimately lead to revolution.

The waistlines and economic conditions of the "Pax Americana" era were not always so imbalanced. In the mid-20th century, Americans were neither universally obese nor was the economy severely out of balance. But over time, the problems have worsened.

The food system has been hijacked by Big Ag, who promote their processed "delicious" but nutritionally deficient lab foods through falsified nutritional guidelines. Americans have become increasingly obese and plagued with chronic diseases after consuming these nutrient-poor foods, and Big Pharma has taken the opportunity to introduce various drugs to treat the symptoms of these metabolic diseases (such as diabetes) rather than the root cause. In a scenario where corporations influencing the food supply are unwilling to be restrained, societal discourse has shifted to a narrative of "Fat Acceptance" or "Fat is Beautiful," telling obese individuals that it is not the fault of a corrupt system, but they should take pride in their "beautiful body." As a result, stars like Lizzo are elevated, despite being a talented singer, her message promotes a lifestyle that could lead to premature death. Lizzo represents the current state of obesity, a situation that is extremely lucrative for a few corporate giants.

The U.S. economy has also been hijacked by the "money printer." Prior to the establishment of the Federal Reserve in 1913, when the speed of credit expansion exceeded cash flow support, financial panics ensued. Some bad businesses and some good businesses would go bankrupt, the economy would reset, credit would be cleared, and the system would be revitalized. However, since the birth of the Federal Reserve, each credit bubble has been accompanied by a significant amount of money printing to address it. Starting from the Great Depression of the 1930s, the economic imbalance in the United States has never truly been corrected.

This is the fundamental reason for the imbalance of trade and financial capital in the "Pax Americana" era, rather than the level of tariff policy (Daniel Oliver wrote a brilliant article discussing why excess credit is the root of trade imbalances, while tariffs are merely a red herring). The current situation has led to issues of inequality, despair, and addiction among the common people, while the "Masters of the Universe" who control stocks, bonds, and real estate assets enjoy unprecedented wealth in human civilization.

Not all hope is lost, change is still possible, but it can be achieved through a difficult path or an easy one.

For decades, the pharmaceutical industry has been peddling drugs that promise to "miraculously" melt away fat. Remember Fen-Phen? None of these drugs really worked. Thus, the only viable solution has been a complex, unpopular, expensive, and low-margin one: hitting the gym, reducing consumption of cheap processed foods, and switching to organic fresh produce. However, even these methods are inadequate as once in an "obese state," the body adjusts hunger and metabolism to maintain the obese state. According to some scientists, it may take up to seven years to change the body's metabolism to support a slimmer figure.

Then, Denmark brought forth the "easy button." GLP-1 agonists, drugs initially used to treat diabetes, were found to reduce people's cravings for food as well as addictive substances like alcohol and nicotine. Drugs like Ozempic, Wegovy, and Monjaro significantly reduced weight in a short period of time. Currently, these drugs have proven to be sufficiently safe to the point where some believe many formerly obese individuals may take them for life. Thanks to modern medicine, if you can afford it, these injections or pills provide a simple "off switch" for obesity.

Even Lizzo ultimately opted for this "miracle weight loss drug" to avoid premature death from preventable metabolic diseases. Awesome! However, she might not be invited to stand next to Kamala Harris in 2028... Solving the U.S. trade imbalance has both painful and painless solutions. For U.S. politicians, implementing policies that cause discomfort or unease to the swing voter base undoubtedly results in electoral defeat.

Prior to this, the Trump administration tried the difficult and painful route, only to quickly find out that the median voter couldn't tolerate the high-priced American goods that might take a decade to materialize or the empty shelves due to U.S. manufacturers not being able to produce the volume of goods once supplied by China in the meantime. This discontent was communicated to congressmen and senators, especially in Republican districts, causing the Trump team to backtrack, now having to find alternative ways to achieve the same rebalancing. Actions to reverse maximalist tariffs are underway, with the recent announcement of a bilateral reduction of U.S.-China tariffs to around 10% within 90 days as evidence.

A successful general can retreat from the wrong strategy and still achieve victory.

Another U.S. trade rebalancing approach more politically amenable is attacking capital account surpluses through various forms of capital controls. These capital controls would act as a tax on foreigners purchasing and holding U.S. financial assets. If foreigners relinquish buying U.S. financial assets due to high taxes, they must also give up selling cheap goods to the U.S. If foreigners still sell cheap goods and buy assets, then the tax revenue can be recycled back to the median voter through stimulus checks or reduced income taxes. Through this method, Trump can claim he's cracking down on those "evil foreigners" and providing lower taxes for the U.S. public. This strategy wins midterm and presidential elections and achieves the same goal of reducing the influx of cheap foreign goods into the U.S. consumer market and reshoring manufacturing capacity domestically.

The ultimate result of Trump's shift from difficult solutions to easy solutions is that foreign capital will gradually and then suddenly flee U.S. stocks, bonds, and real estate. Subsequently, the U.S. dollar will depreciate against the currencies of surplus countries. The issue faced by the U.S., particularly U.S. Treasury Secretary Bessent, is who will finance the debt of U.S. Treasury bonds if foreigners transition from net buyers to sellers. The issue faced by governments and businesses in surplus countries is where to "store" these surpluses if they continue to operate at a surplus. The former's answer is printing money, while the latter's answer is to purchase gold and Bitcoin.

This article will focus on the trade accounting identity, the functioning of capital controls — the "boiling frog" theory, how these taxes affect capital flows in surplus countries, how Bessent overtly and covertly prints money to fund the U.S. Treasury bond market, and why Bitcoin will emerge as the best-performing asset during this global currency transition.

Trade Accounting Identity and Geopolitical Issues

Let's use this ironic example to illustrate the relationship between the trade account and the capital account.

It's now 2025, and Trump's re-election emphasized the right of little boys to play with action toys once again. Mattel is relaunching the "He-Man" action toy with an AR-15 plastic rifle attachment. Masculinity is back, baby... The toy's spokesperson is Andrew Tate! Mattel needs to rapidly produce one million units at the lowest price. Since the U.S. manufacturing base is nearly non-existent, Mattel must purchase these toys from a factory in China.

Mr. Zhou owns a plastic toy manufacturing company in Guangdong Province. He agrees to Mattel's terms, one of which is payment in U.S. dollars. Mattel wires the money to Mr. Zhou, and a month later, the toys arrive. Wow, that was fast. Mr. Zhou's profit margin is 1%. Competition in China is fierce. Due to the large volume of orders he handles, the total revenue from orders from Mattel and similar companies amounts to $1 billion. Mr. Zhou must decide how to handle these U.S. dollars. He doesn't want to bring them back to China by converting them to renminbi since the renminbi has no productive use considering the low rates on government and corporate bonds and the banks barely paying any interest on deposits.

Mr. Zhou is not fond of all this anti-China rhetoric as he felt unwelcome the last time he was in the U.S. His daughter attends the University of California, Los Angeles (UCLA), and she receives strange looks for driving the latest convertible Phantom while ordinary Americans take the LA subway, ahem, I mean Uber to class. Therefore, even though the U.S. Treasury yield is one of the highest government bond yields in the world, he would rather not purchase these bonds if possible. Mr. Zhou has a liking for Japan, and the long-term government bond yields are much higher than before. He asks his banker to help him purchase Japanese Government Bonds (JGB). The banker tells him that the Japanese government does not want foreign entities to buy their debt massively as it would appreciate the yen, and they want to maintain their export competitiveness. If Mr. Zhou sells the dollars to get the yen needed to purchase JGB, the yen will appreciate.

The JGB market is the only market large enough to absorb his surplus, and Japan does not want foreigners to drive up the value of their currency. Mr. Zhou reluctantly accepted this reality and used his US dollar export earnings to purchase US Treasury bonds.

What impact does this have on the US's trade and capital accounts?

US Trade Account:

· Trade Account Deficit: $1 billion

· Mr. Zhou's Bank Account: $1 billion in cash

Purchase: $1 billion in Treasury bonds.

Because this surplus did not flow back to China, Japan, or elsewhere but rather was recycled back into US Treasury bonds:

US Capital Account:

· Capital Account Surplus: $1 billion

The moral of this part of the story is that if other countries are unwilling to let their currency appreciate, a trade account deficit will transform into a capital account surplus. This is the current situation: no market, apart from the US, is large enough or willing to absorb global trade imbalances. This is also why, despite the US issuing trillions of dollars in debt annually to fund the government, the US dollar remains strong. By the way, many years ago, China inquired with Japan about purchasing Japanese government bonds (JGB), but Japan's response was, "No, unless you let us buy Chinese government bonds (CGB)." China replied, "No, you can't buy CGB." As a result, these two countries continue to dump their surplus capital into US financial assets.

In the current global trade landscape, any discussion about the renminbi, yen, or euro replacing the US dollar as the global reserve currency is unfounded unless China, Japan, or the EU are willing to open their capital accounts and have financial markets large enough to absorb surplus nations' income.

Next, Trump announced that the US must revitalize manufacturing and reverse the trade account deficit. His current tool of choice is tariffs. But let's analyze why tariffs are politically infeasible.

Take Mattel, for example, a company that sells cheap toy dolls to little boys. However, most families are financially strapped, some not even having a $1,000 emergency savings. If the price of the toy doll goes from $10 to $20, little boy Jonny won't be able to afford it. Without tariffs, Mattel can sell the doll for $10 because of its low production costs in China. But now, Trump imposes a 100% tariff on Chinese goods. Mr. Zhou cannot bear the cost of the tariff, so he passes it on to Mattel. Since Mattel has a profit margin of only 10%, they pass the cost on to consumers.

As a result, the price of the doll soared to $20. This was too expensive for most families, so they chose not to buy it. However, little boy Jonny didn't understand why his parents wouldn't buy him his beloved action figure. His parents worked hard driving for Uber and doing food delivery gigs, barely making ends meet, and now, thanks to Trump, toys were too expensive, leading to tantrums at home. When the next election comes around, will his parents vote Republican or Democrat?

Leading up to the election, they might get their child diagnosed with Attention Deficit Hyperactivity Disorder (ADHD) and put him on medication to calm him down. Meanwhile, the Democratic Party will make "making toys and other goods affordable again" a key part of their platform, advocating for a return to "free trade" policies that allow China to continue flooding the American market with cheap goods. The Democrats will argue that all smart economists agree that "free trade" allows Americans to enjoy affordable goods and maintain their standard of living, while Trump and his advisors are just a bunch of clueless idiots. If things continue on the current trend, the Democrats may stage a comeback in the 2026 midterm elections.

Can Mr. Zhou evade tariffs by moving production to countries with lower tariffs? Absolutely.

Since the early 2000s, Mr. Zhou has amassed a great deal of wealth by investing in factories in Mexico, Vietnam, Thailand, and other countries. He started producing dolls in these places and then shipping them to the U.S. With reduced effective tariffs, he can sell the dolls for $12 instead of $20. Parents can afford to spend an extra $2 to avoid tantrums and prevent their children from becoming overly reliant on prescription drugs at a young age.

Because Trump did not propose a blanket tariff on all markets but instead opted for piecemeal bilateral agreements, savvy manufacturers like Mr. Zhou can always find a low-tariff path into the U.S. The Trump team is aware of this, but due to geopolitical considerations such as whether a country hosts U.S. military bases, sells critical goods to the U.S., or sends troops to participate in long-term American wars, they cannot completely shut off the economies of allies, as these countries may choose to no longer cooperate with the "world police" of the U.S.

Without unified tariffs, there will always be countries or regions that serve as "transshipment arbitrage points." For instance, China leverages mechanisms like Taiwan Semiconductor Manufacturing Company (TSMC) and NVIDIA to obtain advanced semiconductors and AI chips through arbitrage, similarly allowing Chinese goods or goods owned by Chinese manufacturers to evade high tariffs on products exported directly from China to the U.S.

Ultimately, tariffs cannot dramatically reduce the U.S. trade deficit. The American public is not willing to wait five to ten years until manufacturing returns enough to fill store shelves with inexpensive goods again. If the trade deficit does not significantly shrink in the next 12 months, Trump's policies will only exacerbate commodity inflation and leave economically struggling individuals without any tangible benefits to show for it.

Ultimately, the issue is not about the tariffs themselves, but for tariffs to truly be effective, every country must face the same tax rate, with no exceptions or exemptions. However, this is not feasible in reality, especially when surplus countries are not just "evil China," but also include staunch allies like Japan and Germany. Relying on Japan to continue naval containment of China and Russia, host tens of thousands of U.S. troops, and sustain over 120 military bases, all while allowing its manufacturing sector to be crushed by tariffs, is absurd.

Therefore, this 90-day tariff suspension policy will ultimately become a permanent postponement.

Tax Me, Baby

If, due to domestic politics and geopolitics, the attack on the trade account deficit is paramount, then what about shifting focus to the capital account surplus? Is there a way to make foreign investors less eager to accumulate U.S. financial assets? The answer is yes. However, for those wealthy individuals who strongly believe in the glory of the free market, this approach may seem dirty and underhanded—this is where Capital Controls come in. Specifically, I am not referring to the U.S. banning or severely restricting foreigners from holding financial assets (as is the practice in most countries worldwide), but rather taxing foreign ownership of assets. Foreigners can still hold most U.S. financial assets in any scale, but the value of their assets will be subject to a certain percentage of taxation.

This tax revenue will be returned to the American people by reducing their income tax or other government subsidies to ensure their support. The result may be that foreigners continue to generate a surplus by selling goods to the U.S., but their profits are taxed; or they reduce exports to the U.S. to avoid taxes; or they turn to buying other non-national financial assets, such as gold or Bitcoin.

There are various ways to tax foreign capital, but to simplify the illustration of the tax effect, let's assume a tax rate of 2% per year on all foreign capital. The focus here is on Foreign Portfolio Assets, which are more liquid assets such as stocks, bonds, and real estate, excluding illiquid assets like foreign car manufacturers owning factories in Ohio.

Currently, the total value of foreign portfolio assets is around $33 trillion. Assuming price stability and no capital outflows due to taxation, let's examine the annual tax revenue.

It is worth noting that the bottom 90% of income earners in the U.S. collectively paid about $600 billion in income tax in 2022. Therefore, Trump could entirely eliminate income tax for the vast majority of voters by levying a 2% capital tax on foreign-held stocks, bonds, and real estate. This is undoubtedly a highly attractive political strategy.

Next, let's examine the comparison between Capital Tax and Tariffs:

Collection Ability:

The U.S. Treasury has full control over the banking system and financial markets. They may not be able to precisely know the exact owner of each asset, but they can differentiate whether the owner of the asset is a U.S. entity or a foreign entity. Therefore, for financial institutions or local governments, it is relatively straightforward to tax only stocks, bonds, and real estate held by non-U.S. entities. In contrast, tariff collection is more complex as it is challenging to accurately trace the origin of each good or its value-add in the supply chain. This also makes tariff policies more susceptible to loopholes.

Uniform Tax Rate: One Tax to Rule Them All

The purpose of the Capital Tax is to eliminate the net capital account surplus, which only requires a single uniform tax rate. If foreign nationals are unwilling to pay this tax, they simply should not buy U.S. financial assets. They can reinvest their export earnings in their domestic market. This taxation will not immediately deter exporters from selling low-cost goods to the U.S., so the impact on the quantity of traded goods will not be immediately apparent. While capital controls could generate revenue to reduce income tax, does it help bring manufacturing back to the U.S.?

Assume an exporter does not want to pay a 2% annual tax on holding U.S. financial assets. They perceive the post-tax net expected return to be lower and opt for investment opportunities in their home country. They sell off the assets, convert back to dollars, and then reconvert the dollars into their currency. The eventual result is a weakening of the dollar and an appreciation of the surplus country's currency (such as the yen). Over time, the dollar will gradually weaken, and the surplus country's currency will significantly strengthen. Eventually, even without tariffs, goods produced in Japan will become more expensive in dollar terms—this is the crux.

U.S.-made goods will become cheaper, while foreign goods will become more expensive over time. This process may take several decades, but either way, American voters will benefit. Either foreign capital stays, pays taxes used to eliminate most voters' income taxes, or foreign capital exits, U.S. manufacturing grows, provides more high-paying job opportunities, and improves voters' income levels. In any case, store shelves will not immediately be empty, nor will there be rampant inflation in product prices.

Steady Capital Controls

I'm a global macro DJ, remixing others' ideas with my own language style and rhythm. Just as every house music track has standard beats, drums, claps, and cuts, my 'beats' revolve around the rhythm of the 'printing press,' hoping to add interesting 'basslines,' 'harmonies,' and 'effects' in the text, ultimately presenting a spectacular 'breakdown' and 'drop' like Solomun.

The reason for saying this is to emphasize that the idea of using capital controls instead of tariffs to shrink the US trade and current account imbalances is not a new one, nor is it my original idea. During the negotiations of the post-World War II Bretton Woods system, economist Maynard Keynes advocated for a "user charge" on surplus countries' capital and recycling it back to deficit countries' capital markets to balance trade and capital flows. More recently, Stephen Miran, current Chair of the Economic Advisory Committee, discussed in his paper "A Guide to Restructuring the Global Trade System" how imposing specific fees on foreign holdings and trading of US financial assets could force a rebalancing of capital flows. Another highly influential macroanalyst (requesting anonymity) has published several articles in the past year arguing that capital controls are necessary, and countries seeking to ally with the US must foot the bill. Additionally, Michel Pettis speculated in a recent webinar that tariffs will not substantially reduce the US's global trade deficit and current account surplus, leading to his conclusion that capital controls are imminent as the government recognizes this as the only way to truly alter the flow of funds.

I mention these individuals to demonstrate that today's financial pundits are all advocating for capital controls rather than tariffs. Investors benefit from being able to observe in real-time how the hardline tariff faction led by Commerce Secretary Howard Lutnick is implementing the plan to reduce US imbalances. However, due to the financial market crash in early April this year, the tariff policy was hastily implemented, and internal strife seems to have subsided. Advocates for capital controls, like Bessent, are now taking over. My description of the effectiveness of capital controls may be as optimistic as Sam Bankman-Fried (SBF) presenting a "pie in the sky" to investors when showing FTX/Alameda's financial situation. However, implementing capital controls in the "Pax Americana" financial market could have serious consequences. I predict that the implementation of capital controls will lead to a rapid surge in Bitcoin prices. This is the core of what I call the "Boiling Frog Theory."

The Unhappened Collapse

Due to the adverse effects of capital controls on US financial assets, these measures will be gradually implemented. The global financial market will slowly come to accept US capital controls as the norm, rather than some kind of heretical doctrine. Just as a frog in slowly heating water does not realize it is about to be boiled alive, capital controls will quietly become the new normal.

Foreigners amass a large amount of US dollars by selling goods to Americans, leaving them no choice but to reinvest these dollars in US stocks, bonds, and real estate. Below are some charts showing the outstanding performance of the US financial markets as foreign capital pours in. The charts below are the cornerstone of all my analysis. If you are a reserve currency-issuing country and must have an open capital account, then a trade deficit will lead to a current account surplus.

The next three charts use data from the early 2002 to early 2025 period, as China joined the World Trade Organization in 2002, and early January 2025 marked a period of high optimism in the U.S. market known as the "Trump to Fix the World" era.

Since 2022, the MSCI USA Index (white) has outperformed the MSCI World Index (gold) by 148%: the U.S. stock market's unique performance.

The total tradable U.S. government debt (gold) has increased by 1000%, but the 10-year U.S. Treasury yield has slightly decreased: the U.S. bond market's unique performance.

The U.S. working-age population of 15-64 years (gold) has only grown by 14%, but the Case-Shiller National Home Price Index (white) has grown by 177%: the U.S. real estate market's unique performance. This is quite astonishing as the data includes the 2008 global financial crisis.

If foreign capital is taxed and they decide at the margin not to invest in the U.S. anymore, then mathematically, stock, bond, and real estate prices must fall. This is a problem, and there are several reasons why. If stocks fall, capital gains tax revenue decreases, which is a marginal revenue driver for the government. If bond prices fall and yields rise, the government's interest expense increases because it must continue to issue new bonds to fund massive deficits and roll over the existing $36 trillion debt. If home prices fall, the predominantly middle-class and wealthy baby boomer Americans who own much of the real estate will see their net worth collapse just when they need that wealth to finance their many years in retirement. These people will vote against the incumbent Republican Party in the November 2026 midterm election.

The "Pax Americana" relies on foreign capital, and if capital controls are implemented, and foreign capital leaves, it spells bad news for the economy. Can politicians, the Federal Reserve, and the Treasury take actions to replace foreign capital and maintain financial market stability? Remember that four-four beat, the Brrr button. Everyone knows the answer. The answer is as it has been. If foreigners don't supply dollars, the government will through the printing press. Here are the policies the Federal Reserve, Treasury, and Republican lawmakers will take to replace foreign capital:

Federal Reserve:

· Cease Quantitative Tightening (QT) on Mortgage-Backed Securities (MBS) and Treasury Bonds.

· Restart Quantitative Easing (QE) on MBS and Treasury Bonds.

· Exclude MBS and Treasury Bonds from the Supplementary Leverage Ratio (SLR).

Treasury Department:

· Increase the amount of quarterly bond repurchases.

· Continue issuing a large amount of short-term Treasury bills (<1 year maturity) instead of long-term bonds (>10 year maturity).

Republican Legislators:

End the conservatorship of Fannie Mae and Freddie Mac (the two major U.S. housing mortgage entities). It doesn't take much effort to imagine the Treasury Department and Republican legislators following Trump's orders, but why would the Fed comply with Trump's demands? The answer to that question is that it's a wrong question. The Fed has already been acting behind the scenes in line with Trump and Bessent's demands. Look at this lovely example highlighted by Luke Gromen:

The Fed is reducing its balance sheet. However, it has some discretion in how that goal is achieved, especially as the policy task is a net decrease rather than uniform decreases across all term categories. Yellen and now Bessent need to fund the government's massive debt. Foreign investors and the U.S. private sector like to purchase Treasury notes because they are short-term bonds and pay interest, making them high-yield cash equivalents that are more popular than low-yield bank deposits. However, no one wants to buy long-term, 10-year plus bonds. To aid Yellen and current Bessent in raising funds, the Fed provided substantial support through QE of 10-year Treasury bonds. Powell cited government deficits as an issue but continued to suppress the 10-year yield with the printing press to keep it politically acceptably low, a dishonest move.

Given that Powell has already been engaged in covert QE, he would also acquiesce to requests from the BBC and powerful commercial banks (such as JPMorgan Chase CEO Jamie Dimon) to cease Quantitative Tightening (QT), resume Quantitative Easing (QE), and grant an SLR exemption. I don't care about his stubbornness in reacting to Trump's calls for easier monetary conditions at press conferences. Powell's position is already set, and he won't shift. Now, let's carry on.

These measures will provide cash through various channels to replace foreign capital lost due to capital controls and increase stock, bond, and real estate prices in the following ways:

Bond prices will rise, and yields will collapse. Due to the Fed's quantitative easing policy, it will be purchasing bonds. Banks will buy bonds as they can use unlimited leverage to make purchases, and they will front-run the Fed. The stock market overall will rise due to applying a lower discount rate to future earnings; certain industries will benefit more than others. Manufacturing companies will benefit the most as the cost of credit falls and availability rises. This is a direct result of the decrease in government bond yields and banks having a larger balance sheet to provide loans to the real economy.

As mortgage rates fall, house prices will rise. The Fed's quantitative easing purchases of mortgage-backed securities will lower mortgage rates. With Fannie Mae and Freddie Mac eager to re-enter the loan origination business, leveraging their implicit government guarantee, the availability of credit will increase. Do not expect these policies to be implemented overnight. This is a multi-year process, but it must happen; otherwise, the U.S. financial market will collapse. Given that politicians cannot handle a financial crisis one week after Liberation Day, they will always somehow push the printing press button.

Will They Withdraw Capital?

Before concluding my Bitcoin price prediction, we must raise a significant question: will foreign capital withdraw? If so, is there any indication that this assumption is becoming a reality?

My assumption, in line with the views of many other analysts, is that the rapid appreciation of certain Asian export currencies (such as the New Taiwan Dollar and the South Korean Won) in recent weeks suggests that capital flows are undergoing a reversal. Therefore, this provides a credible basis for the view that capital controls are imminent, while also indicating that some forward-looking market participants are exiting early. Furthermore, finance ministers responsible for monetary policy are allowing their domestic currencies to appreciate as this particular arbitrage trade is gradually unwound.

Asian corporate, insurance, and pension fund private capital typically move with market trends. Since the 1997-1998 Asian financial crisis, Asian export countries have devalued their local currencies and have pursued a policy of devaluing their currency against the U.S. dollar. Since then, Asian private capital has been engaged in the following operations:

· Capital earned overseas stays overseas.

· Domestic capital is moved overseas, primarily entering the U.S. financial markets for higher returns.

Essentially, this is a massive arbitrage trade. Ultimately, this capital either has to be returned to local shareholders in the form of the local Asian currency or needs to meet liabilities denominated in the local Asian currency. Therefore, Asian private capital is effectively shorting the local currency. In some cases, they even borrow domestically because central banks have created vast local currency bank deposits to keep the local currency weak, resulting in very low domestic interest rates. Concurrently, Asian private capital holds long positions in high-yield dollar assets such as stocks, bonds, and real estate. They do not hedge these dollar longs as the nationally supported policy itself is to drive the local currency price down.

This arbitrage trade will be unwound in the following two scenarios:

· Convergence of yield differentials between U.S. and local financial assets.

· Asian currencies beginning to appreciate relative to the U.S. dollar.

Capital controls have reduced the net return on U.S. financial assets. If the net return decreases, or if the market expects this trend to continue due to ongoing foreign capital tax increases, Asian private sector capital will begin unwinding their arbitrage trades. They will sell stocks, bonds, and real estate, and then exchange dollars for local Asian currencies. At the margin, this will result in some U.S. financial assets experiencing price declines, while Asian currencies appreciate relative to the U.S. dollar.

On the U.S. asset side, the first and most critical battleground will be the U.S. Treasury market, especially the long-term bond market with maturities of 10 years and above. This market is most vulnerable to foreign selling as hardly anyone is willing to hold these "trash bonds." The corresponding currency market battleground will be the currency of certain Asian export nations.

When the U.S. dollar to Korean won (USDKRW) price falls, the won appreciates relative to the dollar. Many sovereign and private foreign funds are also engaged in similar arbitrage trades. If the reversal of Asian private capital inflows is underway, these funds must also unwind their positions. Therefore, even before the scale and scope of U.S. capital controls are clear, foreign investors holding U.S. assets and domestic currency liabilities must begin selling stocks, bonds, and real estate, and repurchasing their domestic currency.

Ultimately, what will force the Federal Reserve, Treasury, and politicians to implement partial or full-scale currency printing measures is the slow and irreversible rise in the 10-year bond yield. As capital inflows intensify, the yield will rise. Due to the significant leverage embedded in the system, the strike price of the financial market's yield will be between 4.5% and 5% on the 10-year bond. As the yield rises, bond market volatility will increase, which can be observed through the MOVE index. Remember, when the index exceeds 140, policy action is immediate and certain. Therefore, even though rising yields constrain stock market rebounds, Bitcoin will also witness accelerated currency printing through this softening.

Bloomberg Asia Dollar Index (gold) and U.S. 10-Year Treasury Yield (white). When the dollar index rises, Asian local currencies strengthen, and we see a corresponding rise in the 10-year yield.

Lifeboat

As the U.S.-China relationship gradually fractures, the global financial markets will Balkanize. Currency policies driven by national interests will necessitate capital controls, a policy that will be implemented locally, including in the U.S. No matter who you are, you cannot guarantee that your capital will be able to invest in assets within the global system with the highest returns and lowest risks. In the past, gold was the only flow connection between different financial systems, but now Satoshi Nakamoto has given believers Bitcoin!

As long as there is the internet, you can convert fiat currency to Bitcoin.

Even if centralized exchanges are banned, banks are prohibited from processing Bitcoin-related transactions, you can still convert fiat currency to Bitcoin. Since 2017, China effectively banned centralized exchanges from operating on a centralized limit order book. The over-the-counter Bitcoin market in mainland China remains very active. So, take your money out now! Listen to my speech at a cryptocurrency finance conference earlier this year to understand why capital controls are about to be implemented in the EU.

A big question is whether the Trump administration will attempt to sink the two global capital lifeboats: gold and Bitcoin. I believe they won't because he and his deputies believe that the arrangement of U.S. Treasury bonds becoming the global reserve asset after 1971 did not benefit the part of Americans who were pushed into power. They believe that America's financialization has led to a decline in military preparedness, manufacturing capacity, and social harmony. To address this issue, gold and/or Bitcoin will be elevated as neutral global reserve assets. National imbalances will be balanced with gold, while individuals with Bitcoin.

We know that the Trump team favors gold because it was exempted from tariffs at the outset. We also know that the Trump team favors Bitcoin due to regulatory changes. Although I think these measures may not be the true fair expansion of Bitcoin needed under Pax Americana, you cannot deny that the retreat of various law enforcement agencies is a significant step in the right direction. Considering that we know the total foreign investment portfolio assets amount to $33 trillion, the next question is how much capital will be withdrawn from the U.S. and flow into Bitcoin. Depending on how fast you want to complete this, it determines how much proportion of assets will flee to Bitcoin.

If 10% of these assets (3.3 trillion USD) were to flow into Bitcoin in the coming years? Calculated at the current market price, exchanges hold about $300 billion worth of Bitcoin. If 10 times the capital tries to squeeze into the market, the price will rise far more than 10 times. This is because the final price is set marginally. Of course, if the price soars to $1 million, long-term holders will emerge to sell their Bitcoin for fiat, but as these portfolio assets migrate to Bitcoin, an epic short squeeze will follow.

Bitcoin is the superior vessel for global financial Balkans capital flow because it is a digital holding asset. Storing and transferring wealth does not require intermediaries. While gold has a 10,000-year history of non-national capital, it can only circulate in digital form on paper. This means you must trust financial intermediaries to store your physical gold and then trade a digital receipt. These intermediaries will be restricted by financial regulations aimed at isolating capital domestically to tax it to fund state-prioritized industrial policies. Therefore, unless you are a state or quasi-state actor, gold as a physical holding asset cannot move quickly in the global digital economy. Bitcoin is the perfect and only lifeboat for global capital that needs to leave the U.S. and elsewhere.

Additional bullish momentum will come from the US defaulting on its massive national debt. When a $1000 bond matures, you will receive $1000, meaning you will get back your principal in nominal terms. However, that future $1000 will buy fewer energy units. Since the 2008 global financial crisis, the US has started seriously defaulting on the real value of its debt by deciding to solve the issue through money printing. But post-COVID, the pace of default has accelerated. This trend will speed up again as the Trump team revitalizes the US economy by devaluing the debt relative to hard currencies like gold and Bitcoin. This is a real revelation from the "Liberation Day" tariff drama. With businesses better rebuilding locally, nominal growth will surge; however, high-unit-digit nominal GDP growth will not match the high-unit-digit yields on debt and bank deposits. This inflation will manifest in future gold and Bitcoin prices, just as it has in the past.

This chart shows the performance of the US Long-Term Bond ETF (TLT) priced in gold (gold) and Bitcoin (red) from 2009, with 100 as the baseline. From 2021 to date, bonds have depreciated by 64% and 84% relative to gold and Bitcoin, respectively.

Foreign capital inflows and the devaluation of the massive US national debt stock will be the two main catalysts propelling Bitcoin to $1 million between now and 2028. I mention 2028 because that is the timing of the next US presidential election, and it is unknown who will win and what policies will be implemented. Perhaps, through some divine intervention, the US public will be ready to accept the "currency hangover" from a century of profligacy and rid society of the decaying credit that is destroying it. Of course, I am not very hopeful about this, but it is not entirely impossible either. Therefore, now is the time to seize the opportunity and not miss out when the "Sun King" (referring to the current market environment) shows favor towards Bitcoin.

Trading Strategy

From a macro perspective, as the Chief Investment Officer (CIO) of Maelstrom, I have completed my task. At the end of January, I reduced risk and increased fiat holdings. Subsequently, from the end of March to the beginning of April, I gradually re-entered the market. During the one-week financial market crash around "Liberation Day," we maximized our exposure to cryptocurrencies. Now is the time to decide which quality "shitcoins" will outperform Bitcoin in the next wave of the bull market.

I believe this time the market will reward "shitcoins" that have real users who pay real money for the product or service and protocols that return part of the profit to token holders. Two projects stand out, and Maelstrom bought them near the bottom; they are $PENDLE and $ETHFI. Pendle will lead the crypto fixed income trading market, which I see as the largest undeveloped opportunity in the crypto capital markets. Ether.fi will be the "American Express" of the crypto world, a prototype crypto financial institution targeting wealthy holders. I will provide further commentary on these "shitcoins" in subsequent articles.

While I believe Bitcoin will reach $1 million, that doesn't mean there isn't an opportunity for tactical short plays. Capital controls and money printing are coming, but the road from here to there is bumpy. The Trump team has not entirely bet on capital controls, so it can be expected that those who hope Trump will lead the empire in a different direction will speak up again. Trump doesn't have a fixed ideology; he adjusts course based on environmental constraints, meandering toward his goals. Therefore, the trend is your friend—until it isn't.

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