Arthur Hayes' new article: He has increased his holdings in stablecoins and is waiting for an "epic" buy the dip opportunity at $80,000!

Original author: Arthur Hayes

Original Title: Snow Forecast

Original text compiled by: Luke, Mars Finance

Snowfall forecast

It’s that time again when I transform into a “keyboard meteorologist.” Concepts like La Niña and El Niño flood my vocabulary. Predicting the direction of snowstorms is just as important as forecasting snowfall amounts, as it directly affects where I should go skiing. I use my limited weather knowledge to comment on when autumn will end and winter will begin in Hokkaido, Japan. I also discuss with other local ski bums my dream of an early start to the powder season. However, the app I check most frequently on my phone isn’t my favorite cryptocurrency chart app, but the Snow-Forecast app.

As data points came in one after another, I had to decide when to head to the slopes with incomplete information. Sometimes, you can't predict the weather until the day before you put on your skis. A few seasons ago, I arrived in mid-December and found the entire mountain covered in dust. One lift line was open, but it had to serve thousands of skiing enthusiasts. To ride a groomed run with sparse snow suitable for beginner to intermediate levels, people waited in line for several hours. The next day, heavy snow fell, and I enjoyed an epic powder run at my favorite ski resort, surrounded by glades.

Bitcoin is the free market barometer of global fiat liquidity. Its trading is based on expectations of future fiat supply. Sometimes reality aligns with expectations, and sometimes it does not. Money is politics. And the rapidly changing political rhetoric can influence the market's expectations of the future supply of “dirty fiat.” Our imperfect leaders sometimes call for issuing more and cheaper currency to boost the asset portfolios of their supporters (who hold large amounts of real estate, stocks, and cryptocurrencies); other times, to combat inflation (which can destroy the livelihoods of ordinary people and threaten their re-election or dictatorship), they call for the opposite measures. Just like in science, in trading, it is wise to maintain “strong convictions loosely held”.

After the so-called “American Liberation Day” defeat on April 2, 2025, I called for “Up Only!” I believe that President Trump and his Treasury Secretary “Buffalo Bill” Bessent have learned their lesson and will no longer try to change the world financial and trade system too quickly. To regain support, they will print money to distribute benefits to their supporters. On April 9, Trump “sounded the retreat” and announced a pause on tariffs, which seemed like the beginning of a great depression, but turned into the best buying opportunity of the year. Bitcoin rose 21%, and some shitcoins (mainly Ethereum) also increased, while Bitcoin's market share dropped from 63% to 59%.

However, the recent implied liquidity expectations for Bitcoin in USD have worsened. The price of Bitcoin has fallen 25% since hitting an all-time high at the beginning of October, and many altcoins have been hit harder than the capitalists in the New York mayoral election. What exactly has changed all of this? The statements from the Trump administration have not changed. Trump continues to criticize the Federal Reserve for maintaining excessively high interest rates. He and his aides continue to discuss stimulating the real estate market through various means. Most importantly, Trump has compromised with China at every critical moment, hesitating to reverse the trade and financial imbalances between the two major economies because the economic and political pain resulting from it is simply unbearable for politicians who must face voters every two to four years. What has also not changed is the contraction of USD liquidity, and the market now places even more emphasis on this than on the statements from politicians.

( Chart: US Dollar Liquidity Index vs Bitcoin )

My USD liquidity index (in white) has dropped by 10% since April 9, 2025, while Bitcoin (in gold) has risen by 12%. This divergence is partly due to the Trump administration's positive liquidity rhetoric. Part of the reason is that retail investors view the inflow of funds into Bitcoin ETFs and the mNAV (market value relative to net assets) premium of DAT (Digital Asset Treasury Company) as evidence that institutional investors want to hold Bitcoin.

Institutional investors are flocking to Bitcoin ETFs, or at least that’s the narrative. As you can see, the net inflow of funds from April to October has provided continuous buying pressure for Bitcoin, even as USD liquidity is declining. I must add a point of clarification to this chart. The largest ETF by assets under management (BlackRock's IBIT US) has its largest holders using the ETF for basis trading; they are not actually going long on Bitcoin. They are shorting Bitcoin futures contracts listed on the Chicago Mercantile Exchange (CME) while buying the ETF to profit from the spread between the two. [1] This practice is capital efficient because typically their brokers allow them to use the ETF as collateral for their short futures positions.

( Chart: The Top Five Holders of IBIT US )

The following are the five major holders of IBIT US. They are all large hedge funds or investment banks focused on proprietary trading, such as Goldman Sachs.

( Chart: Binance BTC/USDT Annualized Basis )

The above chart shows the annualized basis obtained by these funds by buying IBIT US and selling CME futures contracts. Although the chart displays data from the Binance exchange, the annualized basis of CME is basically the same. When the basis is significantly higher than the federal funds rate, hedge funds rush in, resulting in a continuous large net inflow of ETF funds. This creates an illusion for those who do not understand the microstructure of the market that institutional investors have a strong interest in Bitcoin, while in fact, they do not care about Bitcoin at all; they are just looking to gain some extra yield above the federal funds rate by playing in our “sandbox.” When the basis declines, they quickly sell their positions. Recently, with the decline in the basis, there has been a massive net outflow in the ETF market. Now, retail investors believe that these institutional investors do not like Bitcoin, creating a negative feedback loop that prompts them to sell, further lowering the basis, ultimately leading to more institutional investors selling ETFs.

The Digital Asset Trust (DAT) provides institutional investors with another way to gain exposure to Bitcoin. Strategy (MSTR US) is the DAT that holds the largest amount of Bitcoin. When its stock trading price is significantly higher than its Bitcoin holdings (i.e., market value relative to net asset (mNAV) premium), the company can acquire Bitcoin at a lower cost through issuing shares and other financing methods. As the premium turns into a discount, the speed at which Strategy acquires Bitcoin also decreases.

This is a cumulative position chart, not a chart of the rate of change of that variable, but you can intuitively see that as the mNAV premium of the Strategy disappears, the growth rate of the position slows down.

Despite the continued shrinkage of US dollar liquidity since April 9, the inflow of funds into Bitcoin ETFs and the purchase of DATs have still driven up Bitcoin prices. However, this situation has now ended. The current basis is insufficient to sustain institutional investors' continued purchases of ETFs, and as the trading prices of most DATs have now turned to discounts, investors are also increasingly avoiding these Bitcoin derivative securities. Without these inflows of funds to cover the lack of liquidity, Bitcoin is bound to drop to reflect current short-term concerns about the shrinkage of US dollar liquidity or the growth rate not keeping up with the commitments made by politicians.

Show me (Show Me)

It is now time for Trump and Besant to “put up or shut up.” Either they have the ability to make the Treasury override the Federal Reserve, create another real estate bubble, issue more stimulus checks, etc.; or they are just a bunch of “limp-dick charlatans.” More complex is the fact that the “blue team” Democrats have discovered (not surprisingly) that developing campaign strategies around various claims of “affordability” is the key to victory. Whether the opposition can fulfill these promises, such as free bus passes, a large number of rent-controlled apartments, and government-operated grocery stores, is not important. What matters is that the public wants their voices to be heard, and at least hopes that someone can delude themselves into thinking that those in power are thinking of them. The public does not want to be “gaslighted” by Trump and his “Make America Great Again” (MAGA) social media army, under the impression that the inflation they see and hear about every day is fake news. [2] They want their voices to be heard, just as Trump heard them in 2016 and 2020—when Trump told them he would take on China and expel people of color so that their high-paying jobs would magically reappear.

For those looking at the many years ahead, the short-term slowdown in the issuance of fiat currency is irrelevant. If the “red team” Republicans are unable to print money, the stock and bond markets will collapse, forcing the die-hard members of both parties to return to the “satanic cult of money printing.” Trump is a shrewd politician, similar to former President Biden, who also faced public backlash due to inflation caused by the COVID-19 stimulus plan; he will publicly change his stance and criticize the Federal Reserve for causing inflation that troubles middle-class voters. But don't worry, Trump won't forget those wealthy asset holders who fund his campaign. “Buffalo Bill” Basent will be tasked with printing money in a “creative” way that common people cannot understand.

( Image: Biden, Yellen, and Powell meeting in 2022 )

Do you remember this “photo op” from 2022? Our favorite “soft egg punching bag” Chairman Powell was lectured by then-President “Sleepy Joe” Biden and Treasury Secretary “Bad Gurl” Yellen. Biden explained to his subjects that Powell would suppress inflation. Then, because he needed to prop up the financial assets of the wealthy who got him into office, he told Yellen to do whatever it takes to reverse all of Powell's rate hikes and balance sheet reductions. The short-term Treasury bills issued by Yellen outnumbered the medium- and long-term notes or bonds, drawing $2.5 trillion from the Fed's reverse repurchase program (RRP) from Q3 2022 to Q1 2025, thereby inflating stocks, real estate, gold, and cryptocurrencies. For the average voter, and some of you readers, what I just wrote might seem like “Aramaic” script, and that's the point. The inflation you feel directly stems from a politician who once told you he cares about solving the “affordability” issue.

“Buffalo Bill” Besant must work similar magic. I am one hundred percent sure he will orchestrate similar results. He is one of the most knowledgeable currency market “plumbers” and forex traders in history.

Preparation Work (The Setup)

The market landscape in the second half of 2023 is strikingly similar to that of the second half of 2025. The debt ceiling battle ends in the midsummer (June 3, 2023, and July 4, 2025), forcing the Treasury to rebuild the General Account (TGA), leading to a siphoning off of system liquidity.

(Chart: Changes in TGA in 2023)

(Chart: TGA Changes in 2025)

“Bad girl” Yellen has made her boss very satisfied. Can “Buffalo Bill” Besant “toughen up” (find his BBC) and use “iron-fisted means” (Bismarck) to get the market in order so that the “red team” Republicans can mobilize those with financial assets to vote in the 2026 midterm elections?

Whenever politicians seriously listen to the voices of the majority suffering from inflation, they will start talking about restraining those central bank governors and treasury officials who are keen on printing money. To dissuade them from tightening credit, the market presents a “Hobson’s choice” (a choice with no real options). Once investors realize that printing money is taboo in the short term, stock and bond prices quickly fall. At this point, politicians can either print money to save the high-leverage “dirty fiat” financial system that supports the overall economy but allows inflation to accelerate again; or they can allow credit tightening, which would destroy wealthy asset holders and cause massive unemployment, as over-leveraged companies have to cut production and lay off workers. Generally, the latter is politically harder to accept, as unemployment and financial distress reminiscent of the 1930s are always electoral poison; inflation, on the other hand, is an invisible killer and can be masked by funding subsidies for the poor through money printing.

Just as I am confident about Hokkaido's “snow machines” (referring to natural snowfall phenomena), I am a hundred percent certain that Trump and Besant want their “red team” Republicans to stay in power, so they will find ways to both appear strong against inflation and print the necessary money to continue this Keynesian partial reserve system “con game” — this is precisely the economic situation in the United States and globally. On the mountain, going too early sometimes means you can only ski “dirt snow”. In the financial markets, before we return to a situation of “only up and no down”, to quote Nelly, the market must first “drop down and get their eagle on”.

( Image: Nelly music video screenshot )

The music videos they are making now are really not as good as before.

牛市论据 (The Bull Case)

The rebuttal to my theory of “negative dollar liquidity” is that as the U.S. government resumes operations after the “shutdown”, the TGA will reduce by 100 to 150 billion dollars in the short term to reach a target of 850 billion dollars, which will increase liquidity in the system. In addition, the Federal Reserve will stop balance sheet reduction starting December 1 and will soon restore balance sheet expansion through QE (quantitative easing) [3].

I was initially optimistic about risk assets after the “door closed.” However, as I delved deeper into the data, I noticed that since July, approximately $1 trillion in liquidity has evaporated according to my index. While the additional $150 billion is certainly welcome, what comes next?

Despite several Federal Reserve officials suggesting that restarting QE is necessary to rebuild bank reserves and ensure the normal functioning of the money market, this is merely “just talk.” We can only confirm their seriousness when The Wall Street Journal's Fed whisperer Nick Timiraos declares that restarting QE has received the green light. But we are not there yet. In the meantime, the Standing Repo Facility (SRF) will be passively utilized to print hundreds of billions of dollars, ensuring that the money market can cope with the massive issuance of Treasury bonds.

In theory, the Besant could reduce TGA to zero. Unfortunately, because the Treasury must roll over hundreds of billions of dollars in bills each week, they must maintain a large cash buffer just in case. They cannot afford to default on maturing Treasury bills, which rules out the possibility of immediately injecting the remaining $850 billion into the financial markets.

The privatization of government-supported mortgage agencies Fannie Mae and Freddie Mac is certain to happen, but not in the next few weeks. Banks will also fulfill their “responsibilities” by providing loans to companies that manufacture bombs, nuclear reactors, semiconductors, etc., but similarly, these loans will occur over a longer period of time, and this credit will not flood into the dollar currency market immediately.

The bulls are right; over time, “the money printer will eventually roar” (money printer go Brrrrrr). But first, the market must give back the gains since April to better align with the liquidity fundamentals. Finally, before discussing the positions of Maelstrom (the author's fund), I do not agree with the notion of a “four-year cycle.” Bitcoin and certain altcoins will only reach new all-time highs after the market “pukes” to a certain extent (i.e., crashes), prompting an accelerated pace of money printing.

Maelstrom 仓位 (Maelstrom Positioning)

Last weekend, I increased my position in USD stablecoins to cope with the expected decline in cryptocurrency prices. I believe that the only cryptocurrency that can escape the negative liquidity dilemma of the dollar in the short term is Zcash (ZEC). With the involvement of AI, large tech companies, and “big government”, privacy in most areas of the internet is dead. Zcash and other privacy cryptocurrencies that use zero-knowledge proof encryption technology are humanity's only hope against this new reality. For this reason, Balaji and others believe that the “privacy meta-narrative” will continue to drive the cryptocurrency market for many years to come.

As believers of Satoshi Nakamoto, we should feel indignant: the cryptocurrencies ranked third, fourth, and fifth by market capitalization are actually a dollar derivative, a “nothing” coin on a “nothing” chain, and a centralized computer run by CZ (Zhao Changpeng). If 15 years later, these cryptocurrencies turn out to be the largest by market capitalization after Bitcoin and Ethereum, what the hell have we been doing? I am not targeting Paolo, Garlinghouse, and CZ; they are all masters at creating value for token holders. Founders, take note. However, Zcash or similar privacy-focused cryptocurrencies should rightfully rank below Ethereum. I believe that the grassroots crypto community is waking up: what we are tacitly supporting by giving these coins high market values is contrary to that decentralized future—where we, as flesh-and-blood humans, can still maintain autonomy in the face of oppressive technology, government, and AI giants. Therefore, while we wait for Besant to resume its printing pace, the price of Zcash or other privacy-focused cryptocurrencies will experience a long-term (secular) increase.

Maelstrom is still “as much as possible” (long as fuck), and if I have to buy back at a higher position, just like I regretfully did earlier this year, so be it. I proudly bear my “L” (Losses) because having idle fiat on hand allows me to go all in when the “W” (Wins) appears and make it “fucking count.” If an opportunity like April 2025 arises, having liquidity will matter more for your PNL than those small trades where you “invariably lose money trading.”

Bitcoin has fallen from $125,000 to just above $90,000, while the S&P 500 and NASDAQ 100 indices are hovering near historical highs, which tells me that a credit event is brewing. The continuous decline of my dollar liquidity index since July also corroborates this view. If my judgment is correct, then a 10% to 20% correction in the stock market, along with the 10-year U.S. Treasury yield approaching 5%, would be enough to create a sense of urgency, forcing the Federal Reserve, the Treasury, or other U.S. government agencies to launch some sort of money printing plan. During this weak period, it is entirely possible for Bitcoin's price to drop to between $80,000 and $85,000. And if the broader risk markets collapse, and the Federal Reserve and Treasury accelerate their money printing farce, then by the end of the year, Bitcoin's price could soar to $200,000 or $250,000.

I still believe that China will “reflate.” But this is only likely if the U.S. clearly accelerates the creation of dollars, which may prompt corresponding actions from the Chinese side. There is a view that the Chinese side wants the renminbi to remain strong against the dollar, which to some extent limits the significant increase of the broad money supply. One sign is that the People's Bank of China (PBOC) has purchased a small amount of government bonds for the first time since January. This is seen by the market as a signal of quantitative easing (QE). The giant dragon is about to awaken and will pour Maotai into the roaring fire of the 2026 cryptocurrency bull market. Before I set off to the beautiful Argentina to dance the “two-step,” one last point about China: Beijing is outraged by the U.S. “stealing” the Bitcoin of a Chinese citizen suspected of involvement in fraud; isn't that ridiculous? Clearly, this indicates that the Chinese side considers Bitcoin to be a valuable asset that should be held by its citizens or the state, rather than the U.S. government. If the leaders of the two largest economies, China and the U.S., both believe that Bitcoin is valuable, why don't you have a positive outlook on Bitcoin's long-term prospects?

[1] CME refers to the Chicago Mercantile Exchange. It offers Bitcoin/USD futures contracts. For most institutional investors, this is the only Bitcoin derivative they can trade.

[2] MAGA stands for “Make America Great Again.” It is one of the greatest political slogans of all time because it is both meaningless and all-encompassing. Great again for whom? When was America ever great? Because this slogan has no specific meaning, politicians can always use it to boast about their success.

[3] QE stands for Quantitative Easing policy. It is the process by which the Federal Reserve creates bank reserves or dollar liquidity by purchasing securities from the banking system.