The BBC — A New Essay by Arthur Hayes. The Coinpaper's Summary

The ex-head of cryptocurrency exchange BitMEX, Arthur Hayes, has published a new essay — The BBC. In it, he explained how US Federal Reserve (Fed) Chairman Jerome Powell came under pressure from new Treasury Secretary Scott Bessant and why this means a return to quantitative easing.

The author also discussed why President Donald Trump cannot deliver on his economic promises - including industrialization and job growth - without cheap debt. And the only way to keep the rate at a level acceptable to the Ministry of Finance remains monetary emission.

According to Hayes, the reversal of the Fed's monetary policy will lead to an increase in fiat liquidity, and thus create ideal conditions for a new wave of growth in cryptocurrencies. In particular, he expects bitcoin could reach $250,000 by the end of 2025.

The Coinpaper's team has prepared a brief paraphrase of the text.

Let's imagine the situation: in March 2025, Fed Chairman Jerome Powell met with U.S. Treasury Secretary Scott Bessant. During the conversation, Powell received a rather lucid explanation that in the context of growing debt burden and budget deficit, the regulator should adjust the current monetary policy.

This change of course includes, winding down the quantitative tightening program (QT), accelerating preparations for renewed quantitative easing (QE) and eliminating additional leverage ratio requirements for banks (SLR) when buying government bonds.

This fictional story is intended to illustrate the transition of the U.S. financial system to overt fiscal dominance, in which monetary policy is subordinated to budgetary objectives. This had already happened during World War II and at its conclusion - up until 1951, the Fed was effectively subordinate to the Treasury Department.

At the last Fed meeting, Powell announced the resumption of quantitative easing. And while everyone is discussing whether Trump's tariffs are good or bad and what consequences to expect from them, cryptocurrency markets will definitely benefit from the return of QE, which will happen, I believe, already this summer;

The rest of the essay will focus on the political, mathematical, and philosophical reasons why Powell gave up. We will also look at what Trump and his campaign promises had to do with it, and why the Fed never had a chance to hold tight monetary conditions long enough to eradicate inflation.

Making good on promises

Much of the macroeconomic research is now devoted to unraveling Donald Trump's real intentions:

• some believe he will ”break things” until his approval rating drops to 30%;
• others argue that he sees his last term as a chance to restructure the world order and solve the problems of the U.S. financial, political and military systems;

Either way, analysts agree that Trump is willing to allow a serious economic collapse and loss of popularity for the sake of what he believes is right and good for the country.

However, traders are not interested in what is ”right” or wrong. Markets don't care if America is strong compared to other countries - all they care about is whether fiat liquidity will decrease or increase in the near future. So I'm not going to guess which direction Trump is headed, but rather focus on one chart and one mathematical formula.

Since 2016, Trump has been repeating the same message: the U.S. has been getting ”bad deals” for decades, and trading partners have taken advantage of it. Democrats - albeit with less buzzwords - have followed roughly the same line. Biden continued the anti-China policies started by Trump, restricting access to semiconductors and other key markets. Kamala Harris, as a presidential candidate, also used harsh rhetoric towards the PRC.

The blue line on the chart below is the current balance of payments of the United States, which is actually the balance of trade. Starting in the late 1990s, the country's imports of goods began to significantly exceed its exports. After the 2000s, the imbalance intensified even more. Why?

In 1994, China sharply devalued the yuan to become an export-oriented economy. And in 2001, U.S. President Bill Clinton secured China's accession to the World Trade Organization (WTO), which led to a sharp reduction in tariffs on Chinese exports to the United States. As a consequence, America's manufacturing base began to move en masse to China.

The dotted yellow line in the chart above is the U.S. financial balance. It almost mirrors the balance of payments. This is because China and other exporters accumulate trade surpluses but do not convert the dollars they earn into their own currencies. If they did, their national currencies would appreciate, making exports more expensive and less competitive.

Instead, they use the dollars to buy U.S. Treasury bonds and U.S. stocks. Thanks to this capital inflow, the U.S. has been able to live in debt for decades and still maintain its leadership in the stock market.

But Trump's support comes from those who have suffered from deindustrialization: Americans without higher education, residents of inland states, people without financial assets. 2016 Democratic presidential candidate Hillary Clinton called them ”pathetic”. Vice President J.D. Vance calls them ”rednecks” and counts himself in their camp.

Trump is convinced that by bringing manufacturing back to the US, he will bring jobs to 65% of Americans without higher education, strengthen defense capabilities, and achieve above-trend economic growth - say 3% real GDP. 

The second goal is to reduce the state budget deficit from the current ~7% to 3% by 2028, which requires either revenue growth or spending cuts. And since the main source of funding for the budget is the capital gains tax, a rising stock market is needed to increase revenues. In addition, Trump does not plan to cut spending on defense and social programs, which does not allow for substantial savings.

Even if the deficit is reduced from 7% to 3% by 2028, the government will remain a net borrower. This means that it will not be able to repay the debt it has already accumulated, and interest payments will grow exponentially.

To get out of this debt hole, the US GDP growth rate must be higher than the cost of servicing the debt. Let's assume real economic growth is 3% and inflation is 2%. Then nominal GDP growth will be 5% per year. If the government borrows at 3% and the economy grows at 5% - the debt to GDP will gradually decrease. 

But who would agree to borrow the U.S. at 3% when, with nominal annual growth of 5%, investors would demand at least the same yield? The math doesn't add up, unless Bessant can find a buyer for Treasuries willing to make an extremely unfavorable deal.

China and other exporters won't buy because of Trump's trade wars and tariffs. For private investors, the returns are too low. So that leaves only two players:

• U.S. commercial banks;
• U.S. Federal Reserve System.

The Fed can print money and buy bonds through quantitative easing. Banks can do the same through the partial reserve instrument, but with some restrictions.

At the same time, the regulator is fighting inflation to reach the 2% target by shrinking the balance sheet and pursuing a policy of quantitative tightening. Banks, on the other hand, after the 2008 global financial crisis, are required to invest more equity capital to buy bonds, meaning they cannot increase their position indefinitely through leverage. This is governed by SLR or supplementary leverage ratio requirements. 

But all of this can be changed overnight - the Fed can complete QT and resume QE if necessary. The regulator also has the power to exempt banks from SLR restrictions, that is, to allow them to buy government bonds with maximum leverage.

The key question is why the Powell-led Fed should help Trump implement his economic agenda?” 

The central bank supported Kamala Harris during the election campaign by cutting the rate by 0.5% in September 2024. After Trump's victory - by contrast - it began to resist pressure by refusing to print money and lowering bond yields. To understand why Powell would comply after all, a little historical background is needed.

The big shot

Powell is now watching Scott Bessant (in the original BBC; Big Bessent Cock) tear the Fed's inflation-fighting mandate to shreds. This is what fiscal dominance is all about - once the national debt gets too big, the Fed loses its independence and makes sure the government can borrow at affordable rates.

This is not the first time in the history of the United States. Suffice it to recall Arthur Burns' famous speech ”The Sorrows of Central Banks” of 1979. The then head of the Fed is considered guilty of the inflation of the 1970s, which had to be ”tamed” by his successor - Paul Volcker, who is praised for his determination;

In this speech, one can find many quotes that fit the current situation in the US as well as possible. For example:

Burns frankly admits that a central bank cannot be independent if the state seeks to solve all social and economic problems through budget programs. These programs require expenditures, and hence emission. And the Fed becomes a servicing, rather than a restraining, body.

In other words - as soon as the government starts ”solving problems” by increasing spending, it creates inflation. And the Fed, cannot counter this, risking breaking the entire system of which it is a part. 

I think Powell doesn't want to go down in history as a second Burns, but that's exactly what's happening to him - he's sitting in his big shot chair repeating ”I'm Paul Volcker, I'm Paul Volcker” while Bessant destroys the independence of the regulator.

However, even Paul Volcker couldn't keep his policies in check amid demands for his resignation in Congress. And in those years, the national debt was only 30% of GDP, compared to 130% now.

Arithmetic of dollar liquidity

The first thing to keep in mind when assessing liquidity is that markets do not react to the absolute amount of dollar supply, but to its change relative to previous expectations. Example:

• The Fed used to shrink the balance sheet by $25 billion per month under QT;
• since April 2025, the rate of reduction has slowed to $5 billion per month;
• a $20 billion per month slowdown is $240 billion per year in additional liquidity.

What happens if the Fed maintains its overall balance sheet but sheds MBS (mortgage-backed securities) while buying Treasuries in return?

The maximum allowable reduction in MBS is $35 billion per month. If you buy the same amount of government securities, it would be the equivalent of $420 billion a year in quantitative easing.

And once QE is started, it is hard to stop. The economy constantly needs a new dose of liquidity just to stay in place.

The final touch is the issue of funding the government and replenishing the TGA. This is the account from which the government pays for spending if the national debt ceiling is reached. 

At the beginning of the year, the TGA was ~$750 bln, now it is ~$360 bln. Previously, once the limit increase was approved, the Ministry of Finance would replenish the TGA, which created a negative liquidity impulse, because to replenish the account you have to issue bonds, take dollars out of the market - and put them in the ”reserve”.

But the situation is different today. I think that in the next quarterly report (QRA) the Ministry of Finance will not increase the TGA. Why keep a huge reserve balance when the Fed can print money if needed? This means:

• A reduced need to raise new debt;
• additional positive impetus for liquidity;
• coordination between the Ministry of Finance and the Fed, across policy differences.

And this is exactly how Bessant will defeat Powell and ensure fiscal dominance in monetary policy.

Lessons from 2008

Equities and gold respond positively to increases in fiat liquidity. However, equities require government support, so in a deflationary collapse, when the very solvency of the government is questioned, equities may react slower to fiat injections than ”anti-system” assets such as gold.

Let's look at how the S&P 500 and gold behaved during the peak of the 2008 crisis and early recovery. This case study is important because it helps to keep a sober mindset - rising dollar liquidity is indeed a powerful signal, but negative macroeconomic trends can still temporarily hinder bitcoin and cryptoasset prices.

The chart above begins on October 3, 2008 - the day TARP was announced. This bailout program for the banking system failed to stop the decline caused by the Lehman Brothers bankruptcy, so the markets continued to crash. When TARP did not help, Fed Chairman Ben Bernanke announced a massive asset purchase program, later called QE1:

• gold went straight up then;
• stocks continued to fall.

The stock market bottomed out only after the Fed began direct issuance of money in March 2009. By early 2010:

• gold is up 30% since the Lehman collapse;
• stocks are up only 1%.

But today we have bitcoin, and it obeys a different logic.

Bitcoin value = technology + fiat liquidity

On the technology side, bitcoin is fine - there are no major updates or bugs. So, the price of the cryptocurrency depends only on the expected changes in monetary liquidity.

If my forecast is correct and we move from QT to QE in favor of Treasuries, the $76,500 low is in the past. The target is $250,000 by the end of the year.

Yes, predictions in this market are hard to call accurate, but if I were offered the choice of whether bitcoin would first see $76,500 or $110,000 - I wouldn't hesitate to bet on $110,000.

Trading Strategy

Recognizing both the pros and the risks, Maelstrom deploys capital cautiously:

• We do not use leverage;
• we buy in small batches relative to the size of the overall portfolio.
• we have been buying bitcoin and altcoins at all levels between $90,000 and $76,500.

The pace of buying will accelerate or slow down depending on how accurately my predictions come true. I still believe bitcoin could hit $250,000 before the end of the year because now that Bessant has put Powell in place, the Fed will flood the market with dollars.

This will allow Xi Jinping to command the People's Bank of China to loosen monetary policy and stop restraining domestic liquidity to protect the yuan-dollar exchange rate. As a result, the yuan's volume will also start to rise.

And finally - Germany has again decided to build an army financed by the printing press. This will force all other European countries to follow suit because they fear a repeat of 1939.