Arthur Hayes' "Ski Cut" Essay: How Trump's Tariffs Could Trigger a Bitcoin Rally

Former head of cryptocurrency exchange BitMEX Arthur Hayes published a new essay, Ski Cut. He described the relationship between Donald Trump's trade tariffs, U.S. monetary policy, and crypto market dynamics, drawing an analogy between an avalanche-prone mountainside and the current economic situation.

Hayes examined the implications of the Trump administration's radical tariff policies and showed how such moves could trigger ”financial avalanches” in the bond market. He also explained why debt market volatility has become a major decision-making marker for the Federal Reserve (Fed) and the U.S. Treasury Department, and how it affects the bitcoin exchange rate.

In the author's opinion, the Treasury bond buyback that the government may be resorting to will create the perfect environment for bitcoin to rise. Hayes also believes that the current situation is similar to the ”bottom” of 2022, which was followed by a massive cryptorally.

The Coinpaper team has prepared a summary of the text.

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Every slope is a combination of many variables. You never know what snowflake or ski turn will trigger an avalanche. At best, you can only estimate the probability of it coming down;

One method of assessment is the ski cut, where one skier in the group crosses the start area and jumps up in an attempt to trigger an avalanche. If the avalanche does come down, the guide decides whether the slope is safe to ski by the way the instability spreads across the slope. The point is to assess the worst-case scenario based on current conditions and act accordingly. 

Trump's so-called 'Liberation Day' has become analogous to a test cut on the steep and dangerous slope of the global financial market. The US presidential administration took a radical stance - the tariffs announced were worse than the most pessimistic forecasts of economists and analysts. In other words, Trump triggered an avalanche that could sweep away the entire fiat system.

The collapse in the financial markets was dramatic and caused trillions of dollars in losses. However, the real threat was not that, but the rising volatility in the US government bond market, as measured by the MOVE index - this index reached a local high in early April.

Trump's team then left the risk zone, suspending the imposition of tariffs on all countries except China for 90 days. Then Boston Fed Board of Governors member Susan Collins announced that the regulator is willing to do whatever is necessary to maintain stability in the markets. And a little later, U.S. Treasury Secretary Scott Bessent added that his agency is capable of dramatically increasing the volume and pace of Treasury bond repurchases. 

I think this whole sequence of events is a shift from ”we have everything under control” to ”things are falling apart, we have to do something.” The markets reacted with growth. Most importantly, bitcoin found a local bottom.

Regardless of how you view Trump's policy change - as a retreat or a clever negotiating move - the result is the same. The administration deliberately caused an avalanche in the market and then reversed course a week later. 

This ”test cut” showed us how bond market participants behave in a crisis and what indicators make politicians change their decisions. ;

In this essay, I will discuss why Trump's tariff policy is causing problems in the bond market, and how Bessent's proposed solution - buying back Treasury bonds - will add liquidity to the system, even though such transactions do not formally increase the money supply.  

Finally, I will explain why the current situation in the cryptocurrency market and macroeconomy is reminiscent of the third quarter of 2022 - when bitcoin also hit a localized bottom amid the FTX crash.

Max Pain

Trump's goal is to eliminate the U.S. trade deficit. To get results quickly, his administration is using tariffs. 

Why did the markets crash on ”Emancipation Day?” Because if foreign exporters start earning fewer dollars, they can't buy U.S. stocks and bonds in the same volumes;

Moreover, if exporters have to change supply chains or move production to the U.S., they will cover some of the costs by selling liquid assets - the same U.S. stocks and bonds. It is for this reason that the U.S. market and others tied to exports to the U.S. have shown a sharp decline.

The reverse dynamics, at least at first, was provided by the fact that frightened traders and investors started buying government bonds en masse. Their prices rose and yields fell, which was good news for Bessent - now it could finance government debt at lower rates. But it also caused a sharp spike in bond and stock price volatility, which is a death blow for some types of hedge funds.

Hedge funds, despite the name, don't always use ”hedge” and almost always trade with huge leverage. For example, relative value funds (relative value; RV) make money on arbitrage between two assets - if the spread between them widens, they borrow money, buy one asset and short the other, counting on a return to the mean. 

In most cases, such strategies are tied to low volatility. When it rises, everything collapses, as risk managers of banks and stock exchanges increase margin requirements. Having received a margin call, funds are obliged to close their positions immediately, otherwise they will be liquidated.

We are primarily interested in the relationship between stocks and bonds. Since US government bonds are considered a risk-free asset in nominal terms and are a global reserve instrument, their prices typically rise when investors flee equities.

In the first few days after ”Emancipation Day,” things were going the classic way: stocks were falling and bond prices were rising, on the back of falling yields. But then bonds started falling at the same time as stocks - the yield on the ten-year Treasury bond made a ”round-trip” that markets hadn't seen since the early 1980s. 

Why? The answer to that question, or at least the way policymakers perceive it, is critical. We may be talking about structural failures that can only be solved by monetary injections from the Fed or the Ministry of Finance.

The chart below shows how atypical the three-day change in 30-year bond yields was. This spike, driven by tariff policy, is comparable in magnitude to crises like COVID-19 in 2020, the 2008 global financial crisis, and the 1998 Asian crisis. This is a wake-up call.

Of particular concern is the possible winding down of RV funds' positions in arbitrage trades between bonds and bond futures - the so-called basic trade. But why is it so important?

February 2022 was a key moment for the bond market. At that time, US President Joe Biden froze the assets of Russia - one of the world's largest exporters of raw materials - located in America, causing foreign demand for government debt to fall. The vacuum was filled by RV-funds, which became marginal buyers of government bonds.

Bond supply and dollar liquidity

Bessent realizes that the national debt ceiling is going to be raised anyway, and the government will continue to increase borrowing even faster. He also knows that even with all the efforts of Elon Musk and his Department of Government Efficiency (DOGE), it won't be possible to cut spending quickly. And Musk himself has reduced his estimate of savings from the original $1 trillion to  $150 billion per year. That means the budget deficit is likely to increase rather than decrease.

As of March 2025, the deficit for the current fiscal year is already 22% higher than in the same period in 2024. The problem is that due to tariff uncertainty and a falling stock market, tax revenues will fall sharply, and this sets the stage for the deficit to rise further, even if DOGE proves effective.

Bessent probably realizes that because of all these factors, he may have to increase borrowing for the rest of the year. And with a big wave of fresh government bonds on the horizon, the market demands higher yields, so the regulator needs RV funds willing to absorb all that supply with maximum leverage. And that's why the buyback program is vital.

Although it does not formally increase the money supply, it creates indirect dollar liquidity: funds get the opportunity to re-enter the market, while the government continues to be funded by leveraged participants rather than its own funds. This leads to an increase in the money supply and, as a consequence, bitcoin quotes.

Obviously, buybacks are not an infinite source of liquidity. The volume of old bonds available for redemption is limited. However, in the short term, this tool allows Bessent to stabilize the market and finance the state at acceptable rates. This explains the fall of the MOVE index and the disappearance of fears of a systemic collapse in the government debt market.

Market Situation

This market configuration is reminiscent of the third quarter of 2022 - the Fed kept raising rates, bond prices were falling, and yields were rising. Treasury Secretary Jeannette Yellen needed to ”warm up” the markets so they could absorb a new batch of government bonds. 

To do this, the Treasury Department freed up money from the RRP by issuing a large volume of Treasury bills (T-bills) with higher yields. This added $2.5 trillion in liquidity to the system from the third quarter of 2022 through early 2025. Bitcoin has risen nearly six times in the same period.

The current situation is just as favorable, but the market is spooked. Investors realize that high tariffs and the U.S. spat with China are bad for stocks, and many still see bitcoin as a high-risk beta bet on the Nasdaq-100. They are pessimistic and just waiting for Fed chief Jerome Powell to start ”easing.” But he cannot act as his predecessors did in 2008-2019 - now the main levers of monetary policy are in the hands of the Treasury.

Similarly, in the third quarter of 2022, many believed bitcoin could fall below $10,000 after a brief rise to $15,000. Today, there are those who believe digital gold will break through the $75,000 level and go below the $60,000 mark. However, just as Jeannette Yellen once issued more bills than bonds to channel RRP liquidity into the system, Scott Bessent is now buying back old bonds and utilizing the potential of RV funds to the max.

Neither of these methods was perceived by the market as full-blown QE - and that's why most investors slept through the start of last week's rally. However, for buybacks to be truly stimulative, the budget deficit must continue to grow.

• On May 1, it will become clear from the U.S. Treasury Department's fresh QRA (Quarterly Refunding Announcement) how much the planned borrowing differs from previous estimates. If Bessent has to borrow more, it will mean tax revenues fall. And with spending unchanged, that will ensure that the deficit rises.
• Then, in mid-May, the official April deficit (or surplus) report will be released, which will take into account actual tax revenues by April 15. We will be able to compare the dynamics for the current fiscal year and see if the deficit is really growing;

If that is the case, government bond issuance will increase and Bessent will have to do everything possible to allow RV funds to expand their positions in basis trades.

Trading strategy

Trump took a ”test cut” on a steep slope and triggered a financial avalanche. We now know what level of pain or volatility (as measured by the MOVE index) his administration is capable of tolerating before the rate changes. And, importantly, we know what measures they will take in response - ones that will increase the supply of fiat dollars to absorb government debt.

If the buyback programs prove insufficient to calm the markets, the Fed will also take action. They have already taken the first step by slowing the pace of quantitative tightening (QT) at the March meeting. But they have other options that aren't technically QE but increase demand for bonds. Some of these may be announced as early as the Fed's May 6-7 meeting. For example:

• Exempting Treasury bond trades from SLR requirements, allowing banks to buy instruments with infinite leverage;
• QT Twist - redeeming MBS followed by bond purchases without changing the overall size of the balance sheet. This would create up to $35 billion in additional bond demand each month for years to come.

The next time Trump presses the ”tariffs” button again - which he will do to extract concessions from other countries - bitcoin will no longer collapse along with stocks. Because the market knows: deflationary policies are impossible at current and future levels of government debt.

As you can understand, I'm bullish. Maelstrom maximized positions in cryptocurrencies. The main asset we bought on the drawdown from $110,000 to $74,500 is bitcoin. It will continue to be the leader as it is the one that benefits the most from the influx of fiat liquidity.

Now that the global community has realized that Trump is a barbarian rudely swinging the tariff cudgel, every investor with U.S. stocks or bonds is looking for an asset independent of the establishment - most notably gold and bitcoin.

Gold has never been considered a risk beta bet on the U.S. tech sector, so it has shown up as a protective asset amid the stock market crash. Now bitcoin has also freed itself from the ”tech asset” label and will follow in gold's footsteps in an ”up only” mode.

What about altcoins?

When bitcoin passes the $110,000 mark - the previous all-time high - it will surge upward, increasing its market share. Perhaps it will get close to $200,000. After that, the rotation of capital into altcoins will begin.

In addition to ”HYIP” tokens, the best performing assets are those whose projects bring real profit and share it with their holders. There are few such projects. We at Maelstrom have already accumulated positions in a number of such tools and continue to buy. These are really ”pearls”, because they collapsed along with the market, but unlike 99% of projects - they have paying clients.

In an era where even a successful listing can mean ”down from day one,” investors need not only high but also sustainable returns. The tokens that can provide that are the ones that will grow. However, I will talk more about Maelstrom's positions in a separate essay.