Arthur Hayes: If a Bitcoin ETF is too successful, it will destroy Bitcoin
By Arthur Hayes
Compiled by: GaryMa, Wu ShuoBlockchain
Note: This article is a translated version of the original text, and some content has been deleted and summarized during the translation process.
Every investment theme has an optimal expression (the way it is presented or expressed in a particular way). When we think about the ongoing fiat debasement, what is the best way to profit from the collapse of the filthy fiat financial system? What is the best way to express this trade?
This is one of my favorite charts, clearly showing Bitcoin, or more broadly,cryptocurrency, is the best way to express the devaluation of fiat currencies. I deflation-adjusted the value of Bitcoin (white), Gold (yellow), S&P 500 (green), and Nasdaq 100 (red) to the Federal Reserve balance sheet, indexing their performance since January 1, 2020 (starting at 100). Bitcoin is up 228%, far outperforming all other high-risk assets.
If you put the index starting point of these assets at 2010, when Bitcoin started to riseexchangeThe timing of the transaction will be more favorable to Bitcoin.
Fundamentally, why is this happening?cryptocurrencyIt represents a movement to separate money and finance from the state. Through the use of computers, the internet, and most importantly, cryptographic proofs, we the people have created the strongest currency ever created - Bitcoin; we have created an entirely newBlockchainThe decentralized financial system (DeFi) supported by the web. This new crypto-financial system relies on mathematics and fundamental support from dissatisfied humans, rather than violent coercion at the hands of the state and its banks. Capital as energy conversion is looking for a way away from devaluation.SafetyHome, it is seeping into the crypto space. But the market cap of crypto is minuscule compared to the total value of all fiat financial assets. That’s why a small portion of capital fleeing the collapse of the fiat financial system can create such huge gains in such a short period of time.
所有的cryptocurrency,TokenAnd investment themes are not created equal in crypto. To cap off the year, I wanted to discuss some of the crypto pitfalls that have been peddled by enthusiasts and fools alike. As always, my goal is to present a different perspective and get you thinking as a reader. By answering these questions, you can hopefully make more informed investment decisions.
The Fed’s pivot
2-Year U.S. Treasury Yield
The first and biggest turnaround that occurred in the first quarter of 2023 was the Fed and the Treasury working together to quickly push through a bailout of about $4 trillion in the U.S. banking system and Treasury markets through the use of the Bank Term Funding Program (BTFP). Powell’s recent comments are just a confirmation of the loose U.S. monetary policy.
What changed in two weeks? ...Politics.
What's the worst thing for a politician? Not getting re-elected.
What's the second-worst thing for a politician who is a member of the Democratic Party in the United States? Trump's reelection, along with a wave of Republican congressmen and senators.
Using these two guiding principles, the political motivations behind the Fed’s actions from 2021 to now become crystal clear.
With post-pandemic inflation raging, Biden sat Powell down and instructed him to get inflation under control. As you can see from the chart above, the 2-year Treasury rate surged from essentially 0% to 5% by March 2023. This was driven by the fastest Fed rate hikes since Paul Volker's tenure in the 1980s.
The massive money printing to appease the populace has led to the biggest inflation in over 40 years, and a few months of Fed tightening will not be enough to smother this monster before the crucial November 2022 US mid-term elections. The Biden administration then decided to drain the US Strategic Petroleum Reserve to flood the oil market with oil, thereby keeping gas prices lower on Election Day. This was a very "strategic" use of a scarce resource... to get members of the party re-elected, and it worked.
Regardless of which clown is in charge of America, the reasons for the decline of the empire have already been set in stone by policies enacted decades ago. In 2023, the Biden administration, in partnership with Yellen, has worked to significantly increase fiscal spending and shift borrowing to the short end of the Treasury yield curve. The result is a booming U.S. economy, with real GDP growth of 5.2% in the third quarter of 2023 and an expected real GDP growth of 2.6% in the fourth quarter, very impressive numbers for the world's largest economy. But even this cannot quell voters' dissatisfaction with the mistakes made by Biden and his merry Democratic bureaucrats. Because of Biden's poor performance, the most feared man in the United States, former U.S. President Trump, would defeat Biden if the election were held today.
Trump must be stopped, and Biden knows how to get the job done.
In order to further stimulate the economy and keep all financial asset holders happy, even if that may lead to more inflation in the future, Powell has to cooperate by easing financial conditions. Hopefully, said inflation will come after the November 2024 election. That’s why Powell is being coy about the Fed’s desire to keep fiscal conditions this “tight.” Never mind that current fiscal conditions aren’t tight enough according to a variety of accepted economic theories like the Taylor rule, flexible average inflation targeting, and core CPI exceeding the Fed’s 2% target. As the Wall Street Journal points out, less than two weeks ago, Powell had a completely different view on the likelihood of a rate cut.
This is roughly what happens:
Yellen called Powell into her office and told him what was going on. Powell did as instructed… conveyed the possibility of a rate cut. Now financial assets will rise until the US falls into recession or inflation returns significantly. I do not foresee a recession in election year 2024, given the federal government’s determination to spend as much money as possible to keep GDP growing. It is unclear whether inflation in food and fuel prices will emerge in a meaningful way before November 2024, sparking protests and instability. But let’s not worry too much about the future. Right now, the Fed, the US Treasury, and the leadership of the United States are all screaming at you to buy, buy, buy. Don’t be stupid; get ready to participate in the best performance of this trade, which is cryptocurrencies.
Any other major country or economic bloc, such as Japan and the European Union, would cooperate and allow the dollar to depreciate against the yen and the euro. As the dollar depreciates, everyone benefits, except those who do not have enough financial assets to offset the effects of inflation.
Now that you have the macro reasons to be bullish on crypto, let me help you avoid some potential value traps.
Permissioned DeFi
This is one of the most meaningless cryptocurrency topics out there. If we just consider the meaning of these words, it should be clear to anyone thinking that these projects are doomed to fail.
These projects are designed for institutional investors who have various regulations that in many cases prohibit them from trading on real DeFi projects. This is bad because there is a large amount of retail trading in the real DeFi free market, and institutional investors cannot participate. Markets full of retail trading are the best markets because it provides opportunities for "smart" institutional money to make profits from "dumb" retail investors because they have faster computers that can execute trades without human emotions. At least this is how it works in traditional financial markets becauseexchangeSpecial order types and delay rules were developed to give substantial advantages to large HFT firms. Michael Lewis has an excellent book on this subject called Flash Boys.
The fact is, there won’t be enough retail traders using these permissioned DeFis because they don’t need to trade with institutional investors. It’s the institutional traders who need to trade with retail. The whole reason DeFi is attractive to retail crypto traders around the world is that it has a different market structure than traditional financial equity and derivatives markets. When the hype dies down, these permissioned DeFi markets will become nothing more than circles of high frequency traders waiting on the buy and sell side to cross the spread and get affected. When enough directional retail fails to emerge to justify deploying capital on these protocols, institutional investors will pack up and leave. The result will be an empty ghost town with zero activity or interest, with neither retail nor institutional traders.
VCs, who are essentially highly paid puppets, are jumping on this theme train. As a result, they will continue to burn capital, just as they did when they invested in “BlockchainMost of them missed out or gave up on investing in Uniswap, dYdX, Compound, Aave, etc. Instead of analyzing what made them miss out on these groundbreaking primitives, they decided to jump in on something that superficially looks similar and sounds very sexy. As an investor, who doesn’t want to own a trading platform that brings together institutional investors with their massive capital base and DeFi, which is purported to be a completely new way of organizing financial markets?
As always, there will be those who are quick to act and sell snake oil to these desperate VCs who are eager to invest in crypto but unwilling to get involved in the current crypto ecosystem. I have no ill will towards the founders who push this nonsense; I applaud them for getting funding from accredited investors whose IQs are challenged. But for you, dear reader, please do not be the one these garbage projects are selling when launching governance.TokenUse the project if you want, but please exercise some critical thinking and avoid falling prey to the regular cash grabs that governance tokens will become over time.
RWA
RWA (Real World Assets) is an evolution of the security token theme that emerged in the last bull market cycle. In short, the goal of the RWA project is to incorporate assets such as real estate, tradable debt securities, stocks, etc. into a special purpose entity (SPV), and then provide fragmented ownership to ordinary people who do not have the ability to buy a whole house or enter the market for a specific asset through tokenization.
I fully believe that any cryptocurrency token that relies on national laws to exist will not succeed at scale.BlockchainThey are expensive because they do not require a state to exist. Why pay a premium for decentralization when it already exists and is very cheap and liquid? The most direct example is the fragmentation of real estate.
The problem right now is that due to asset inflation — which is a direct result and goal of central bank policy — many millennials and Zoomers cannot afford to buy their own homes. If they could own a portion of a one-bedroom apartment and get their foot in the housing market, that would be a noble goal, but there are some problems.
First, young people trying to leave home or start their own families don’t want a portion of a house or apartment that sits in the void. They want a real building with four walls and a roof that they can actually live in. Buying a token that represents a financial representation of unattributable real estate does nothing to solve this problem.
Second, every piece of real estate is unique. This lack of standardization inhibits the development of a truly liquid market. For example, once you purchase a token representing 1/10 of a house, how do you find someone willing to buy it at a reasonable price when you wish to sell it? The buyer needs to understand the location, local real estate regulations, taxes, and ultimately must really want that specific property. This will never come close to the liquidity of owning a fraction of a standardized stock or bond. As with these types of investments, it’s easy to get in, but hard to get out…if you can get out at all.
最后，而且最重要的是，你已经可以通过购买非常大而流动的房地产投资信托基金（REIT）来拥有房地产的分数股份。世界各地的许多传统金融股票市场都提供这类证券。它们由长时间从事这项工作的大型和声誉良好的公司管理，这些公司的经验比大多数目标市场的人都活得久。我认为没有理由为什么你需要进行所有这些Blockchain戏法并发行代币。
Buy these illiquid RWA tokens at your own discretion. But even worse is to invest in the governance tokens of the RWA issuance platform itself.
Debt Ownership Tokens
Another very popular expression of RWA is to create tokens that represent ownership of yielding debt. The most popular projects offer their token holders the yield of U.S. Treasury bills (T-bills). The idea is that Tether is great because it allows people who may not have access to affordable USD banking channels to send USD-pegged tokens 24/7 through public blockchains like Ethereum and Tron. But Tether doesn't pay yield; Tether owners are able to capture all the yield on the USD they hold in reserves invested in T-bills. What if there was a USD stablecoin that also offered this T-bill yield?
This is a great development and I fully support competition that would distribute more of the net interest margin (NIM) of these USD-pegged stablecoins to holders. Using and holding these tokens is not inherently bad, but investing in a project's governance token is foolish. It's just a bet on the path of USD interest rates.
If USD interest rates remain significantly above zero, then the project should make a profit and pass those profits along to governance token holders. If USD interest rates drop again close to zero, then the project will lose money because it has to pay developers, legal, and compliance fees, but not enough interest income to take a cut. So, as an investor, why would you pay a multiple of the project’s net interest margin to hold a governance token?
Instead, you should be short a liquid exchange-traded fund (ETF) that holds T-bills. You can express the same bet on interest rates, profiting when they rise, without having to pay an extra multiple to a bunch of crypto people. If you want truly high leverage trading, apply high leverage.
In short, leave the "real" world governed by national laws to traditional financial intermediaries. They are able to provide a more consistent and cheaper investment product that expresses the same theme. True DeFi projects should rely only on well-written code, not laws that must be adjudicated and interpreted by humans who may make mistakes.
Bitcoin ETF
Fundamentally, if ETFs managed by traditional financial institutions’ assets become too successful, they will completely destroy Bitcoin.
Every other monetary asset that has ever been used in the history of human civilization exists by natural laws. Gold as a substance is gold not because we say it is, but because of the arrangement of atoms. The interactions between those atoms are governed by universal laws. Fiat currency is gibberish printed on a piece of paper, but a substance nonetheless. A piece of paper is still paper, whether you believe it has monetary value or not. If you dug a hole, put in gold and a whole bunch of paper, and then came back 100 years later, the gold and paper would still be there. Bitcoin is completely different.
Bitcoin is the first monetary asset in human history that exists only if it remains dynamic. After the Bitcoin block reward reaches zero in approximately 2140, miners will be rewarded only for validating transactions through transaction fees. This means that miners will only receive Bitcoin income if the network is used. Essentially, if Bitcoin is flowing, it has value. However, if there is no longer another Bitcoin transaction between two entities, miners will not be able to paySafetyThe network needs energy. So, they will shut down their machines. Without miners, the network dies and Bitcoin disappears.
Blackrock, the world’s largest traditional financial asset manager, is in the asset accumulation game. They take assets, store them in metaphorical vaults, issue tradable securities, and collect management fees for their “hard” work. They don’t use what they hold on behalf of their clients, which poses a problem for Bitcoin if we take an extreme view of the possible future.
Imagine a future where the largest Western and Chinese asset managers hold all Bitcoin. This happens organically because people confuse financial assets with stores of value. Due to confusion and laziness, people buy Bitcoin ETF derivatives instead of self-custodialwalletBuy and HODL Bitcoin. Now, only a few companies holdXiaobai NavigationThere are all the Bitcoins, and with no real use for the Bitcoin blockchain, these coins will never move again. The end result is that miners shut down their machines because they can't afford the energy required to run them. Goodbye, Bitcoin!
When you think about surviving the ongoing fiat currency devaluation, you have to pick a side. Either you are trading financial assets to earn more fiat currency, or you are trying to preserve value in energy terms while using a financial system that is beyond the control of the state. In the former case, trade ETFs to your heart’s content. That’s why they exist. In the latter case, you have to buy Bitcoin and take it from the centralizedexchangeExtract to your own self-hostedwalletmiddle.
US election year
2024 will see the most national elections since the idea virus of the “nation-state” infected our collective consciousness hundreds of years ago. Any politician who wants to be re-elected needs to offer benefits to the people. For the wealthy asset holders, provide easy financial conditions by encouraging central banks to print money. For the poor, give them subsidies to cover rising food and energy costs as a direct result of policies that support asset wealth. For the middle class, give them “democracy” and tell them to pay their taxes, bend over backwards, and happily vote. With this in mind, it makes no sense for a politician seeking re-election to stop the fiat devaluation party. Voters who benefit from fiat devaluation and inflationary allowances will outnumber those who suffer. Therefore, every “democratic country” around the world will increase money printing in 2024.
If you think today’s moment in history is special, take a look at the chart above, which shows the value of gold over time for various global reserve fiat currencies. Fiat currencies always tend toward zero. No political system can resist the temptation to print money.
The best time to buy Bitcoin and start your crypto journey was yesterday, the second best time is now.
The article comes from the Internet:Arthur Hayes: If a Bitcoin ETF is too successful, it will destroy Bitcoin
After all, in the cryptocurrency world, a strong price is roughly equivalent to a good project.AIN WIZARD Compiled by: Xiaobai Navigation Coderworld In the field of cryptocurrency, the only thing that matters for 99% is the attention in the market. Personally, I came to Web3 from the traditional financial industry, and I had to change my thinking from focusing on profitability and fundamentals…
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