Keep — It — Simple — Stupid = KISS
Many readers often forget the KISS principle when dealing with the tidal wave of policies from the administration of U.S. President Donald Trump.
Trump’s media strategy aims to make you wake up every day and say to your friends, partner, or inner monologue, “My God, did you see what Trump/Musk/Little Kennedy did yesterday? I can’t believe they actually did that.” Whether you feel exhilarated or depressed, this farce named “Emperor’s Days” is rather entertaining.
For investors, this continuous state of excitement is detrimental to accumulating Bitcoin (sats). You might buy in today and quickly sell after digesting the next headline tomorrow. The market oscillates during this process, and your Bitcoin reserves rapidly diminish.
Remember the KISS principle.
Who is Trump? Trump is a master showman in real estate. To succeed in real estate, you must master the art of borrowing large sums of money at the lowest possible interest rates. Then, to sell units or rent spaces, you must boast about how impressive the new buildings or development projects will be. I am not interested in Trump’s ability to evoke sympathy in the global society, but I am very interested in his ability to finance policy goals.
I am confident that Trump wishes to achieve his “America First” policies through debt financing. If not, he would allow the market to naturally clear the embedded credit in the system and usher in an economic depression more severe than the 1930s. Does Trump want to be remembered as Herbert Hoover of the 21st century, or Franklin Delano Roosevelt (FDR)? American history diminishes Hoover because historians believe he did not print money quickly enough, while it reveres Roosevelt because his New Deal policies were financed through monetary expansion. I believe Trump wants to be regarded as the greatest president in history, and thus he does not wish to destroy the foundations of the empire through austerity.
To emphasize this point, recall the words of Andrew Mellon, Hoover’s Secretary of the Treasury, when discussing how to respond to an over-leveraged American and global economy following a stock market crash:
“Liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate. It will purge the system of its rottenness. High costs of living and extravagant lifestyles will come down. People will work harder, lead more moral lives. Values will be adjusted, and enterprising individuals will pick up the wreckage from those less capable.”
Current U.S. Treasury Secretary Scott Bessent would not make such bold proclamations.
If my viewpoint is correct, that Trump will achieve “America First” through debt financing, what does this imply for my outlook on the global risk asset markets, particularly cryptocurrency?
To answer this question, I must form an opinion on how Trump might increase the quantity of money/credit (i.e., print money) and lower its price (i.e., interest rates). Therefore, I must have an opinion on how the relationship between the U.S. Treasury led by Scott Bessent and the Federal Reserve led by Jerome Powell will evolve.
KISS Principle
Who does Bessent and Powell serve? Are they serving the same person?
Bessent was appointed by Trump 2.0, and from his past and present interviews, he seems to strongly align with the “Emperor’s” worldview.
Powell was appointed by Trump 1.0, but he is an erratic traitor who has switched sides to the Obama and Clinton camps. Powell destroyed what little credibility he had left when he drastically cut rates by 0.5% in September 2024. At that time, the U.S. economy was growing above trend and still showed signs of inflation, making a rate cut unnecessary.
But the Obama-Clinton puppet Kamala Harris needed a boost, and Powell dutifully lowered rates. The outcome did not work as expected, yet after Trump’s victory, Powell announced he would complete his term and once again firmly resist inflation.
When you are burdened with substantial debt, several things happen.
First, interest payments consume most of your free cash flow. Second, you cannot finance the purchase of additional assets because, given the high level of debt, no one will lend you money. Therefore, you must restructure your debt, which requires extending maturity dates and lowering coupon rates. This is a form of soft default, as doing so mathematically reduces the present value of the debt burden. Once your effective debt burden decreases, you can borrow affordably again. Viewed from this perspective, both the Treasury and the Federal Reserve play roles in restoring financial health in the U.S. However, the success of this effort is hindered because Bessent and Powell serve different masters.
Debt Restructuring
Bessent has publicly stated that the current debt structure in the U.S. must change. He wishes to extend the average maturity of the debt burden, a process known on Wall Street as “debt maturity extension.” Various macroeconomic experts have suggested ways to achieve this goal; I have discussed such solutions in detail in The Genie. However, for investors, the most important aspect is that the U.S. will soft-default on its debt burden by reducing its net present value.
Given the global distribution of U.S. debt holders, achieving this restructuring will take time. This is a geopolitical “Gordian Knot.” Therefore, in the short term, i.e., over the next three to six months, this does not concern our cryptocurrency inventors.
New Loans
Powell and the Federal Reserve have extensive control over the quantity of credit and its price. The law allows the Federal Reserve to print money to buy debt securities, thereby increasing the quantity of money/credit, i.e., printing money. The Federal Reserve also sets short-term interest rates. Since the U.S. cannot default nominally in dollars, the Federal Reserve determines the risk-free rate of the dollar, specifically the effective federal funds rate (EFFR).
The Federal Reserve has four main levers to manipulate short-term interest rates: reverse repurchase agreements (RRP), interest on reserve balances (IORB), the lower bound of the federal funds rate, and the upper bound of the federal funds rate. Without delving into the complex details of the money market, what we need to understand is that the Federal Reserve can unilaterally increase the quantity of dollars and lower its price.
If Bessent and Powell serve the same leader, analyzing the future path of dollar liquidity and the reactions of China, Japan, and the European Union to U.S. monetary policy would be very straightforward. Given that they clearly do not serve the same person, I wonder how Trump can manipulate Powell to print money and lower interest rates while allowing Powell to maintain the Federal Reserve’s mission against inflation.
Economic Collapse
The Federal Reserve-Recession Law: If the U.S. economy falls into recession, or if the Federal Reserve fears that the U.S. economy will fall into recession, it will lower interest rates and/or print money.
Let us examine this law with recent economic history (thanks to Bianco Research for this excellent chart).
This is a list of direct causes of recessions in modern U.S. economic history post-World War II. A recession is defined as a quarter-over-quarter negative GDP growth. I will focus on the period from the 1980s to the present.
This is a chart of the lower bound of the federal funds rate. Each red arrow represents the start of a loosening cycle that coincided with a recession. As you can see, it is very clear that the Federal Reserve has lowered rates at least during recessions.
Fundamentally, “Pax Americana” and its ruling global economy are financed through debt. Large corporations fund future production expansion and current operations through bond issuance. If cash flow growth significantly slows or declines entirely, the ultimate repayment of the debt will be called into question.
This is problematic because corporate liabilities are largely assets for banks. The corporate debt assets that banks hold back their customer deposit liabilities. In short, if the debt cannot be repaid, it will call into question the “value” of all existing legal tender banknotes.
Moreover, in the U.S., most households are leveraged. Their consumption patterns are marginally financed through mortgages, auto loans, and personal loans. If their cash flow generation capacity slows or declines, they will be unable to meet their debt obligations. Similarly, the banking system holds this debt and backs its deposit liabilities.
Crucially, the Federal Reserve cannot allow large-scale defaults or an increase in the probability of corporate and/or household debt defaults during a recession or before cash flow generation slows or contracts. This would lead to corporate and consumer debt defaults, resulting in systemic financial distress. To protect the solvency of the debt-financed economy, the Federal Reserve will proactively or reactively lower rates and print money whenever a recession occurs or when people perceive an increased risk of recession.
KISS Principle
Trump manipulates Powell to ease financial conditions by triggering a recession or making the market believe a recession is imminent.
To avoid a financial crisis, Powell will subsequently take some or all of the following actions: lower interest rates, end quantitative tightening (QT), restart quantitative easing (QE), and/or suspend the supplementary leverage ratio (SLR) for banks purchasing U.S. treasuries.
Here is an image from DOGE:
How does Trump unilaterally trigger a recession?
The marginal driver of U.S. economic growth has always been the government itself. Whether the spending is fraudulent or necessary, government spending creates economic activity. Additionally, government spending has a monetary multiplier effect. This is why the Washington D.C. metropolitan area is one of the wealthiest regions in the United States, as it is home to a large number of professional parasites feeding off the government. It is difficult to estimate the exact monetary multiplier directly, but conceptually, it is easy to understand that government spending has follow-on effects.
According to data from Perplexity:
The median household income in Washington D.C. is $122,246, far above the national median household income.
This places Washington D.C. in the 96th percentile among U.S. cities by household income.
As a former president, Trump is well aware of the extent of fraud, waste, and abuse within the government. Both parties’ establishment figures do not want to curb this situation, as everyone benefits from it. Given that Trump supporters are outsiders to both the Democratic and Republican parties, they are unhesitating in exposing the flaws in government spending programs. Establishing a consulting committee led by Elon Musk, with Trump backing it, called the “Department of Government Efficiency (DOGE),” is a core driver for rapidly and significantly cutting government spending.
How does DOGE accomplish this when many of the largest expenditure items are non-discretionary? Payments can be stopped if they are fraudulent. If computers can replace government employees managing these projects, human resource costs will plummet. The question then becomes,How much fraud and inefficiency is there in government spending each year? If what DOGE and Trump say is true, then the annual figure could reach trillions of dollars.
One potentially obvious example is the Social Security Administration (SSA) sending checks to recipients. If we believe DOGE’s claims, the department is distributing nearly a trillion dollars to deceased individuals and people whose identities have not been properly verified. I do not know the truth of this assertion.
But imagine you are a SSA benefits fraudster and know that Elon and the “big shots” are delving into the data, potentially uncovering fraudulent payments you’ve received over the years and submitting them to the Department of Justice. Would you continue your scam or flee? The key point is that the mere threat of discovery could lead to a reduction in fraudulent activities. As the old saying in China goes, “Kill the chicken to scare the monkey.” Therefore, while the establishment media may be trying to intimidate Elon and DOGE, I believe that even if it’s not a trillion dollars, there are still hundreds of billions at stake.
Next, let’s discuss the human resources aspect of government spending. Trump and DOGE are laying off hundreds of thousands of government employees. Whether unions have enough power to legally challenge the mass purge of “useless” government workers remains to be seen. But the consequences are already evident.
DeAntonio explained, “The layoffs we have seen so far may just be the tip of the iceberg. The scale and timing of future layoffs will determine whether the labor market can remain stable. We currently anticipate that due to ongoing hiring freezes, delayed resignations, and layoffs initiated by DOGE, the number of federal employees will decrease by approximately 400,000 by 2025.” –Fox Business
Even though Trump 2.0’s presidency has just begun a little over a month ago, the impact of DOGE is already apparent. The number of unemployment claims in the Washington D.C. area has surged. Housing prices have plummeted. And consumer discretionary spending, arguably driven by massive fraud and abuse within the U.S. government, has disappointed financial analysts’ forecasts. The market is beginning to discuss the term “recession.”
A new analysis from the real estate trading platform Parcl Labs shows that housing prices in Washington D.C. have dropped by 11% since the beginning of this year, tracking the impact of the actions of the Department of Government Efficiency (DOGE) on the city’s real estate market. –Newsweek
Rothstein posted on Bluesky that due to large-scale layoffs in government sectors and the sudden cancellation of federal contracts, the U.S. is almost certain to head into a severe economic contraction. –The Economic Times
The term “recession” is an economic disgrace. Powell does not want to become a modern-day Hester Prynne (and be publicly shamed and condemned), so he must respond.
Powell has turned to various strategies since 2018, and he must be feeling dizzy. The investor’s question is whether Powell will act preemptively to save the financial system from collapse, or will he only respond after a major financial institution goes bankrupt. The path Powell chooses is purely political; therefore, I cannot predict it.
But what I do know is that there is $20.8 trillion in U.S. corporate debt and $10 trillion in U.S. national debt that needs to be rolled over this year. If the U.S. is on the brink of or in a recession, the impact on cash flow will make it nearly impossible to roll over these massive bonds at current interest rate levels. Therefore, to maintain the sanctity of the “American peace” financial system, the Federal Reserve must and will take action.
For us cryptocurrency investors, the question is how quickly and to what extent the U.S. will release credit? Let’s break down the four main actions the Federal Reserve will take to reverse the situation.
Interest Rate Cuts
It is estimated that for every 0.25% reduction in the federal funds rate, it equates to $100 billion in quantitative easing or money printing. Assuming the Federal Reserve lowers rates from 4.25% to 0%, this would correspond to $1.7 trillion in quantitative easing. Powell may not lower rates to 0%, but you can be sure Trump will allow Elon to continue cutting spending until Powell brings rates down to an ideal level. Once an acceptable rate level is reached, Trump will rein in his “mad dog.”
Stopping Quantitative Tightening (QT)
The recently released minutes from the Federal Reserve’s January 2025 meeting detail that some committee members believe quantitative tightening must end at some point in 2025. Quantitative tightening is the process by which the Federal Reserve shrinks the size of its balance sheet, thus reducing the amount of dollar credit. The Federal Reserve is currently conducting $60 billion in quantitative tightening each month. Assuming the Federal Reserve begins action in April, stopping quantitative tightening would inject $540 billion in liquidity by 2025 compared to previous expectations.
Restarting Quantitative Easing (QE) / Supplementary Leverage Ratio (SLR) Exemptions
To absorb the supply of U.S. Treasury bonds, the Federal Reserve could restart quantitative easing and grant banks supplementary leverage ratio exemptions. Through quantitative easing, the Federal Reserve can print money and buy government bonds, thereby increasing the amount of credit. Supplementary leverage ratio exemptions allow U.S. commercial banks to use unlimited leverage to purchase government bonds, thus increasing the amount of credit.
The key point is that both the Federal Reserve and the commercial banking system are allowed to create money out of thin air. Restarting quantitative easing and granting supplementary leverage ratio exemptions are decisions that only the Federal Reserve can make.
If the federal deficit remains in the range of $1 trillion to $2 trillion per year, and the Federal Reserve or banks absorb half of the newly issued amounts, this means that the money supply will increase by $500 billion to $1 trillion each year. A 50% participation rate is conservative, as during COVID-19, the Federal Reserve purchased 40% of newly issued amounts. Nevertheless, by 2025, large exporting countries (China) or oil-producing countries (Saudi Arabia) may have stopped or significantly slowed their purchases of Treasury bonds with dollar surpluses; therefore, the Federal Reserve and banks have more room for manipulation.
Let’s do some calculations:
Interest Rate Cuts: $1.7 trillion
+
Stopping Quantitative Tightening: $0.54 trillion
+
Restarting Quantitative Easing/Supplementary Leverage Ratio Exemptions: $500 billion to $1 trillion
=
Total = $2.74 trillion to $3.24 trillion
COVID-19 vs. DOGE Money Printing
In the U.S. alone, the Federal Reserve and the Treasury created approximately $4 trillion in credit between 2020 and 2022 in response to the COVID-19 pandemic. The money printing inspired by DOGE could reach 70% to 80% of the scale seen during the pandemic.
Given that the U.S. printed $4 trillion, Bitcoin surged approximately 24 times from its low in 2020 to its peak in 2021. Considering Bitcoin’s market capitalization is now much larger than it was then, let’s conservatively call the increase from the U.S. alone printing $3.24 trillion a 10-fold rise. This is the answer for those asking how Bitcoin could reach $1 million during Trump’s presidency.
Several Key Assumptions
Even amidst the current market chaos, I still paint a very rosy future for Bitcoin. Let’s look at my assumptions so that readers can judge for themselves whether these assumptions are reasonable.
Trump will finance “America First” through debt.
Trump is using DOGE as a means to clear out political opponents addicted to fraudulent revenue sources, cut government spending, and increase the likelihood that the slowdown in U.S. government spending triggers a recession.
The Federal Reserve will undertake a series of policies either before or after a recession to increase the money supply and lower the price of money.
Based on your worldview, you can determine whether this is reasonable.
U.S. Strategic Reserve
Waking up Monday morning, I saw that Trump’s market rally had started. On Truth Social, Trump reiterated that the U.S. would establish a strategic reserve filled with Bitcoin and a bunch of junk coins. The market surged significantly due to the “news.” This is not new, but the market viewed Trump’s reiteration of his cryptocurrency policy intentions as an excuse for a violent dead cat bounce.
For this reserve to have a positive impact on prices, the U.S. government must have the capacity to actually purchase these cryptocurrencies. There are no secrets; the dollar piles are waiting to be deployed. Trump needs the help of Republican lawmakers to raise the debt ceiling and/or revalue gold to match current market prices.
These are the only two ways to fund a cryptocurrency strategic reserve. I’m not saying Trump won’t keep his promise, but the timeline for when purchases might begin could be longer than leveraged traders can hold on before liquidation. Therefore, it’s wise to reduce positions at highs.
Trading Strategy
Bitcoin and the broader cryptocurrency market are the only truly global free markets that exist. Bitcoin’s price instantly tells the world how global society views the current liquidity conditions of fiat currencies.
Bitcoin peaked at $110,000 just before Trump’s coronation in mid-January and hit a local low of $78,000, a decline of about 30%. Bitcoin is screaming that a liquidity crisis is imminent, even as U.S. stock indices remain near historical highs. I believe in Bitcoin’s signals, and thus a severe correction in the U.S. stock market driven by recession fears is on the horizon.
If Bitcoin leads the market down, it will do so in the upturn as well. Given the rapid spread of minor financial turmoil into total panic due to the massive leverage embedded in the system, if my overall predictions are correct, we won’t have to wait long before the Federal Reserve takes action. Bitcoin will likely bottom first and then lead the recovery.
As for those rotten traditional financial systems led by U.S. stocks, they will lag behind in starting to rise, but they will first experience a round of declines before chasing gains.
I firmly believe we are still in a bull market cycle; therefore, the worst-case scenario bottom will be the previous cycle’s historic high of $70,000. I’m uncertain whether we will drop that low. A positive signal of dollar liquidity is that the U.S. Treasury’s general account is declining, which has served to inject liquidity.
Based on my confidence in Trump as a financier type and his ultimate goals, when Bitcoin trades in the $80,000 to $90,000 range, Maelstrom will increase risk exposure. If the current situation is merely a “dead cat bounce” (a brief rebound followed by further declines), I expect Bitcoin could once again test lows around $80,000.
If the S&P 500 or Nasdaq 100 index declines by 20% to 30% from historical highs, combined with the near collapse of a major financial institution, we could see a synchronized downturn in global markets.
This means all risk assets will be severely impacted simultaneously, and Bitcoin could drop below $80,000 again, potentially even testing $70,000. Regardless of what happens, we will cautiously build up our positions gradually during declines, without using leverage, in anticipation that the global (especially U.S.-led) fiat financial markets will re-inflate after the eventual collapse, pushing Bitcoin to $1 million or even higher!
This article is collaboratively republished from: Deep Tide.