Keep — It — Simple — Stupid = KISS
Many readers often forget the KISS principle when dealing with the overwhelming policies of U.S. President Donald Trump’s administration.
Trump’s media strategy aims to have you waking up every day telling your friends, partners, or inner monologue, “My goodness, did you see what Trump/Musk/Young Kennedy did yesterday? I can hardly believe they actually did that.” Regardless of whether you are elated or disheartened, this spectacle, dubbed “The Emperor’s Days,” is quite entertaining.
For investors, this persistent state of excitement is detrimental to accumulating Bitcoin (sats). You might buy today and quickly sell tomorrow after digesting the next headline. The market oscillates continuously in this process, and your Bitcoin reserves rapidly diminish.
Remember the KISS principle.
Who is Trump? Trump is a master of real estate performance. To succeed in the realm of real estate, you must master the art of borrowing massive sums at the lowest possible interest rates. Then, to sell condominiums or rent spaces, you must boast about how impressive new buildings or development projects will be. I am not interested in Trump’s ability to evoke sympathy in global society, but I am interested in his capability to finance policy goals.
I am convinced that Trump wishes to achieve his “America First” policy through debt financing. If not, he would allow the market to naturally clear the embedded credit in the system, ushering in an economic depression worse than that of the 1930s. Does Trump want to be remembered as Herbert Hoover of the 21st century or Franklin Delano Roosevelt (FDR)? U.S. history diminishes Hoover because historians believe he did not print money quickly enough, while praising Roosevelt for his New Deal policies funded by money printing. I believe Trump wants to be seen as the greatest president in history; thus, he does not want to destroy the foundations of the empire through austerity.
To emphasize this point, remember that Andrew Mellon, Hoover’s Secretary of the Treasury, famously said the following regarding how to respond to an over-leveraged American and global economy after a stock market crash:
“Liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate. It will purge the system of its rot. High costs of living and extravagant lifestyles will decline. People will work harder, live more morally. Values will be re-adjusted, and those with initiative will pick up the pieces from those less capable.”
Current U.S. Treasury Secretary Scott Bessent would not speak so boldly.
If my viewpoint is correct, that Trump will realize “America First” through debt financing, what does this imply for my future outlook on global risk asset markets, particularly cryptocurrencies?
To answer this question, I must form an opinion on how Trump might increase the money/credit supply (i.e., print money) and lower its price (i.e., interest rates). Therefore, I must have a perspective 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
For whom do Bessent and Powell serve? Are they serving the same person?
Bessent was appointed by Trump 2.0 and appears to align closely with the “Emperor’s” worldview based on his past and present interviews.
Powell was appointed by Trump 1.0 but is an erratic traitor who has defected to the Obama and Clinton camps. Powell destroyed the little credibility he had left when he drastically cut interest rates by 0.5% in September 2024. At that time, U.S. economic growth was above trend levels, and inflation remained a concern, making interest rate cuts unnecessary.
However, Obama-Clinton puppet Kamala Harris needed a boost, and Powell dutifully lowered rates. The results did not pan out as expected, but after Trump’s victory, Powell declared he would complete his term and once again firmly combat inflation.
When you are burdened with massive debt, several things occur.
First, interest payments consume most of your free cash flow. Second, you cannot finance additional asset purchases, as no one will lend you money given your high debt levels. Consequently, you must restructure your debt, which requires extending maturities and lowering coupon rates. This is a form of a soft default, as mathematically it reduces the present value of the debt burden. Once your effective debt burden is lowered, you can borrow again at affordable rates. From this perspective, both the Treasury and the Federal Reserve play roles in restoring financial health in the U.S. However, because Bessent and Powell serve different masters, the success of this effort is hampered.
Debt Restructuring
Bessent has publicly stated that the current structure of U.S. debt must change. He hopes to ultimately extend the average maturity of the debt burden, 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, what is most important for investors is that the U.S. will soft-default on its debt burden by lowering its net present value.
Given the global distribution of U.S. debt holders, achieving such a restructuring will take time. It is a geopolitical “Gordian knot.” Therefore, in the short term, i.e., within the next three to six months, this does not concern our cryptocurrency inventors.
New Loans
Powell and the Federal Reserve have broad control over the quantity of credit and its pricing. The law allows the Federal Reserve to print money to buy debt securities, thereby increasing the money/credit supply, i.e., printing money. The Federal Reserve also sets short-term interest rates. Given that the U.S. cannot default in nominal dollars, the Federal Reserve determines the risk-free rate of the dollar, which is the effective federal funds rate (EFFR).
The Federal Reserve has four primary levers to manipulate short-term interest rates: the Reverse Repo Program (RRP), the 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 supply of dollars and lower their price.
If Bessent and Powell serve the same Leader, analyzing the future path of dollar liquidity and the responses of China, Japan, and the European Union to U.S. monetary policy would be straightforward. Given that they are clearly not serving 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 anti-inflation mission.
Crashing the Economy
Federal Reserve-Recession Law: If the U.S. economy falls into recession, or if the Federal Reserve fears that the U.S. economy is headed for a recession, it will lower interest rates and/or print money.
Let’s examine this law with recent economic history (thanks to Bianco Research for this excellent chart).
This is a direct cause list of post-World War II modern U.S. economic recessions. A recession is defined as a quarter-over-quarter GDP growth rate that is negative. 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 quite clear that the Federal Reserve tends to lower interest rates at least during recessions.
Fundamentally, “Pax Americana” and the globally dominant economy rely heavily on debt financing. Large corporations fund future production expansions and current operations through bond issuance. If cash flow growth significantly slows or declines completely, the repayment of that debt will come into question.
This is concerning because corporate debt largely constitutes assets for banks. The corporate debt assets held by banks back their customers’ deposit liabilities. In short, if the debt cannot be repaid, it calls into question the “value” of all existing statutory credit bank notes.
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 these debts and backs their deposit liabilities.
Crucially, the Federal Reserve cannot allow a rise in large-scale defaults or the probability of corporate and/or household debt defaults during an economic 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 economic system, the Federal Reserve proactively or passively lowers interest rates and prints money whenever a recession occurs or when perceived risks of a recession increase.
KISS Principle
Trump manipulates Powell into relaxing financial conditions by either triggering a recession or making the market believe that a recession is imminent.
To avoid a financial crisis, Powell will subsequently take some or all of the following measures: lower interest rates, end quantitative tightening (QT), restart quantitative easing (QE), and/or suspend the supplementary leverage ratio (SLR) for banks purchasing U.S. Treasury securities.
Here is a chart from DOGE:
How does Trump unilaterally trigger a recession?
The marginal driver of U.S. economic growth has always been the government itself. Whether spending is fraudulent or necessary, government spending creates economic activity. Additionally, government spending has a multiplier effect. This is why the Washington D.C. metropolitan area is one of the wealthiest regions in the U.S., as there are many professional parasites sucking from the government. It is difficult to estimate the exact monetary multiplier directly, but conceptually, it is easy to understand that government spending has a follow-on effect.
According to data from Perplexity:
The median household income in Washington D.C. is $122,246, far exceeding the national median household income. This places Washington D.C. in the 96th percentile among U.S. cities for household income.
As a former president, Trump is well aware of the degree of fraud, waste, and abuse present within the government. Both parties’ establishments do not wish to curb this situation, as everyone benefits from it. Given that Trumpists are outside the Democratic and Republican parties, they are unhesitant to expose the flaws in government spending programs. Establishing a consulting committee led by Elon Musk, backed by Trump, called the “Department of Government Efficiency (DOGE),” is the core drive towards rapidly and significantly reducing government spending.
How does DOGE achieve this when many of the largest spending items are non-discretionary? Payments can be stopped if they are fraudulent. If computers can replace government employees managing these projects, human resources costs will plummet. The question becomes,How much fraud and inefficiency exist within government spending each year? If the claims made by DOGE and Trump are accurate, the annual figure could reach trillions of dollars.
One glaring example might be the Social Security Administration (SSA) and the checks it issues. If we believe DOGE’s assertions, the department is distributing nearly a trillion dollars to deceased individuals and people whose identities have not been properly verified. I cannot ascertain the truthfulness of this claim.
But imagine you are a SSA welfare fraudster and you know that Elon and the “big man” are delving into the data, potentially uncovering fraudulent payments you’ve received over the years and submitting this information to the Department of Justice. Would you continue your scheme or flee? The key point is that even the mere threat of discovery could lead to a reduction in fraudulent activities. As the old Chinese saying goes, “kill the chicken to scare the monkey.” Thus, while mainstream 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 the government spending equation. Trump and DOGE are laying off hundreds of thousands of government employees. Whether unions have enough power to legally challenge the mass clearing of “useless” government workers remains to be seen. However, the consequences are already becoming evident. DeAntonio explains, “The layoffs we’ve 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 only just begun a little over a month ago, the impact of DOGE is unmistakable. The number of unemployment claims in the Washington D.C. area has surged. Housing prices have plummeted. Consumer discretionary spending, arguably driven by widespread fraud and abuse within the U.S. government, has disappointed financial analysts’ forecasts. The market is starting to talk about the term “recession.”
A new analysis from real estate trading platform Parcl Labs indicates that housing prices in Washington D.C. have dropped by 11% since the beginning of this year, tracking the impact of the Department of Government Efficiency (DOGE) on the city’s real estate market. – Newsweek
Rothstein posted on Bluesky that due to mass layoffs in government departments and sudden cancellations 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 the modern-day Hester Prynne (and face public humiliation and condemnation), so he must respond.
Powell Turns Again
How many times has Powell turned since 2018? He must certainly feel dizzy. The question for investors 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, and therefore, I cannot predict it.
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 must be rolled over this year. If the U.S. is on the edge of a recession or already in one, the cash flow impact will render it almost impossible to roll over these massive debts at current interest rate levels. Thus, to preserve 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 on what scale the U.S. will release credit? Let’s break down the four main measures the Federal Reserve will take to turn the tide.
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 Fed lowers rates from 4.25% to 0%, that would amount 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 interest rate is reached, Trump will rein in his “mad dog.”
Stop Quantitative Tightening (QT)
The recently released minutes from the Federal Reserve’s January 2025 meeting indicate that certain committee members believe quantitative tightening must end at some point in 2025. Quantitative tightening is the process by which the Federal Reserve reduces the size of its balance sheet, thereby decreasing the amount of dollar credit. The Fed is currently conducting $60 billion in quantitative tightening each month. If the Fed starts taking action in April, this means stopping quantitative tightening will inject $540 billion in liquidity in 2025 compared to previous expectations.
Restart Quantitative Easing (QE) / Supplemental Leverage Ratio (SLR) Exemption
To absorb the supply of U.S. Treasuries, the Federal Reserve can restart quantitative easing and grant banks supplemental leverage ratio exemptions. Through quantitative easing, the Fed can print money and buy Treasuries, thus increasing the amount of credit. The supplemental leverage ratio exemption allows U.S. commercial banks to use infinite leverage to purchase Treasuries, thereby 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 supplemental leverage ratio exemptions are decisions that only the Fed can make.
If the federal deficit remains in the range of $1 trillion to $2 trillion annually, and the Fed or banks absorb half of the newly issued volume, 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 Fed purchased 40% of new issuance. Nonetheless, by 2025, large exporting countries (like China) or oil-producing nations (like Saudi Arabia) may have ceased or significantly slowed their purchases of Treasuries with dollar surpluses; thus, the Fed and banks will have more room for manipulation.
Let’s do some calculations:
Interest Rate Cuts: $1.7 trillion
+
Stop Quantitative Tightening: $0.54 trillion
+
Restart Quantitative Easing / Supplemental Leverage Ratio Exemption: $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 scale of money printing inspired by DOGE could reach 70% to 80% of that during the pandemic.
Due to the $4 trillion printed in the U.S., Bitcoin rose approximately 24 times from its low in 2020 to its peak in 2021. Given that Bitcoin’s market cap is now significantly larger than it was then, let’s be conservative and say the increase from the U.S. printing $3.24 trillion alone could be a 10-fold rise. For those questioning how Bitcoin could reach $1 million during Trump’s presidency, this is the answer.
Several Key Assumptions
Even in the current market turmoil, I still paint a very rosy future for Bitcoin. Let’s examine my assumptions so that readers can decide for themselves whether these assumptions are reasonable.
Trump will finance “America First” through debt.
Trump is using DOGE as a means to eliminate political opponents addicted to fraudulent income sources, cut government spending, and increase the likelihood of a slowdown in U.S. government spending leading to a recession.
The Federal Reserve will implement a series of policies before or after a recession to increase the money supply and lower money prices.
Based on your worldview, it is up to you to decide whether this is reasonable.
U.S. Strategic Reserves
Waking up Monday morning, I saw the Trump market rally kick off. 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 this “news.” This is nothing new, but the market interpreted Trump’s reaffirmation of his cryptocurrency policy intentions as an excuse for a violent dead cat bounce.
For this reserve to positively impact prices, the U.S. government must have the ability to actually purchase these cryptocurrencies. There are no secret piles of dollars waiting to be deployed. Trump needs the help of Republican lawmakers to raise the debt ceiling and/or reevaluate gold to match current market prices.
These are the only two methods to fund a cryptocurrency strategic reserve. I am not saying Trump will not keep his promise, but the timeframe for when purchases might begin could be longer than leveraged traders can hold before liquidation. Therefore, it’s wise to reduce positions when prices rise.
Trading Strategy
Bitcoin and the broader cryptocurrency market are the only truly existing global free markets. The price of Bitcoin instantaneously communicates to the world how global society perceives the current liquidity situation of fiat currencies.
Bitcoin reached a peak of $110,000 just before Trump’s coronation in mid-January and hit a local low of $78,000, dropping 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, so 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 also lead it up. Given that minor financial turmoil can rapidly escalate into full-blown panic due to the massive leverage embedded in the system, if my overall prediction is correct, we won’t have to wait long for the Fed to take action. Bitcoin will likely bottom out first, then rebound ahead of the market.
As for the traditional financial systems led by U.S. stocks, they will lag behind before they begin to rise, but they must first experience another round of declines.
I firmly believe we are still in a bull market cycle, so, at worst, the bottom will be the previous cycle’s high of $70,000. I am not sure we will drop that low. A positive signal for dollar liquidity is that the U.S. Treasury general account is declining, which serves 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 increases its risk exposure. If the current situation is merely a “dead cat bounce” (a temporary rebound before continuing to fall), I anticipate Bitcoin could once again test lows around $80,000.
If the S&P 500 or NASDAQ 100 indices drop 20% to 30% from their historical highs, coupled with a major financial institution nearing collapse, we could see a synchronized downturn across global markets.
This means all risk assets could be simultaneously hit hard, and Bitcoin may once again fall below $80,000, potentially even testing $70,000. Regardless of what happens, we will cautiously build positions during the decline, avoiding leverage, with the expectation that the global (especially U.S.-led) fiat financial markets will reflate after the final collapse, pushing Bitcoin to $1 million or higher!
This article is a collaborative reproduction from: Deep Tide.