Source: Theme speech "It's F**king Maths" by Arthur Hayes at Bitcoin 2025
Translated by Jinse Finance

The Mission of the US Treasury Secretary

The new US Treasury Secretary is Bessent, who worked with George Soros and helped break several sovereign currency pegging mechanisms. He clearly understands what needs to happen economically for the US to succeed in facing all these challenges.

This is a photo of Bessent doing a sales presentation. I believe some of you have seen the movie 'Glengarry Glenn Ross' and that iconic scene where... I forgot the actor's name, standing there telling salespeople ABC - Always Be Closing. So what is Scott Bessent's job? Every time you see him on TV, imagine him as a used car salesman pitching something to you. What is he selling? Bonds. His job is to sell bonds because his boss - the US government - needs to finance itself.

So why are bonds a bad investment? The yellow section here is a chart of total US Treasury debt since 2017. You can see it's indexed at 100 and debt supply has risen about 80%. I then compared this index with TLT (an ETF tracking long-term Treasury bonds) divided by the Nasdaq 100 index. So if the chart goes down, it means Nasdaq outperformed bonds. From 2017 to now, Nasdaq has outperformed bonds by about 80%. So yes, you might have made money from bond coupon payments, but if you put money in the stock market, you would have earned 80% more.

Let's look at the same chart compared to gold. Similar situation. If you had bought gold instead of US Treasuries, your performance would be about 80% better. Obviously, this isn't a gold or stock conference. We're talking about Bitcoin here. So how does it compare to Bitcoin? Even more striking. By buying Bitcoin instead of bonds, you would have outperformed bonds.

Therefore, although many investment professionals might stand up and tell you they think the bond market will perform well in the next year or two, that might be true. You might really make money holding bonds, but you would make more money holding something else. The goal of investing is to maximize your earnings in the current environment, and holding government bonds is not a good trade.

Now, this obviously comes back to my message that Bessent's job is very difficult, because as more investors read these charts and understand that if they continue holding government bonds, their performance will be far worse than what they could have earned for themselves and their clients, more government action will be needed to ensure the US government can finance itself. So clearly, after the Trump administration came to power, they talked about the US government having spending problems.

US Debt Deficit and Inflation

This is a chart from the Peterson Institute. The US fiscal year starts in October. We can see that as of this March, despite many efforts and rhetoric to control excessive US government spending, our expenditure is already higher in fiscal year 2025 than in fiscal year 2024, which was already a record deficit year.

The second matter is the exemption of the Supplementary Leverage Ratio (SLR), which I will elaborate on later. Scott Bessent has discussed this in multiple interviews, and he recently strengthened his statements in interviews with Bloomberg and Fox News, saying he believes this ratio will be exempted this summer, just like large banks could leverage infinitely to buy government bonds during the COVID-19 pandemic.

Lastly, an increasingly attention-grabbing area is Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs), which, if allowed again, will be able to inject massive funds into the mortgage market.

Let's look at this "three-horse carriage". "Foreigners must pay" is a good political strategy. If you want to tell voters "I'm going to give you something", it's obviously better if someone else pays. This is how politics works worldwide. As early as 1984, the US government faced another problem: how to get people to buy our debt? At that time, the yield on 30-year Treasury bonds was around 12%. They said, "Hey, why don't we exempt foreign bondholders from withholding tax?" Now, if you're an American, all interest from holding government bonds is taxed at a specific rate, I think between 20% and 30%. But now, if you're a foreigner, you don't need to pay this tax.

So now there are discussions about canceling this exemption for several purposes. First, by essentially taxing income earned by foreigners, this can raise over a trillion dollars in ten years. Now, obviously, if you're taxed, you might not want to hold government bonds. So one idea is whether we can set a very low tax rate for holding long-term government bonds - things Bessent finds hard to sell - while imposing high taxes on Treasury bills - cash-like instruments you might hold in a money market account. Everyone wants this, everyone wants high-yield cash accounts. So let's punish you for holding short-term government bonds but allow you to hold long-term bonds. This is a mild form of yield curve control. How do we get foreign demand for long-term bonds? Just change the tax rate.

Now, the ultimate question is who will replace foreigners as the marginal debt holders. Obviously, this means they will print money to make up for the funds lost from foreign investors not investing in these debts.

Another thing: bank bond-buying frenzy. Supplementary Leverage Ratio (SLR), if you remember nothing else from this talk, please remember this. This is a way banks can buy bonds with unlimited leverage. There's something called Basel III, a very complex regulation developed after the global financial crisis, which did something wise. It said, hey banks, you don't have much capital, why don't we let you have more? So if I hold a bond, I must invest some of my own equity capital. This makes sense. This means US banks face limitations on the amount of US Treasury bonds they can buy. Remember, Bessent needs to sell two trillion or more bonds each year, and he needs to ensure someone can buy these bonds. So if I remove this exemption, it allows commercial banks to buy government bonds with unlimited leverage. When they can do this, their profits will soar because the rates they pay on commercial deposits are very low. Obviously, a smiling Jamie Dimon very much wants this to happen. He has stated multiple times that he believes the banking system needs this exemption. As I always say, Jamie Dimon gets what he wants.

Another thing, stablecoins are obviously a very hot topic recently. If you combine stablecoins or non-interest-bearing US dollar stablecoins issued by US banks in the market with SLR exemption, they basically become like Tether. They don't allow payment to people investing in these stablecoins and using them for transfers, then they can invest all this money into US Treasury bonds without capital requirements. This is essentially unlimited profit. So I expect that if this exemption passes - and I think it will - you'll see large US banks consistently working to issue "orange stablecoins" (referring to a stablecoin related to Bitcoin or a bank supporting Bitcoin), because this is a way for them to earn massive net interest income.

This is a post by Trump on Truth Social about Fannie Mae and Freddie Mac.

Basically, these are organizations that issued mortgages before the 2008 financial crisis. They were very profitable. Now, what happens when you release Fannie Mae and Freddie Mac? Basically, you liberate them from government conservatorship. This deal has been discussed for nearly two years. If you bought in at one dollar, these companies might now be trading at $11 in the market. But by freeing them from conservatorship, they'll be allowed to use their equity capital, issue more debt with implicit government guarantees, and leverage 33 times. Then they can buy up to $5 trillion in mortgages. If you allow these two organizations to resume normal operations, this will inject $5 trillion of liquidity into the market.

Simple Calculation

Where did I get the idea that Bitcoin might reach $1 million?

· If we consider "quantitative easing for the poor" - banks providing more loans to the real economy - I estimate that from now until 2028, bank credit could reach up to $3 trillion. The statistic to watch is the "Other Deposits and Liabilities" item on the Fed's weekly balance sheet, where we'll see this happening.

· If banks are allowed to buy government bonds, an estimated $900 billion in foreign demand might disappear. This must be compensated by commercial banks, which can now buy these bonds with unlimited leverage.

· Finally, let's release Fannie Mae and Freddie Mac, bringing $5 trillion of liquidity to the market.

· This will bring our money printing close to $9 trillion from now until 2028.

Let's put this in context. During the COVID-19 pandemic, the US stimulus package and all aid given to the financial sector totaled about $4 trillion. From the March 2020 low to $70,000 in November 2021, Bitcoin rose about 10 times.

Remember, price is determined by the marginal. The marginal price is important, not the entire stock. So if we reduce Bitcoin on trading platforms due to ETF demand, and the money we print from now until 2028 is twice that of the COVID-19 pandemic, Bitcoin reaching $1 million becomes quite easy.