Rhythm BlockBeats Note: Last week, Arthur Hayes posted on social media that he had closed all HYPE and NEAR positions and stated that he would explain the logic behind this in detail in this week's article—this article is a response to that.
The key points are as follows:
· The escalation of the Iran situation combined with the corporate inventory replenishment cycle may further drive up energy prices
· From now until early Q3, the market will see three heavyweight AI projects IPO
· Trump may shift to an anti-AI stance before the midterm elections to garner more support from Republican voters
· The current market high is likely to occur between now and September
· For risk asset investors, it is now time to gradually take profits. Below is the original content:
Is all this my illusion, or is investing in AI today really just a matter of subscribing to Citrini Research's service and blindly buying all the recommended stocks?
Am I dreaming? Or has oil prices already lost their impact on the economy and politics? It is for this reason that Trump and the Iranian Islamic Revolutionary Guard Corps were able to engage in a war of words on social media, with many ships stranded in the Strait of Hormuz.
The two-year U.S. Treasury yield is half a percentage point higher than the effective federal funds rate. Is the market sending such a clear signal that the Fed will really remain idle and refuse to raise interest rates at the next FOMC meeting?
Is all the dividend that AI has created for the United States really only going to fall into the hands of a few tech practitioners?
In this chaotic world before my eyes, I have to conduct a reality check to confirm whether I am awake or deeply in a dream. Once the test results prove that everything is just an illusion, I will immediately adjust my investment portfolio. This article is my validation process. Once I finish writing these words, organizing my thoughts, my position layout will also undergo significant changes or remain unchanged.
Let me start with a core assertion: the current market situation is more like a dream. Within the entire investment system, the price of oil and other hydrocarbon energy sources is a core variable with a reverse transmission effect. The essence of human perception of the world is to transform energy into biological intelligence, and the same applies to artificial intelligence. This rule will never be broken. The market may deviate from this common sense in the short term, but reality will eventually bite back.
This article will start with oil prices and ultimately touch on the U.S. election. The current situation is likely to trigger the bursting of the artificial intelligence stock market bubble, dragging down the entire crypto market in the process.
When the dust settles, Bitcoin will have the opportunity to rebound. I previously asserted that Bitcoin would never touch the $60,000 mark again, a judgment that has now been proven wrong, which is a common occurrence in market predictions. I always adhere to one principle: opinions can be strong, but there is no need to be stubborn.
Next, let's delve into the analysis.
Negotiation or Not, the Current Core Challenge
Politicians always act based on their self-interest. Trump arbitrarily launched a military action against Iran, and the reasons behind it are perhaps known only to him. Faced with the various justifications thrown out by him and his entourage at every moment, the outside world can't distinguish the truth. At this point, the entanglement of the reasons is meaningless; the real issue is whether Trump and the Islamic Revolutionary Guard Corps of Iran will choose a ceasefire and in what manner the standoff will end.
This conflict is now entirely led by Trump, and for him and the Republican camp, provoking a war in an election year is undoubtedly a passive position.
In the U.S., the prices of essential goods like gasoline and food often directly determine the election results. Currently, with the blockade of the Strait of Hormuz and continued energy and food inflation, the root cause of all this is the Trump administration's unilateral action against Iran without consulting the people. Some may point fingers at Israel, but this argument simply doesn't hold water. Understanding U.S. history would make it clear that domestic forces will never follow external arrangements.
As long as the war does not affect their daily lives, and there are no casualties among their loved ones, American people do not oppose going to war. Trump has also emphasized repeatedly that only thirteen American soldiers died in this special military operation. This is also why the U.S. is keen on using cutting-edge long-range weapons and conducting "video game-style wars."
Even though the launch of this Middle East war lacks a clear winning strategy and has disappointed many supporters, the bedrock of his support still chooses to stand with the Republican Party. Some wavering Republican lawmakers, facing internal pressure from Trump, have been defeated and ousted, confirming this point.
Trump's core vulnerability is not that his base voters are unwilling to vote in the November election, but that skyrocketing prices will cause a large number of swing voters to lean toward the Democratic Party. The cost of living has become the biggest issue on Trump's campaign trail.
In order to win over swing voters, Trump needs to at least stabilize the current oil price. Now that supply chains are gradually digesting the pressure from the price surge of energy and various raw materials, it is unrealistic to completely curb inflation. What Trump can do now is to control the market's expectation of inflation rather than change inflation itself.
Whether Trump is willing to reconcile with Iran depends entirely on the trend of oil prices.
As oil prices continue to rise, his stance will tend to be more moderate; however, once the market anticipates that both sides are about to negotiate and oil prices decline in response, he will change his attitude again. After all, from a geopolitical perspective, the agreement reached in this negotiation is highly likely to be more passive than the agreement the Obama administration signed with Iran back then. In the eyes of many voters, this is equivalent to a "surrender," and the Republican Party will also pay a price in the elections.
Negotiations always require concessions from both sides, and the Iranian Islamic Revolutionary Guard Corps also has similar considerations. When oil prices are too high, its main economic partners will exert pressure, demanding that Iran compromise with the United States; however, once Iran signals its willingness to negotiate and oil prices fall, the pressure from economic partners will also diminish.
At the current oil price level, neither the U.S. nor Iran has the motivation to actively back down. Although current oil prices have risen significantly compared to pre-war levels, they have not yet reached a level that would trigger a full-blown crisis. The overall commodity market is stable, there is no widespread famine globally, and most countries can supplement key industrial materials through other channels.
However, this delicate balance is destined not to last long. With a significant reduction in global core energy supply while prices remain relatively calm, this already goes against market principles.
Once global excess capacity is depleted, spot prices will inevitably soar, which is the consensus among many commodity analysts. The current crisis has not fully erupted because there is an ample global energy stockpile from before the conflict.
If the U.S.-Iran standoff continues until the end of the second quarter, spot prices for hydrocarbon energy and various basic commodities in the third quarter of this year will experience a sharp surge.
To borrow a quote from Churchill: Politicians will exhaust all options before making the right choice.
Only when the situation completely spirals out of control will Trump and Iran truly sit down at the negotiation table. In my view, the current situation of blocked shipping in the Strait of Hormuz is likely to continue until early in the third quarter.
Let's assume that oil prices will gradually rise amid fluctuations. In this context, how will the continuously rising oil prices interact with Trump's campaign rhetoric?
November Election Showdown: Republicans vs. Democrats
According to the prediction market Polymarket's odds, the Republican Party currently only holds a slight advantage in retaining control of the Senate, while facing significant losses in the House of Representatives.
The general consensus is that the Republican Party will lose the House, but I have a different view on this. Trump still has a chance for a comeback, and the breakthrough lies in shifting public opinion, with a focus on making regulatory and taxation statements regarding data center construction and the artificial intelligence industry.
The current distribution of votes among the parties is as follows (218 votes are required to pass a bill):
Based on Polymarket's current odds, the projected party composition after the election is as follows:
After the election, the Republican Party's position in both houses of Congress is not optimistic. However, the Republican Party can use redistricting to change the situation. When the original rules guarantee defeat, changing the rules becomes the inevitable choice. Assuming Polymarket's prediction is correct, the Republican Party would need to gain 19 seats. Redistricting can reduce this number.
Here are the potential effects of redistricting:
Now the Republican Party only needs to secure 11 more seats.
Next, let's take a look at which districts are closely contested and, based on current polls, which districts may slightly lean towards the Republican Party within the margin of error.
There is significant uncertainty in the affiliation of 35 seats. As mentioned earlier, high inflation and rising cost of living are negative issues that Trump finds it difficult to reverse. Another major issue that is currently able to resonate with the entire electorate of both parties is the expansion of data centers and the impact of artificial intelligence on the job market.
Apart from top billionaires, almost everyone is concerned about the rising costs due to data center construction and fears of job displacement by artificial intelligence. Many places have already enacted policies to delay new data center projects, and there is a growing call to impose taxes on AI companies and subsidize the general public. After all, the vast majority of people are not AI company executives or high-paid professionals.
For voters in competitive districts, these issues are highly influential. Trump can easily secure the remaining crucial seats by making statements on the AI industry. At this stage, he only needs to release relevant remarks without the need to implement specific bills. He just needs to promise the common people that if the Republican Party wins, he will start regulating the AI industry after the election.
As a seasoned politician, Trump has always been good at making campaign promises but rarely follows through.
Previously, his handling of the Epstein-related records is a typical example. During the campaign, he vigorously claimed to thoroughly investigate the relevant individuals, but after taking office, only a small amount of information was made public. Now he can do the same. During the campaign, he claimed to introduce a bill to slow down data center expansion, impose windfall taxes on AI companies, and use the revenue for another round of stimulus checks; once the election is over and the Republican Party secures power, he gradually retracts these statements.
Some may find it hard to understand why Trump is imitating the tactics of left-wing Democratic politicians. However, let's not forget that he once launched the largest-scale nationwide relief plan in the U.S. since the New Deal of Roosevelt, even though he did not restrict how the relief funds were used by the lower-income population.
In order to maintain his political position, temporarily distancing himself from AI industry giants like Elon Musk and creating an image of supporting the common people is not difficult for Trump.
If Trump does release strong statements against the AI industry, the market will not see it as a mere campaign tactic, but rather as the U.S. substantively restricting capital expansion in the AI field and increasing industry tax burdens. Panic will immediately spread, and the AI stock market bubble will burst.
Previously, Elon Musk and Trump had a public dispute on social media, with Musk's related departments publicly questioning Trump, prompting Trump to announce the cancellation of government contracts related to Musk's companies, leading to an 18% single-day drop in Tesla's stock price, showing the market's sensitivity to such disputes. Politics can support an industry, but can also bring sudden blows.
The dispute was later proven to be just a publicity stunt, and the two quickly reconciled, with Musk even being invited to attend a recent summit between Trump and the Chinese national leaders in Beijing.
However, the market believed it at the time, triggering a large-scale sell-off.
This was just a tremor caused by the personal conflict between the two. Once Trump, on behalf of the Republican Party, clearly states a plan to heavily tax AI models and AI-based businesses, the impact will go far beyond what happened before. Similar remarks were previously heard in the South Korean political arena, and the local composite stock index nearly hit the limit down the next day. It was not until the official emergency denial that the market returned to an upward trajectory.
The current market's optimistic expectations of the AI sector are based on the assumption that industry revenue will continue to grow exponentially, and that new technologies and wealth concentration will not cause public resistance. This idea is already divorced from reality and is more like being immersed in a dream.
Trump's statement will serve as a reality check. Whether he will actually take action still depends on oil prices.
The ongoing Iran situation continues to drive up oil prices, making the inflation issue more severe. Trump's choices for campaign rhetoric will become limited, eventually turning his focus towards the data center and artificial intelligence industries.
The reason Trump is keen on avoiding Democratic control of the House of Representatives is very clear. Once the Democrats take the House, they can exercise subpoena power, constantly summoning Trump himself, his family, and key aides to testify, raising various sharp questions. If the Democrats regain the White House in 2028, the Justice Department, armed with a wealth of information, will move forward with investigations into Trump's business entities.
Let's recap the whole logic chain: the US and Iran are unable to reach a resolution, so oil prices will inevitably rise; rising prices will lead to voter dissatisfaction, forcing Trump to woo voters through regulating and taxing the AI industry.
From now until the November election, even if AI-related stocks plummet, it would be an acceptable cost for Trump to escape the endless Democratic investigations. After the election, he can easily overturn his previous stance on data centers and AI, and the industry will return to normal. The S&P 500 index may even have a chance to break the ten-thousand-point mark.
However, for investors, the market's trends are interconnected. The sharp decline in the AI sector will completely alter the market's expectations for its future earnings. After experiencing the impact of regulation and heavy taxation, investors can no longer blindly bullish on this track as before.
California Dreaming: Where Does Liquidity Flow?
Prior to analyzing the impact of the upcoming IPOs of the three giants SpaceX, Anthropic, and OpenAI on the global financial markets, let me first address an issue: starting from the end of the third quarter last year, US dollar liquidity has been consistently loose, but Bitcoin has not seen a synchronous surge. What exactly is the reason behind this?
On November 30, 2022, ChatGPT was officially launched to the public, marking the beginning of the AI super bubble. Almost simultaneously, the scandal of FTX founder SBF misappropriating user funds was fully exposed. After hitting a low of about $15,000 that year, Bitcoin surged all the way to $125,000 in October 2025, marking a cumulative increase of over six times.
However, during the same period, NVIDIA's stock price soared by eleven times, and many mid-cap and small-cap tech stocks that rely heavily on computing power and converting electricity into intelligence also experienced sharp increases. The AI sector's performance far outstripped the crypto market, and from the end of 2024 to the present, the gap between the two has continued to widen.
Based on my past analysis of cryptocurrency markets using fiat liquidity as a reference, Bitcoin should have experienced a higher surge in the current environment, but reality has proven otherwise. Where did I go wrong?
I used to focus on the overall fiat issuance scale but overlooked the specific flow of funds. I originally believed that liquidity would eventually flow into Bitcoin, driving up the price. This time, my judgment was off.
My conclusion is: the newly added dollar liquidity has been almost entirely absorbed by the AI sector. Artificial intelligence is a capital-intensive industry that requires massive energy consumption to operate AI-enabled data centers. Hydrocarbon energy, nuclear power, and renewable energy are converted into electricity, which is then transported to data centers to carry out model training and inference calculations using specialized chips.
Starting in 2024, global data center capital expenditures began to surge, further accelerating in 2025, leading to a sharp rise in industry financing demand. Based on publicly disclosed data, from November 2022 to the present, various types of AI-related debt financing in the field have reached a total of $15 trillion, matching the incremental increase in the M2 money supply in the U.S. during the same period.
The answer is now clear: all the newly added dollars have flowed into the AI sector, leaving no room for Bitcoin to receive incremental funding.
Bitcoin was able to initiate a strong rebound from the low point of the 2022 FTX bankruptcy precisely because the AI industry's large-scale debt expansion was mainly concentrated after 2025. Of the $15 trillion in debt, $13 trillion was generated from 2025 to the present.
Interestingly, Bitcoin's price peak occurred in October 2025, coinciding with the unprecedented scale of capital expenditures in the AI field at that time.
This interdependent relationship is crucial. Once the AI stock market crashes, the market will no longer have excess funds to allocate to Bitcoin.
Banks will tighten lending, and many institutions will also find that loans previously issued based on false revenue data conceal huge risks. When the stock prices of top tech companies plummet by over fifty percent, bank credit officers will begin to worry about corporate solvency, leading to a contraction in credit size and further tightening of overall market liquidity. Adding to this is the U.S. government's negative attitude towards the AI industry, making it difficult for the industry to receive financial assistance in the short term.
Even if the government intervenes later to rescue financial institutions, based on the current situation, such measures will only materialize after the November election.
The connection between Bitcoin and AI stock prices means we must make a judgment: whether there is a bubble in the AI stock market, when the bubble will burst, and what the underlying causes are.
The AI Bubble Faces a Triple Threat
There are three main factors that will burst the current AI bubble: rising energy costs, the market's inability to absorb the massive IPO financing of SpaceX, Anthropic, and OpenAI, and Trump's policy remarks against the AI industry.
The core logic of AI is to maximize the efficiency of "energy-to-intelligence" conversion. Humans rely on ingesting food to convert energy into wisdom, while AI relies on electricity. Currently, the additional electricity consumption in data centers mostly relies on hydrocarbon energy sources such as natural gas.
Rising energy prices mean that the costs of AI operation and computing power output will increase simultaneously. The profit margins of companies like Google, Anthropic, and OpenAI will be directly squeezed.
After costs rise, companies will choose to raise service prices, and the growth rate of user usage of computing power and models will consequently slow down. The geopolitical game between the U.S. and Iran continues to drive up oil prices, ultimately eroding the profitability of AI companies. When the market begins to question the sustainability of continuous expansion of data centers, an industry inflection point will arrive, with companies' expected P/E ratios dramatically contracting, ushering in a bear market.
Furthermore, as SpaceX, Anthropic, OpenAI, and other tech companies' lock-up shares continue to be released, combined with a large-scale IPO, the overall financing scale may even exceed the total of all new stock financings during the internet bubble period, reaching an unprecedented size. There is a big question mark over whether the market can absorb such a massive stock sell-off pressure.
In recent years, the AI sector has continued to rise, with the premise that investors believe industry profits will accelerate. Once the market's outlook on the industry falters, investors will lower their valuation of future earnings. The IPO performances of these giants will be a barometer of market sentiment. If the IPOs fall short of expectations, investors will see it as the industry's peak and begin a collective sell-off.
Using SpaceX as an example of relatively comprehensive information disclosure, we can see that the capital market has always followed the rule of "the early bird gets the worm." Elon Musk, a master of marketing, understands this well. By choosing to go public early, the company and early shareholders can cash out to the maximum extent. Participants in the crypto market can easily understand this model: a very low circulating supply, a significantly diluted valuation, but the price remains high, similar to the operation logic of some meme coins.
According to SpaceX's filing with the U.S. Securities and Exchange Commission, the valuation of this IPO is nearly 100 times its revenue. More notably, the company initially only released 4% to 5% of its shares. In the current environment of high enthusiasm for the artificial intelligence sector, the stock price is highly likely to surge on the first day. However, the extremely high market expectations also mean that it will be difficult to sustain investor imagination in the future.
After the IPO, SpaceX's market value will reach $1.8 trillion, making it the seventh-largest company globally by market capitalization. If the stock price rises by another 50%, the market value will surpass Amazon to become the fifth largest globally. However, its profit-making ability cannot at all match this valuation tier.
NVIDIA can maintain a high valuation based on its considerable gross margin and revenue scale, while SpaceX focuses on the space data center business. Industry analysis has pointed out that the construction and operation costs of such facilities are four times that of ground data centers, and it is estimated that it will take about ten years to achieve cost parity.
If the initial valuation at the IPO is more rational, the subsequent stock price trend may be more stable. Participants in the crypto market are well aware of the logic behind this: secondary market investors cannot profit, and when insiders' lock-up shares are released, there will be no one to take the other side of the trade, leading to a continuous decline in the stock price.
Looking at the share unlocking schedule, from now until early September, SpaceX's float will increase fivefold, with a massive influx of shares into the market, putting tremendous upward pressure on the stock price. To make matters worse, Anthropic and OpenAI also plan to go public in September, with both companies similarly eyeing a trillion-dollar valuation.
From June to September this year, SpaceX may still have a brief upward momentum. However, when three ultra-high-valuation companies go public in succession, flooding the market with a large supply of new shares, market disappointment is inevitable. Investors expect a sharp rise in stock prices, and minor fluctuations to the upside simply will not meet those expectations.
Overall, with rising energy prices, a wave of giant IPOs, and Trump's industry regulation stance, under the triple bearish factors, these companies' IPO performances are unlikely to meet market expectations. Once investors no longer believe that AI-related companies can sustain exponential profit growth, the entire sector's valuation will be readjusted downward, and stock prices will collectively weaken.
The field of artificial intelligence currently faces a large amount of stock pledged loans, and banks have provided significant credit for industry capital expansion. After the sector's sharp decline, the banking system will bear a huge amount of bad debt.
In the environment of the global artificial intelligence bubble burst and a widespread drop in various risk assets, Bitcoin will also find it difficult to break out of an independent trend in the short term. When the market fully clears, Bitcoin will be the first to reach a bottom. At that time, in order to rescue the overall economy, the market will usher in a new round of large-scale monetary easing, and Bitcoin will also start a new round of upward movement. However, for the current moment, the primary task is to protect the principal of cryptocurrency assets.
Before sharing Maelstrom Fund's stock and cryptocurrency asset holding strategy, let's analyze the Federal Reserve's monetary policy direction.
Fed Chair's Dilemma
The current Federal Reserve Chair, Kevin Warsh, is now in a delicate situation, and external evaluations of his style of action vary. All of this depends on how he deals with the Fed's current dilemma.
President Trump nominated Kevin Warsh as the Federal Reserve Chair with the intention of having him advocate for rate cuts. Warsh has also signaled previously that he believes the inflation brought about by geopolitical conflicts is only a short-term phenomenon, and the productivity gains from artificial intelligence are the long-term trend. The Fed can take this opportunity to lower rates.
However, the market has given a completely different signal. The two-year Treasury yield is 0.5 percentage points higher than the federal funds effective rate, indicating that the market believes that due to the ongoing high inflation, the Fed should choose to raise rates instead of cutting them at the meeting on June 16-17.
Currently, the most likely outcome is for the Fed to keep rates unchanged. However, the market will focus on interpreting the post-meeting press conference and any adjustments to the reserve management plan. Even if they stand pat, the market will still differentiate between a hawkish or dovish stance.
A hawkish stance on rate stabilization has an impact equivalent to a rate hike. On the one hand, the unresolved US-Iran conflict and the continued rise in oil prices, on the other hand, the three major artificial intelligence giants go public, putting pressure on market supply, and with multiple bearish factors overlapping, all risk assets will experience varying degrees of pullback.
The worst-case scenario is that Trump instructs Warsh to immediately raise rates in response to market calls, attempting to gain voter support by suppressing prices. Unless the Fed significantly raises rates and simultaneously sells bonds in the open market to shrink its balance sheet, it will still not be able to keep up with the pace of inflation. This scene is reminiscent of the situation in the 1970s: although the Fed aggressively raises rates, the intensity is still not enough to curb inflation.
In the current environment, the possibility of a Fed rate cut is very low. Whether the eventual choice is a rate hike or maintaining the current rate, the market will interpret it as a signal of liquidity tightening, further dampening sentiment in the artificial intelligence sector.
Considering all of the above, the upward trend in oil prices will eventually translate into a headwind for risk assets across all categories. Next, let's discuss the specific holdings of the Maelstrom Fund.
Portfolio Allocation
The functioning of everything in the world relies on energy. Since the judgment is that energy prices will continue to rise, allocating to energy assets is a natural choice.
Currently, the U.S. and Iran remain deadlocked, with shipping in the Strait of Hormuz blocked and daily losses in crude oil and natural gas supply increasing. While market sentiment is currently stable, if this standoff continues, an increase in energy prices will inevitably follow.
All industry data points to the same conclusion: due to geopolitical conflicts, global energy inventories have fallen to multi-year lows and are still decreasing. Once inventories fall below a critical level, the entire energy supply system will face issues, and prices will experience an uncontrollable surge.
Even if the situation sees the best possible outcome—immediate ceasefire from both sides and a return to normal shipping in the Strait of Hormuz—countries will still increase purchases for replenishment and strategic reserves, pushing oil prices higher.
Considering both scenarios, in the next three to six months, regardless of whether there is a temporary pullback in oil prices after a short-term peace agreement, the long-term upward trend in crude oil and natural gas prices has been established. Therefore, we have significantly allocated to U.S.-listed energy production companies.
The energy sector has the potential to rise in various scenarios, and its current valuation compared to the highly energy-dependent tech industry gives it an advantage. On the other hand, assets that rely on cheap energy to maintain high valuations have a less optimistic outlook.
In an environment where oil prices soar to $150 per barrel, the artificial intelligence sector will find it difficult to sustain its previous strong performance. Therefore, we have liquidated all AI-related stocks.
Incremental funds have continuously poured into the AI stock market. Once this sector rapidly declines, even though crypto assets have a relatively resilient nature, it will be challenging to attract funds. Therefore, we have reduced holdings of all non-core cryptocurrencies, selling off HYPE, NEAR, and WLD last week, and also liquidated ZEC due to a vulnerability issue in the Orchard Pool. Preserving capital is more important than chasing profits at the moment.
Currently, the portfolio only holds Bitcoin and Ethereum. Ethereum has no large cash-out demand at the moment, so we continue to hold it. I have always believed that a burst of the artificial intelligence bubble will trigger a new round of financial turmoil, during which the world will once again enter a period of monetary easing, and Bitcoin will experience a dip before rising.
Facing market volatility, we will hold our core positions long-term, while using derivatives to short the market in the short term to capture temporary trends. After all, I am not willing to give up the joy of trading.
If in the end, I find that reality unfolds in a way completely contrary to my judgment, and it was all just a false alarm, so be it. It is prudent to lock in gains before embarking on a trip to the Mediterranean. In early September this year, I will reassess the market trends and my previous analysis, and then decide on the best timing to re-enter the market.
Unlike investment institutions that need to realize fixed income annually, the Maelstrom Fund focuses more on long-term compounding growth, giving us enough leeway to confidently navigate the intertwined market changes.
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