Key Points Summary
Arthur Hayes has liquidated his largest crypto positions in HYPE, NEAR, Worldcoin, and Zcash, not due to reasons related to crypto itself, but based on a macro chain of reasoning ranging from oil prices, the Iran war, Trump's midterm election strategy, to the bursting of the AI bubble.
He believes that Trump, in an attempt to reverse the midterm election disadvantage, may shift his stance to attack the AI industry, and once the AI bubble peaks, the crypto market will also be unable to stand alone; With SpaceX valued at $1.8 trillion and a 100x price-to-sales ratio IPO, he sees it as a liquidity time bomb waiting to explode.
Highlights Summary
Why Liquidate Everything
· "Voters dislike high oil prices, dislike energy-driven inflation. "
· "The higher the oil price, the more eager everyone is to negotiate, and then when the oil price drops, suddenly no one wants to make a deal."
Trump's Shift to Anti-AI
· "If he wants to pull a rabbit out of the hat, the only issue he can reverse course on is AI—temporarily taking the Democratic Party's baton, saying he wants to protect the American people from AI harm, and then everyone will forget that it was the Republicans who funded all of this."
· "The most destructive narrative against AI is taxation and regulation."
New Investment Portfolio Allocation
· "Most of my liquid assets are in government bonds and energy stocks."
· "I'm not saying AI won't continue to grow, but the market's willingness to pay a forward multiple for that growth will decrease, so the prices of these assets will fall."
The Mathematics of the AI Capital Expenditure Bubble
· "I trade based on gut feeling and intuition, not relying too much on analysis. I feel we are in some stage of the AI bubble, but I'm not sure which stage."
· "You cannot pay a company like SpaceX or any AI company a valuation of 100 times sales when both profitability and capital expenditures are slowing down. The key is how fast the growth is, what the rate of change is, and your perception of that rate of change."
· "When you invest in AI, you are not investing in profitability, but in building out data center capital expenditure—you are betting on the second derivative, which is the trend's acceleration or deceleration. If the trend is accelerating, you are willing to pay an infinite multiple of valuation for future revenue; if the trend is decelerating, you are not."
· "We are already at a $800 billion capital expenditure scale in 2026. By 2027, this second derivative will start to decelerate—you cannot pay a company like SpaceX or any AI company 100 times sales when both profitability and expenditures are slowing down."
· "There will always be a conflict between capital and labor, and whether willingly or forcibly, at some point, there will be some agreement reached."
Why Bitcoin Has Lagged Behind AI
· "From the commercialization of ChatGPT to the present, the U.S. M2 has increased by about $1.5 trillion, but during the same period, AI and AI-related companies issued about $1.5 trillion in debt—of which $1.3 trillion was concentrated between 2025 and 2026. AI has absorbed all the excess liquidity."
· "When the bubble bursts, all correlations become 1—AI falls, Bitcoin falls, all assets fall together, until specific assets start to outperform after the dust settles."
· "In the next six months, due to rising oil prices and U.S. political factors, there will be a major correction in the AI complex, and Bitcoin will also not be immune."
The Pitfalls of a SpaceX IPO
· "The market's expectation is not for it to trade normally; the market expects it to IPO and skyrocket by 50%, to have an outrageous surge, to tell me that the market still believes in AI, picked the right star company, and that it will continue to soar."
· "With a market cap of around $1.8 trillion, SpaceX would directly become the world's seventh-largest company. SpaceX's trading valuation is close to a 100 times price-to-sales ratio. This is ridiculously absurd; it would be the world's seventh-largest company, yet has not proven anything."
· "This is a classic cryptocurrency scam pattern: low circulation, high fully diluted valuation, 4% to 5% in circulation, rising to nearly 25% by September—insiders will continue to dump on you from July to October."
Evidence of Anti-AI Strategy
· "I had Perplexity AI scour all of the competitive districts for any information on data center build restrictions or local anti-development bills. The result is: If Trump goes anti-AI, he can flip enough seats to hold the House."
· "Trump has no ideology; he cares only about winning. He sent a check to every American in 2020—that's the purest form of direct handout. So don't think he wouldn't pivot to bare-knuckle populism."
Fed, Powell, and Rate Risk
· "With oil prices higher and unlikely to relent soon, the 2-year Treasury yield is currently about 60 basis points above the effective federal funds rate. The market is telling the Fed: You need to hike."
· "The bubble's biggest fear is rising rates; an increase in the cost of capital always somehow triggers an exodus from this casino."
· "I don't see Powell having room to cut rates at this point. If rate cuts were one of the pillars supporting your optimism for the AI bubble and its sustainability, I think you need to seriously question that assumption."
Crypto Catalyst and Reentry Timing
· "I really don't see much evidence of money printing, and even if there is money printing, it goes straight into AI development."
· "If we get back to the perfect economic bed of high growth, low inflation, what are you buying? Are you buying NVIDIA or buying Bitcoin? You would obviously without hesitation choose NVIDIA, go for Samsung, right? Because they've done 50x in two years. Are you buying Bitcoin? Of course not."
· "That's the moment that cryptocurrency can outperform—AI has been discredited, not that it's gone, but it's no longer soaring as it used to, so investors need to trade something else. I hope that something else is cryptocurrency, and then liquidity will flow back to cryptocurrency."
Rapid-Fire Questions
· "End of year, Bitcoin over or under $100,000?—Under."
· "You have $1 million to put into any asset today—Bitcoin, HYPE, short-term bonds, gold?—ExxonMobil."
Why Liquidate Everything
Host Kyle Chasse: Arthur, welcome back. You recently sold all your Zcash, HYPE, NEAR, and everyone is accusing you of exiting a scam, pumping and dumping. Why did you sell everything, what's going on?
Arthur Hayes: I just published an article called "Reality Check," approximately five thousand words, outlining the arguments that I will summarize in a few minutes on the podcast. If you want a deeper understanding of my reasoning, I highly recommend reading it on my Substack. But fundamentally, the core revolves around a reflexive interaction between the price of oil and Trump's midterm election campaign rhetoric—he needs to help the Republican Party defeat the Democrats in November and retain control of both houses. The issue is the ongoing Iran war—whether you like it or not, it is there, right here, right now.
So Trump and the Iranian Revolutionary Guard need to reach some kind of agreement to end this conflict. Both sides have a practical constraint, which is that the price of oil determines how angry different regions of the world are towards each party. Trump must worry about the domestic front—voters don't like high oil prices, they don't like energy-driven inflation.
Iran, on the other hand, faces pressure from China and other developing countries—"What are you guys doing? We need this oil, we need these goods to pass through the Strait of Hormuz. I know the U.S. attacked you, but figure it out." So the higher the oil price, the more eager everyone is to negotiate, but when the oil price drops, suddenly no one wants to make a deal. So we are oscillating back and forth in this tug of war, which has been going on for about three months, or as long as the war has been fought.
As this process unfolds, we are actually gradually depleting the commercial and national reserves of oil and other hydrocarbons. Pick any energy analyst, their charts vary but the conclusion is the same—pre-war inventories were ample, so people believed there was an oversupply of oil and gas, leading to relatively low prices.
But now we are consuming these surpluses at an increasing rate. We will reach a certain level at some point—I don't know how many billion barrels, each analyst has their own number and estimated date. Once we surpass that date, the situation will suddenly become very, very dire. And the only way to rebalance the market is to rapidly raise the oil price.
This is the worst-case scenario—Trump and the Iranian Revolutionary Guard fail to reach an agreement. By October of this year, the Strait of Hormuz remains substantially blocked, with only 25% to 30% of the volume able to pass through, far from sufficient. A more probable scenario is that some kind of agreement might be reached in a month or two, and maritime traffic through the strait partially resumes.
But then everyone needs to rebuild their inventories, you have to rebuild national reserves, and of course, you will hoard more than before—because you just experienced firsthand what it feels like to be at the mercy of Trump and a group of Iranian generals who decide whether your country can receive goods.
So you might think: "I will hoard more oil, natural gas, helium, everything needed to operate a modern economy." This will lead to more demand, although it may not push prices to catastrophic highs, but still means that oil prices, natural gas prices, and other commodities prices three to four months from now will be higher than today.
The Connection Between Oil, War, and Elections
Arthur Hayes: Following this logic, Trump and his Republican buddies are likely to get hammered in this midterm election (November 2026), with the House most likely flipping. If you go over to Polymarket now and take a look, the probability of the Democrats regaining control of the House has skyrocketed to 82%.
Why is that? Obviously, Trump is getting destroyed on the issue of inflation. People think inflation is terrible, it's getting worse, and in the eyes of the public, with the Republicans in power at the White House, that damn conflict and war are things they started, so naturally, the Republicans have to take the blame. That's why everyone thinks they will lose, and lose badly.
The problem is you really can't do much about inflation — policies have a long lag effect, and the supply chain is only now beginning to digest what happened three to four months ago.
I don't think Trump can turn the tide much on the inflation narrative. People can see and feel it at the gas station, Trump has no Jedi mind tricks to make you believe inflation doesn't exist — it does, and you see it every other day at the gas pump. So what other issue could stir the entire political spectrum in America? The answer is AI data centers — regulation around them, taxation, all of that.
I think the Democrats are finding a fantastic campaign message: no more building data centers, tax the AI giants, regulate AI. Because not only will the poor lose their jobs, the jobs of the rich will also be taken over by AI, at least that's how fearful people are.
Trump's Shift to Anti-AI
Arthur Hayes: If you as the opposition party can harness this fear, you have two powerful messages: one, the malignant inflation caused by Republican wars, and two, the AI building frenzy essentially endorsed by Republican politicians. So my theory is, if Trump wants to pull a rabbit out of his hat, the only issue he can flip his stance on is AI.
Taking a page from the Democratic playbook, saying: "We want to increase scrutiny on data centers, we want to establish a National AI Dividend, tax them." That's Trumpian rhetoric; he can say a lot of things, whether he does it after November is another matter.
I believe this is their only pathway to victory, to position themselves as the party that protects Americans from AI harm, and then Americans will forget that it was the Republican Party that funded all of this, because people have short memories. So I think that is the primary risk.
Trump's willingness to attack AI, on the other hand, is purely a function of the oil price, which in turn is a reflexive relationship between him and the Iranian Revolutionary Guard. The longer this war drags on without a resolution, the more we are accumulating future commodity pressures that will lead to price spikes, making it more likely for Trump to target AI in an attempt to win the election, or at least help the GOP hold the House.
Clearly, the most destructive narrative for AI is taxation and regulation. We've already seen in South Korea, a South Korean politician came out and said there should be some sort of national AI tax, and that day Cosby hit the limit down.
So, I believe that if this narrative starts to be pushed by the ruling party, especially if publicly advocated by Trump, you will see the AI bubble burst, at least topping out in the coming months up to the election, dragging the crypto markets down with it. That is the core thesis overall. I really don't want to think about it anymore, so I liquidated the entire portfolio in the latter part of last week.
New Portfolio Allocation
Host Kyle Chasse: So, where is most of your liquid asset positioned right now, cash or treasuries?
Arthur Hayes: Treasuries and energy stocks.
Host Kyle Chasse: Do you still think that if the AI bubble bursts, energy will hold up?
Arthur Hayes: We still need oil, regardless of whether you like it or not. People need oil; it fuels civilization. And I'm not saying AI won't continue to grow, the issue is the willingness to pay a forward multiple for that growth will decrease, hence the prices of these assets will fall.
This doesn't mean that these companies won't be profitable; it's just that we thought they would be more profitable than they actually turn out to be, so we sold them, that's the rationale.
The Mathematics of the AI Capital Expenditure Bubble
Arthur Hayes: My trading is based on gut feeling and intuition, not so much on analysis. I feel like we are in some stage of the AI bubble; I'm not sure which one. I listened to a podcast over the weekend by Marco Papovich, he's a strategist at BCA and has a great YouTube channel called Geopolitical Cousins, I highly recommend subscribing.
Many of his viewpoints were expressed in the podcast and also in the article. He raised a very important point: when you invest in AI, you are not investing in profitability, but in capital expenditure for data center construction.
This is something I often forget: what you are investing in is the second derivative, the acceleration or deceleration of the trend. If the trend is accelerating, you are willing to pay an infinite multiple of valuation for future income; if the trend is decelerating, you are not willing, and this thing will not rise as fast as you need it to.
He recently posted a chart showing the second derivative of capital expenditure growth rate, where the larger the number, the more difficult the acceleration. We have already reached $800 billion in 2026, and he predicts that the second derivative of AI capital expenditure will start decelerating from 2027. You cannot pay a 100 times sales valuation for SpaceX or any AI company when both profitability and capital expenditure are decelerating.
Even if these companies' revenue is still growing, the focus is not here—the focus is on how fast the growth is, what the rate of change is, and your perception of this rate of change. Mathematically, we already know that, based on the law of large numbers, in the near future, the growth rate of capital expenditure cannot be as fast as it was from 2023 to 2026; this is physically impossible.
So, when will the market discount this future and say, "I am no longer willing to pay 50, 60, 70 times earnings for these AI stocks or supply chain companies"? When will the market realize that opposition parties around the world are all using this era's sentiment—"screw data center inflation, screw AI replacing my job"?
Why are only Elon, Sam Altman, Zuckerberg, and about fifteen other people becoming trillionaires, privatizing the knowledge of all human civilizations for themselves, what about mine?
This is not a phenomenon unique to the United States; the whole world is asking the same question: if AI is trained on human interaction data, both legally and illegally utilizing all this public and private data to do these things, why can they enjoy the profits alone? For those with enough assets to participate in these equity stories, this is a legitimate question.
One day, the market will feel a backlash. There will always be a conflict between capital and labor, voluntary or coerced. At some point, there will be some kind of agreement. If you still hold those assets when the agreement is reached, you usually get crushed. These thoughts have been swirling in my mind. Later, I sat down and tried to figure out what was happening, and then I spent a morning liquidating everything.
Why Bitcoin Has Been Outpaced by AI
Host Kyle Chasse: How do you see the market moving from now until the end of the year?
Arthur Hayes: To answer that question, I have been pondering another question: why hasn't Bitcoin reached a higher level since November 2022? I have repeated the same thing on your show and many other places: it's all about liquidity. If there is more liquidity in the future, Bitcoin should rise.
However, it is clear now that this was wrong. Because if we calculate from ChatGPT's commercialization on November 30, 2022, Bitcoin has indeed risen, but Nvidia and all those AI stocks have risen much more. Look at when Bitcoin peaked: October last year, at $125,000. So, all the liquidity created during this period, my model tells me that trillions of dollars' worth of liquidity have been created, so why hasn't Bitcoin reached $500,000 or $1 million? Why has it been outpaced by AI?
I usually don't look at where the money is flowing, I just say "there's a lot of money, so Bitcoin should rise," which is a very lazy way of thinking, and it has been effective in the past, but not this time. So I went back to reexamine my thinking model and asked myself: what did I miss? The answer is that we all believe AI may be one of the most transformative technologies in history, undergoing massive capital expenditure construction, at the trillion-dollar level.
But how much debt has AI devoured during this time? Has AI essentially crowded out all other risk assets, preemptively absorbing excess liquidity?
At a high level, I generally don't use M2 because I find it too crude and not detailed enough, but let's use it as an example.
From ChatGPT to now, U.S. M2 has increased by at least $1.5 trillion. I then asked a reliable source, Perplexity AI: how much debt has been issued to AI and AI-related companies? An estimate of about $1.5 trillion, with $1.3 trillion concentrated between 2025 and 2026.
In other words, although we can say that this AI frenzy was ignited at the end of 2022, the capital market's debt pump is actually heavily skewed towards the back end, only really ramping up in the near future.
My theory is that Bitcoin can rebound from its lows because indeed a large amount of liquidity has been created, and AI will not heavily consume it until 2025, giving Bitcoin a clear sky to leverage this liquidity wave.
From 2022 to mid-2025, the reverse repo decline, among other factors, all worked in its favor. But if you look at the AI company's capital expenditure and loan chart, the real volume picks up in 2025, especially in 2026. And this is also the period when we see Bitcoin struggling endlessly, peaking last October, now down 50%, 60%. So, if all liquidity is flowing towards AI, and there is no sign of it stopping.
If there is an AI bubble correction or burst, investors will not suddenly pour a large amount of money into Bitcoin at that time. They will sell AI, they will sell Bitcoin, they will sell everything. When the bubble bursts, all asset correlations are 1. Everything falls together until the dust settles, and then certain specific assets start to outperform.
Therefore, if I believe that in the next six months, due to the rise in oil prices and U.S. political factors, the AI complex will undergo a significant correction, Bitcoin is also unlikely to be spared.
It should perform better after the correction, but you have to go through that wave of decline first. That's why I currently don't see a very favorable environment for Bitcoin and other cryptocurrencies.
And obviously, my positions in NEAR, HYPE, Worldcoin, and Zcash were executed beautifully, and I sold at a profit. I want to pocket the profits I made in these trades and sit on the sidelines. These assets may continue to rise, but at least in my mental model, I am uncomfortable with the risks my positions face at the current moment, the foreseeable unknown risks, and how they might evolve, which is why I cashed out.
SpaceX IPO Trap
Host Kyle Chasse: There's one other thing I've been thinking about. The S&P 500 is rising, but most stocks are actually falling, the entire index is being dragged up by a few tech stocks. More importantly, we are about to see the IPOs of OpenAI, Anthropic, and SpaceX, potentially bringing in over $4 trillion in new market value to the stock market. Do you think these events will suck up everyone's liquidity for a while? How do you see the direction of these IPOs?
Arthur Hayes: I think it's going to be tough for these things to perform well because the market's expectation is not for it to trade normally; the market expects that since this is an IPO, it has to surge by 50%, there has to be an absurd surge so it can tell me the market still believes in AI, picked the right star company, and it will continue to soar.
SpaceX has a market capitalization of around $1.8 trillion, making it directly the world's seventh-largest company. For SpaceX to rise another 50%, it would have to surpass Amazon. If you have read its S-1 IPO prospectus, you will find that SpaceX's trading valuation is close to 100 times price/sales ratio. This is freaking ridiculous; it will be the world's seventh-largest company but has proven nothing.
Yes, this is a great idea—a space data center, the policy issue of ground data centers. I also see the logic in this. I follow a Substack called Semi Analysis that does in-depth research on semiconductors and AI.
They wrote an article comparing the total cost of space data centers and ground data centers. The conclusion is that currently, operating a data center in space costs four times that on the ground. Not only that, you don't have enough chips to realize Elon's vision, and the ground still has the capacity to build data centers. Building on the ground may not be as straightforward as you expect, but it is four times cheaper. So you would choose to build on the ground until you can't anymore.
Based on the most optimistic estimates, for space data centers to truly reach cost parity with ground, it will have to wait at least some point in the next ten years.
The absurd reality now is that the entire capital on the internet is eagerly paying a 100 times price/sales ratio for a product that is a whopping 4 times more expensive than its competitor, and the rockets will still explode, and the company will not make real money in the next ten years.
What's more, this is a classic cryptocurrency scam model: a junk coin with low circulation, high fully diluted valuation. With only 4% to 5% in circulation, by September, it will rise to nearly 25%, and insiders will continue to sell to you from July to October. While it is already the world's seventh-largest company in terms of market cap, it has proven nothing in this data center argument. Except for businesses like satellite internet, which indeed have been done beautifully, those are not the reasons you buy SpaceX.
So I think it's challenging for this thing to meet market expectations. I'm not saying it will fall, but even if it rises by 10%, the market's reaction will be, "This is not good enough, I expect 50%, 60%, 70% gains." This will make investors start questioning: as insiders at SpaceX can increasingly sell shares to the market, do I really still want to bid for Anthropic or OpenAI's listing in September?
By setting the price so high, it has created a situation where it is almost impossible to exceed expectations. If it were a $100 billion company, it could double or triple, and then people would say AI has come true, SpaceX's surge is because they chose a lower market value for the IPO.
But now it's all about maximizing the squeeze - $1.8 trillion. Want to outdo NVIDIA? Very, very tough. Sorry Elon, you can't beat Jensen. I don't know who the current CEO of Amazon is, but you also can't beat those companies. Those companies have real revenue, are operational, and have proven their claims. Meanwhile, everything about SpaceX is still mostly scribbled on a napkin.
Will giving it time prove anything? But really, are you going to push up a $1.8 trillion stock by another 50%? It's really too difficult. That's why I think this will be the kind of event that seriously shakes people's belief in the AI narrative, simply because it's too big to go up almost impossibly so.
Host Kyle Chasse: So how do you think liquidity will flow during these IPOs? Will there be a massive shift of funds? Or will it be like Elon, whoever sells first sells best?
Arthur Hayes: It will be the first kind. People will be excited, they will pull liquidity from other assets.
If SpaceX's performance is disappointing, then I believe that Anthropic and OpenAI will face tremendous pressure to lower their IPO pricing, and once these two AI giants are forced to lower their valuation on the eve of their listing, or reduce their fundraising size, it creates an extremely fatal bad precedent in the market, which is tantamount to them cutting themselves, softly announcing to the whole world that the AI bubble has indeed gotten too big, and we take the initiative to lower future expectations.
Suddenly lowering expectations, people will hesitate: why did they lower the price after SpaceX? Why reduce the issuance size? All these changes could dampen investors' enthusiasm. So it may be that people are pulling funds from elsewhere in the market, or it may simply be that everyone is cooling down on the AI bull market story, slowly exiting the market, thereby triggering a chain reaction of price declines.
Evidence Against the AI Strategy
Host Kyle Chasse: I want to go back to the point of Trump's anti-AI narrative. Some may argue that all those AI giants indeed helped him get elected, at least have been very helpful or influential. We know he has had many private dinners and discussions with them, they are his big donors and supporters, and he has always publicly supported and praised AI.
I haven’t counted how many people publicly oppose AI, I know most people don't have that warm and fuzzy feeling about AI, so this could indeed be a rather clever turn. But I've never heard anyone suggest that this is quite a bold prediction. How confident are you about this? Are there any signs that make you believe he might go this route?
Arthur Hayes: I also used Perplexity AI. I asked it: Polymarket says the Republicans will lose. Is there a path to victory? One must first understand a fundamental political logic: Why is Trump so adamant about holding onto the House in the midterm elections?
This is not at all for some noble ideology; it is purely for his political self-preservation. If the Democrats take the House, for the next two full years, he and his entire family will be inundated with mountains of congressional subpoenas. The Democrats can hound him incessantly, keeping him entangled. He would have absolutely no opportunity to create any true legacy of what he envisions a "Trump Second Term" should look like. I believe this is why he wants to win.
I also believe Trump has no ideology; he only cares about winning. During the 2020 pandemic, he provided the largest fiscal transfer to the American public since the New Deal—checks for everyone. There was no means-testing; widespread fraud occurred, and both the rich and the poor received checks. So, to think that he will not pivot to blatant populism, directly catering to the popular sentiment—which currently does not favor AI—is unfounded.
AI has evoked negative emotions in both Republican and Democratic voters. So, I asked AI: Assuming these seat predictions are correct, remove those seats that are essentially secure due to redistricting. But even then, they still need to win some more seats to hold onto the House.
So, I asked again: In all the competitive, margin-of-error districts, is there any local legislation banning data center construction, or limiting the impact of data center construction? Help me search all these districts. The result is: if Trump goes anti-AI, he has enough leverage to flip sufficient seats to secure the House for the Republicans because these districts have already proven at the bipartisan level that the local residents do not want these data centers in their neighborhoods and have taken local action.
And let me reiterate, all of this is just rhetoric; Trump doesn't actually need to do anything. He can call up Jensen and those AI bigwigs and say, "Listen, I'm coming after you hard for the next four months, so brace yourself. By November, none of this will matter." And that's how he operates.
He attacks them, stock prices drop, some people lose money. Just look at his maneuvers on tariffs; you'll see that all those hedge fund guys lost billions when he attempted to substantially rewrite America's trade infrastructure. In the end, he backed off at the critical moment, but at least he proved he was willing to try.
So, I don't see why, if his political strategists see that taking an anti-AI stance could garner enough votes, even if it's only rhetorically, he wouldn't do it. The only victim is the stock market, and the ones losing money there are just a bunch of wealthy people. You don't even have to actually do anything because you're just talking; no bills will get passed.
After November, everything went back to "We must win the AI race and beat China."
So I think, in a situation where the inflation narrative is already set in stone and cannot be changed, this is a valuable path for the Republicans to win the election. I don't care if oil prices drop another 50%; gasoline prices might decline a bit, but too many things in the supply chain are already in transit, so by October, the prices on supermarket shelves will be higher, and Trump is almost powerless to do anything about it.
The Fed, Powell, and Interest Rate Risk
Host Kyle Chasse: Let's talk about Powell. I know there isn't much certainty right now because his first FOMC meeting after taking office is not until next week. Based on some of his previous statements and with the midterm elections approaching, what do you think his policy orientation will be?
Arthur Hayes: I don't recall the specifics of his most recent speech, but there is a narrative that goes something like this: you can see through the bulk commodity inflation during wartime, then believe in the AI productivity miracle that will bring about inflation-free growth, allowing for rate cuts. I think this is the Powell narrative that the market is willing to believe in.
The unfortunate reality is that oil prices are higher and will not come down anytime soon, with the two-year Treasury yield currently about 60 basis points higher than the effective federal funds rate. The market is telling the Fed: you need to raise rates. This is the signal the market is sending to the Fed, whether they will act on it or not, I don't know.
I also think Trump might privately ease his obsession with rate cuts because if he wants to do something on the cost of living issue, the last thing he should do is let the Fed start cutting rates when inflation is at 3.5% to 4%. If he truly cares about appealing to some voters on the affordability issue, rate cuts would actually lead to a disastrous midterm election defeat for him.
So I think, considering the market positioning, it will be extremely difficult for Powell to cut rates. My assessment is that the base case is for him to stay put; the only question is the wording—is it a hawkish stay put or a dovish stay put? If it is a hawkish stay put, hinting that inflation pressure is building up and the Fed may need to take action in the future, the market will discount this information: "They will hike rates at some point."
And what bubbles fear the most is rising interest rates; an increase in the cost of capital always in some form prompts people to leave the casino.
Therefore, I believe the likelihood of a rate cut by him is very, very low, with a high probability of keeping things unchanged, and then it all depends on the wording.
The Federal Reserve has little room to support a bubble exit as oil prices have already pushed the two-year Treasury yield above the effective federal funds rate, causing oil prices to soar, the yield spread to widen, and the yield to rise continuously. At the moment, I don't see any room for a rate cut. If the expectation of a rate cut is one of the pillars supporting your optimism about the AI bubble and its sustainability, then I think you need to seriously question this assumption.
Crypto Catalyst and Re-Entry Timing
Host Kyle Chasse: So, between now and the midterm elections, do you think there will be any events that could give the market a short-term relief rally? I don't mean market manipulation, but rather is there any narrative or ongoing event that could potentially bring about some rebound from now until the end of the year?
Arthur Hayes: Perhaps people believe that MicroStrategy will somehow continue to drive up prices, which may reignite some bullish sentiment. However, I don't see many signs of money printing, and even if there is money printing, it goes directly into AI development. So I don't see any significant positive catalyst that could pull cryptocurrency out of this slump or at least allow it to outperform AI.
Because if we go back to the perfect economic environment of high growth and low inflation, what would you buy? Would you buy Nvidia or Bitcoin? You would certainly choose Nvidia without hesitation, go for Samsung, right? Because they have surged 50 times in two years. Would you buy Bitcoin? Of course not. That's the problem, AI is performing too well.
If the environment remains the same, and these things continue to perform well, why would you choose cryptocurrency? You would only continue to bet on capital expenditure at a sustainable 100% annual growth rate and then keep buying these companies. Do you think this is sustainable?
And this happens to be the current market belief.
But if I were an institutional investor, and the client said, "Nasdaq has gone up 50%, why have you only gone up 10%?" — "Because I'm hedging, I bought volatility, and so on." The client would say, "Why should I give money to this fund manager who has only increased by 10% and not invest in the one that is up 50%?" This is the logic that engulfs everyone — everyone is saying, "I want to maximize returns, why haven't you participated?" That's the problem.
Host Kyle Chasse: When would you consider re-entering? What would convince you to come back?
Arthur Hayes: If by the fall, oil is behaving, and we haven’t had too much of a pump, and Trump hasn’t gone all J.K. Simmons on the AI honchos, I may get back in to see where the value lies.
But all of this is contingent upon one very stringent pre-condition - the epically hyped IPOs of SpaceX, Anthropic, and OpenAI over the next few months must open to smashing success, even going as far as to beat out the most legendary, mind-blowing pops in human history to match the largest IPO floats ever. When reality does not live up to the hype, we are in a pickle.
Host Kyle Chasse: Is there any way to gauge when the crypto market might see the next bull run?
Arthur Hayes: We need to see more money printing, and not all of that money from the printer can go to AI. When will this happen? I do not know, but I don’t think it’s happening now. You often say no matter what happens, the only way the government can get itself out of a jam is printing money, and that's inevitable.
Is there a way to gauge that timeline or the catalyst for that? If the AI bubble truly pops, some financial institutions crumble, you get one big bailout.
When? I don’t know. But that’s the moment crypto has to shine — AI has already been credit evented, not that it's gone, but it’s not flying high like it used to, so investors have to trade something else. I hope that something else is crypto, and then the liquidity comes back to this side of the fence.
I absolutely believe the answer is always printing money, it’s just the timeline. Bitcoin has been the best performing asset in human history for the last 15 years. But sadly, many did not get in at 1 cent, they bought at other prices. If you joined during the ETF era, on average, you are down. It all depends on path dependence and when you entered. Just because you got in six months ago doesn’t mean Bitcoin owes you a pump. I think that's a harsh lesson a lot of people need to learn.
Rapid Fire Round
Host Kyle Chasse: Last few rapid-fire questions. First one, end of year, Bitcoin above or below $100,000?
Arthur Hayes: Below.
Host Kyle Chasse: When is Altcoin Season coming?
Arthur Hayes: We just had an Altcoin Season, just for four assets. People made a lot of money on HYPE and some other coins due to the HYPE, so I think we just went through it, it might come again, but I don't know.
Host Kyle Chasse: Do you think we'll see a HYPE retracement by the end of the year?
Arthur Hayes: Yes.
Host Kyle Chasse: If you were to put $1 million into an asset today—Bitcoin, HYPE, short-term government bonds, gold—which one would you choose?
Arthur Hayes: Exxon Mobil.
Welcome to join the official BlockBeats community:
Telegram Subscription Group: https://t.me/theblockbeats
Telegram Discussion Group: https://t.me/BlockBeats_App
Official Twitter Account: https://twitter.com/BlockBeatsAsia
