Author: Arthur Hayes

Translation: Shen Chao TechFlow

Shen Chao Overview: Arthur Hayes uses a fictional nightclub scene to expose the fundamentals of the U.S. Treasury: whether Yellen or Bessent, despite differing rhetoric, when faced with a 10-year Treasury yield approaching 5%, they will choose to print money. The article reviews the two rounds of government bond operations at the end of 2023 and the present, explaining why this shift in U.S. dollar liquidity is a clear signal to go long on Bitcoin.

(All opinions in this article are the author's personal opinions and should not be used as investment decision-making basis, nor should they be understood as advice or recommendations for engaging in investment trading.)

Please set aside rationality and open your imagination; follow me.

It's Saturday night in New York, the former Brooklyn Mirage, now renamed Pacha, located in the de facto capital of Americana, New York. The rulers of the universe arrive in glamorous attire, moving to the rhythms of Keinemusik.

Our protagonist, U.S. Treasury Secretary Scott "Buffalo Bill" Bessent, strides confidently to the table in the VIP area behind the DJ. He smiles proudly, a thought flashing through his mind. "Since Elvis stole Southern gospel music to appear on The Ed Sullivan Show, I haven't seen this many rhythmically inclined white people."

Kenny G from Citadel is also in town to celebrate; he has just devoured a high-leverage weakling, Leopold Aschenbrenner, from San Francisco. Bessent takes a second look because he thinks Kenny, who frequently travels to Miami, has fallen for a Latin beauty. "Who is that spicy girl Kenny is with... Oh wait, it's Leopold's wife." There’s nothing more satisfying than putting a green hat on a high-leverage West Coast poser, even if she can barely be rated a 6 in the Bay Area. YOLO.

What surprised and annoyed Bessent further was that standing next to Kenny was his ex, former Treasury Secretary Janet "Bad Girl" Yellen. She waved at him while continuing to chat with Hunter Biden. Bessent thought, what the hell is this party? I bet Yellen is definitely snorting cocaine tonight. Bessent’s aura was disrupted. How could this bitch afford a $20,000 booth? He immediately figured it out—it’s too easy to make money in the U.S. government. He didn't reach into the money cabinet just because he was already a super wealthy person before taking office. But for those civilian politicians who operate by the scripts of Ron Klain and Nancy Pelosi, this kind of action is standard.

Yellen shouted to Bessent: “Hey, bitch, how’s the market treating you?”

Bessent visibly flinched with anger. It had been a tough week for him. The U.S. Treasury market was underperforming. He was forced to unexpectedly announce that the Treasury would double the scale of its long-end bond buyback to make the yields obedient. Unfortunately, the rebound lasted just one trading day. By the weekend, yields were already higher than pre-announcement levels. He wanted to call his real sugar daddy, George Soros, for advice; maybe Druck would pick up his call…

Yellen poured gasoline on the fire: “Thought you were better than me and more knowledgeable about the market than the academics.” She cackled, a laugh learned from former Vice President Kamala Harris. “You’re just Trump’s bitch, ha ha ha. We’re cut from the same cloth, you pretentious whore. Good night!”

After that, Yellen fully transformed into the "Bad Girl." She was leading a group of little wolf cubs wearing diamond-studded collars designed by Jacob the Jeweler. She whispered her favorite Cardi B lyrics into the ear of one of the little pups. “I want you to park that Big Mac truck in this little garage.” It must be really small now; she had hoarded a batch of Reta.

Bessent stormed past Arthur and Ansem’s table, where they were having a lively discussion with a group of crypto betting dogs. Arthur motioned Bessent to come over, and as he approached, Arthur said, "I saw you. Don’t let the haters knock you down. The crypto community is on your side. You have no choice; we love you. Keep going! Don't stop printing money because if the market crashes, all the rich people and all those others in America who believe that hard work will make them rich will have no free lunch anymore. Without free lunch, AOC will raise our taxes, oh boy."

At that moment, Bessent made up his mind to be the best treasury secretary. If Trump needed him to print another trillion dollars to prop up the market, he would do it.

The "Bad Girl" Yellen and "Buffalo Bill" Bessent are cut from the same cloth, despite differing rhetoric before taking office. They are both constrained by politicians—those who can’t resist spending ever more money on various nonsense they deem worthy. But they both believe it's worth being the most powerful financiers in this land. Therefore, when the Treasury market convulses, they will respond with clever money-printing strategies.

When they manipulate the Treasury market through money printing to lower yields, they create dollar liquidity that flows into Bitcoin and crypto assets. I will discuss two such fragments: Yellen and Bessent change the game, and Bitcoin reacts positively. The first fragment is at the end of 2023, when Yellen issued more short-term treasury bills than long-term bonds. The second fragment is now, when Bessent intervened in the dollar-yen market and then increased the nominal scale of Treasury bond buybacks. After Yellen announced the money-printing plan, Bitcoin quickly rallied from the lows; I expect that after Bessent reestablished his determination to follow in his predecessor's footsteps and significantly accelerate the pace of dollar liquidity creation, Bitcoin will rise again.

The 5% Threshold

For whatever reason, both Yellen and Bessent have been fearful of the 10-year U.S. Treasury yields approaching 5%, both in the past and present. The 10-year yield is the most important price in the Americana system. The rates for 30-year fixed mortgage loans, corporate bonds, and various consumer debt products are all priced based on the 10-year yield. Among these, mortgage rates are also influenced by the prepayment option. Once it exceeds 5%, the financing costs for consumers and businesses become astronomical, slowing economic activity. This is why the authorities work so hard to defend this level.

Short-term Treasury Bills vs. Long-term Bonds

Short-term Treasury bills have terms of less than a year, while long-term bonds have longer terms. [1] The closer the term is to zero, that is, the closer to cash, the more liquid and popular it is for many investors (especially money market funds). Money market funds wish to achieve the highest return with the least interest rate risk and counterparty risk. The safest place to hold cash is with the Federal Reserve, as the Fed can print money at any time without Congressional approval to settle its liabilities. The Fed has a reverse repo program (RRP), where eligible counterparties can park money there to earn returns close to the effective federal funds rate set by the central bank.

While in theory lending money to the U.S. government in U.S. dollars is risk-free since the government can print money, in practice settling that debt requires Congressional approval. That’s why the farce of the debt ceiling is important to market participants: they cannot hold securities that may not be fully repaid at maturity. If the politicians decide not to approve the spending bill, bondholders do not get paid. Therefore, if a money market fund wants to hold short-term Treasury bills, their yields must be slightly above the reverse repo rate to compensate for this risk.

At the end of 2023, just as today, the most pressing issue for American voters is the cost of living. At the time, President Biden, or at least his puppet master, knew that the public had finally seen through what the Fed's rate cuts or balance sheet expansions would mean. Thus, this option was off the table. With the 2024 election approaching, it’s time to genuinely care about the voters' dilemmas. Bad Girl Yellen knows her boss needs some liquidity to push up the market, but also needs a reasonable excuse to make him look like he is not directly printing money to inflate. She devised a brilliant money-printing scheme…

There is about $2.5 trillion in RRP. The problem Yellen faces with RRP is that the money multiplier for these funds is zero because they sit on the Federal Reserve's balance sheet and cannot be re-collateralized. But if money market funds were to transfer these balances into higher-yielding Treasury bonds, the banking system could then re-collateralize them. This liquidity would flow into bonds, lowering yields and boosting stock prices. And for us crypto gamblers, Bitcoin also found its bottom after the bankruptcy of FTX.

This complex chart illustrates the relationship. By increasing issuance, Treasury bond prices fall, yields rise well above the RRP yield, forcing profit-maximizing money market funds to shift their funds between the two instruments. By the time Bessent took office on January 20, 2025, the RRP balance (white) had decreased from $2.5 trillion to $100 billion. This $2.4 trillion liquidity injection, or money printing, can predictably flood into financial markets, with the Nasdaq 100 (green) and Bitcoin (magenta) rising. The 10-year yield (orange) quickly fell back from the critical 5% level, while the federal funds rate (not shown) remained at around 5.3%.

Gamblers, take a good look at that chart. This is the source of hopium. If you don’t understand why Bitcoin and risk assets are still rising in an environment where the Fed maintains rates at the highest level since 2008 and simultaneously shrinks its balance sheet, you will miss the next bull market that has just begun. This is why academia coined the term "Radical Fiscal Issuance" (ATI) to describe the sorcery that Bad Girl Yellen performed.

Bessent faces the same challenges as Yellen. His boss likes to waste taxpayer money on useless things. This particular useless thing is yet another unwinnable war in the Middle East. But ultimately, it doesn't matter where the President of the United States likes to squander taxpayer money because the Treasury Secretary can borrow money at low costs.

Twisted Operations

Everyone loves cash that can generate returns. Treasury bills are the safest cash-like instruments priced in dollars with the highest yields. Therefore, everyone likes to hold Treasury bills, including us crypto gamblers who hold Treasury derivatives like USDT, USDC, etc. Bessent knows the market will absorb all the Treasury bills he is willing to issue. The problem for Bessent is that Treasury bills mature within a year; the more he issues relative to bonds, the faster the debt snowballs. He must constantly provide increasing amounts of debt to finance new expenditures and repay old debts. The result is an accelerated growth of the total U.S. debt stock.

By increasing the share of U.S. debt financed by Treasury bills, Bessent can expect participation from the most important marginal buyers of U.S. debt: the Federal Reserve. The Fed is currently printing money, technically creating bank reserves, under its Reserve Management Program (RMP) by purchasing Treasury bills. The nominal scale of RMP purchases each month is determined by New York Fed President Williams. He likes to print money, which in the Fed's euphemistic language is termed 'dovish.' If Williams believes that without more dollars created by the Fed, the market will not operate normally, he will instruct traders to create bank reserves and purchase Treasury bills on the open market. Thus, the Fed prints money to cash the politicians' checks.

With positive Treasury buyers, Bessent can issue a large number of securities and use the proceeds to buy back longer-term notes and bonds. Bessent can manipulate the yield curve like a tone-deaf toddler playing the violin. He first hinted at this manipulation capability shortly after last year's "Liberation Day." At that time, Trump wanted to truly change the global trade flow with radical tariffs, but after the market threw a tantrum, he chickened out. Bessent warned the market not to test him because he possessed a magical power called "Treasury buybacks." More than a year later, Bessent announced he would actively use this tool to lower long-end yields.

On August 19, Bessent abruptly announced that he would conduct buybacks larger than previously scheduled starting next month. He raised the total amount for the next fiscal quarter's long-end buybacks by only $20 billion. Predictably, the 10-year yield quickly dropped, but the drop was limited. Bitcoin woke up from slumber and strongly rose in the following two days. However, unfortunately for Bessent—this was also the reason for his bad mood in the nightclub—by the end of trading the next day, the 10-year yield was actually higher than before the announcement. Why?

First, Bessent's effort was insufficient. In the context of a total debt stock of $40 trillion, buying another $20 billion is like peeing into the wind. Second, the market sensed panic because just weeks ago, Bessent advocated not to set a cap on the use of the FIMA tool, allowing Japan and other major U.S. Treasury holders to use bonds as collateral to borrow printed dollars from the Fed instead of selling those bonds on the open market. Third and most importantly, the market knew it could push Bessent to completely lose his mind, like Yellen, and think of ways to inject trillions of dollars in liquidity by pushing up the 10-year yield. Bitcoin clearly received the signal because it acts as the global liquidity smoke detector. If Bessent is like a manly Yellen 2.0 (I guess I don’t know if Yellen is transgender, as there are too many identities in this world and you can’t judge by appearance), then Bitcoin should start a beastly rise from the lows.

Bessent’s Next Steps

Several possible directions exist.

For assets like Bitcoin that are sensitive to U.S. dollar liquidity, the worst-case scenario is that U.S. politicians, led by President Trump, decide to cut spending. I think this is unlikely because there is an election to win just months later. American democratic socialist politicians, led by AOC, are gaining momentum and steadily taking over. [2] They promise a socialist utopia: no one pays rent, groceries are free. Trump and the Red Team Republicans must respond with their gospel of prosperity. This gospel of prosperity is printing money for wealthy asset holders. These people donate to the party and dream of a capitalist utopia. In this utopia, if you believe in socialism for the rich and capitalism for the poor, you will become rich. You will live the golden lifestyle that your favorite MAGA influencer promotes. You know the type: guys who look like they walked out of Miami Vice, dressed head to toe in Philipp Plein; women with duck lips done by the most expensive butcher in Coconut Grove.

Setting aside these apocalyptic fantasies, let’s return to reality and see how Bessent seriously prints money.

The best scenario is for Bessent to announce a Bank of Japan-style intervention in the bond market. He tells the market that if yields exceed 5%, he will engage in unlimited buybacks of 10-year and longer bonds. Initially, 10-year bonds would rise, and yields would plummet. Because the market would give Bessent a bit of damn respect. But like all economically unreasonable market intervention plans, the market will test whether Bessent is prepared to use dollar bazookas to fulfill his promises.

The middle road is the most likely, until the market experiences serious pressure. This pressure is marked by the MOVE index breaking 130. Bessent will increase buybacks in a piecemeal manner. He will also look for other covert plans to have the Treasury print money.

Another obvious operation is to drain the TGA to fund buybacks. Buffalo Bill Bessent recently revealed this proposition to CNBC. The TGA holds about $1 trillion.

I believe that a direct rate cut or unlimited QE by the Fed is politically unfeasible. At least not until the real collapse of the AI credit bubble in the next few years. Like in the 2010s. Remember, American voters care most about the cost of living. Even TikTok-addicted kids today know that the Fed prints money through rate cuts and QE.

Bull Market Baby

Regardless of how quickly or slowly Bessent releases liquidity, Bitcoin will continue to rise. Volatility will increase, so the charts may appear one-sided upward, but that doesn’t mean there won’t be sharp small pullbacks. Therefore, unless you are a full-time trader, don’t use leverage. Buy Bitcoin or your preferred meme coin, sit tight, and let Bessent handle the operations.

At Maelstrom, we are fully invested in risks. Bitcoin, Ethereum, Ethena, and Ether.fi are our racehorses. Watch them run.

Finally, now is the best time for the Flop Network airdrop. This is a moment to create something special. Participants in the testnet airdrop can join from the very start. I’ll say it again: no presale. You cannot buy $FLOP. Only those who participate in a useful way are eligible. Follow @flop_labs on X for more airdrop information.

Happy hunting, you sexy bastards! Let’s rock this bull market with a two-step dance to the moon.

[1] Strictly speaking, Treasury bills have terms of less than a year, notes are for one to twenty years, and bonds are for twenty to thirty years.

[2] AOC—Alexandria Ocasio-Cortez; she is the frontrunner for the 2028 electoral blue team Democratic presidential candidate.