Arthur Hayes KBW Speech: Embracing the "Million Dollar" Era of Bitcoin

Original compilation by: angelilu, Foresight News

On September 23, Arthur Hayes attended the KBW 2025 Summit in South Korea and delivered a keynote speech, outlining the potential phenomenon of "crazy money printing" that may emerge in the United States in the future. He analyzed its historical roots, political driving factors, and the specific mechanisms that could make it happen. He also mentioned why we, as cryptocurrency investors, should care about these issues.

Arthur Hayes emphasized the comparison between the price increase of Bitcoin during the pandemic and the scale of credit expansion during the same period. By 2028, the price of one Bitcoin could be $3.4 million. Although this number seems absurd, the "million-dollar" era of Bitcoin is approaching. Here is the full text of Arthur Hayes' speech:

Introduction and Background: Moving Towards Crazy Money Printing

Alright, this is going to get a bit technical, and we will talk about who is voting on what. But I think it is crucial to understand where we currently stand on the path towards the U.S. ultimately heading towards crazy money printing. This actually started with Donald Trump's election and the appointment of a Treasury Secretary, whom I refer to as "Wild Bill." But they haven't really settled in yet. They are sending all the right signals, and mainstream financial media is talking about how terrible Trump is, like how he berates Jerome Powell on social media (Truth Social) every day, calling him "Mr. Too Late."

But at the end of the day, the Federal Reserve has permanently lowered interest rates, which is good, but they could have done more. How can we move towards the crazy? How can we get Bitcoin to a million or more, allowing any "altcoin" in our portfolios to rise 100 times without leadership, revenue, or customers? I know this is what you want to hear from me.

How do we get there? It starts with understanding how the Federal Reserve votes, which committee is responsible for what, and how we arrive at the eventual outcome of yield curve control. That’s why the article I published after stepping down and the subsequent speech will discuss these topics. So, to understand where we are going, let's go back to history, as history can predict the future.

Historical Review: War Financing in the 1940s

Back to the 1940s, what was happening? There was a world war. The U.S. got involved in 1942. Obviously, when you get involved in a war, what do you do? You print a lot of money. How do you do that? You tell the central bank to lower the price of money and increase its quantity, so the central government can squeeze everyone out and borrow money to make killing machines. So, how did the U.S. government finance its participation in World War II?

The Federal Reserve basically reached an agreement with the Treasury to manipulate the bond market, allowing the U.S. government to issue debt at extremely low costs. This is a photo of the Tuskegee pilots. They were preparing to go to war and buy war bonds. What were the interest rates on government bonds at that time? For nearly a decade, the yield on Treasury bills with maturities of less than one year was capped at 0.375%. For long-term Treasury bonds, the yield on bonds with maturities of 10 to 25 years was capped at 2.5%. This is the yield curve control in the U.S.

Yield Curve Comparison and Future Speculation

Here is a chart of the yield curve. The orange line represents our current situation, which is a chart I made over the weekend. As you can see, the yield on 1 to 3-month Treasury bills is about 4%, the yield on 10-year Treasury bonds is about 4.5%, and the yield on 30-year Treasury bonds is about 4.75%. This is our current yield curve, compared to the yield curve at the end of the 1940s during World War II.

In Trump's view, this is what he wants to create. He wants to turn the orange line into the purple line. As investors, we must answer how we can achieve this goal, and we must make some bold assumptions and guesses. I may have to delve into the realm of bureaucratic politics, which is obviously very messy because we are dealing with people, and people are strange; they do unexpected things.

So, I will outline a possible path, but I do not know if it will actually happen. However, based on my current thinking about the Maelstrom (the investment company he manages) portfolio, this possibility is high enough for me to confidently push the risk level to nearly the maximum, even though Bitcoin has risen from about $3,000 to $12,000 and is currently experiencing a soft period.

Mechanisms of Yield Curve Control and the Federal Reserve's Third Mission

So, what is the mechanism of yield curve control? As you know, Federal Reserve Board member Steven Moran has proclaimed the Federal Reserve's third mission, which is actually written in the Federal Reserve Act of 1913: the Federal Reserve is responsible for "maintaining moderate interest rates on government bonds." What does "moderate" really mean? It means whatever they want it to mean. So when I say the Federal Reserve's third mission is to print money to help us finance national debt, that’s what I mean.

Now, why is financing for large-scale fiscal spending and credit generation so critical for the U.S. right now? The reason is the same as always. The U.S. is at war, or more importantly, the U.S. has essentially lost the last two wars. They lost the war against Russia in Ukraine and were forced to stop intervening in Iran after 12 days because they ran out of missiles to help Israel defend itself.

It turns out that the U.S. industrial base is completely gone. Over the past forty years, it has been transferred to China. Now, the U.S. cannot produce enough ammunition to defeat Russia, nor can it produce enough missiles to help allies bomb places they want to bomb. And this is what Trump really wants to correct, or at least try to do as quickly as possible. This requires credit. And this credit will be provided by the banking system and the U.S. Treasury.

Control of Short-Term and Long-Term Interest Rates

So, specifically, how do you control the Treasury bill market? You can lower the interest rate on excess reserves. Excess reserves are the reserves that banks hold at the Federal Reserve, and currently, the interest rate on these reserves is at the low end of the federal funds rate. They can also lower the discount rate. When banks are in trouble, like during the regional banking crisis in 2023, they borrow from the Federal Reserve at a rate from the discount window. If I can lower these two rates to any level I want, I can effectively limit the yield on Treasury bills.

One key committee I will talk about later is the Federal Reserve Board of Governors. They are responsible for controlling the short end of the curve, which is the interest rate on excess reserves, and influencing the rate at which banks borrow from the regional Federal Reserve's discount window. So, how do we manipulate the long end of the Treasury bond market?

What we first need to focus on is the System Open Market Account (SOMA). When the Federal Reserve conducts quantitative easing (QE) by creating reserves and buying bonds from banks, these bonds eventually end up in the SOMA account. They publish the balance of this account weekly. This is the indicator we can use to monitor whether they are really engaging in yield curve control—whether they are buying bonds in unlimited quantities at a specific price to manipulate yields to a certain level.

Transformation of Credit Generation: From Central Banks to Commercial Banks

If you study how Japan's yield curve control works, you will find that the Bank of Japan sets a target interest rate and then continuously buys bonds until the rate reaches that level. This way, if you want to profit, you will sell bonds to me until the rate drops, the bond price rises, the balance sheet expands, and credit demand in the system expands, then cryptocurrencies will naturally rise. The key Federal Reserve committee responsible for this expanding balance sheet is the Federal Open Market Committee (FOMC), which we will explain in detail later.

The second thing is the generation of credit growth. I wrote an article titled "Black and White" about nine to twelve months ago. In that article, I explored the difference between credit generated at the central bank level and credit generated at the commercial bank level.

Since the 2008 global financial crisis, we have been in an era of credit generation dominated by central banks globally. When central banks are responsible for issuing credit, what kind of activities do we notice they are funding? Central banks favor large corporations; they favor financial engineering. So, if you are a private equity investor in London, New York, Hong Kong, or Beijing, you would use a lot of debt to acquire a company, take the operating profits, and then sell it again at a higher EBITDA multiple, you make money. You are not creating new capacity; you are just leveraging existing capacity.

This is why the U.S. has less industry, because since the 1980s, you have been doing leveraged buyouts. You acquire companies, take on a lot of debt because you can enter the large corporate bond market, and large companies can issue currency outside the banking system. Because the Federal Reserve has paid a lot of money, all the wealthy want to buy this institutional risk-free capital. This is why MicroStrategy has been successful. It can issue debt to these markets. So we issue cheap debt and then buy Bitcoin. This is basically why MicroStrategy became a large company.

Now, can this method help President Trump create more bombs? No. They need more capacity in the U.S. industrial sector. They need small and medium-sized enterprises to get credit and hire workers to manufacture batteries and produce goods. They need bank loans. When the Federal Reserve keeps "turning the crank" (printing money), it crowds out space, and small banks and regional banks cannot operate. They need a steep yield curve. They need to be able to lend to these industries and then profit from it. Recently, there was a good article in the Wall Street Journal that referred to the Federal Reserve's policy as "gain of function," which criticized the COVID-19 policy, basically saying the Federal Reserve is responsible for destroying American industry and exacerbating inequality. He is 100% correct, but he is also a two-faced liar because he also profits from it.

So this economy is interesting. But his point is that he will empower regional banks to lend. And regional banks need a steep yield curve. So what Trump wants to see is a "bull steepening" of the yield curve, which means a general decline in interest rates and a steepening of the curve, where banks borrow deposits at low rates on the short end and lend at high rates on the long end, which is a spread based on the yield of 10-year or 30-year U.S. Treasury bonds.

If you look at the current situation, in the 1940s, this spread was close to 2%, which was very profitable for banks. And now, this spread is only 20 basis points. A few years ago, it was even negative. So by choking off small banks, you basically choke off the nation's credit production and industrial production. Therefore, Trump not only wants the yield curve to steepen, but he also wants to remove all those "bad" regulations that hinder small banks from lending to small and medium-sized enterprises. By making banks more profitable, they will do what the government wants them to do.

How Trump Controls the Federal Reserve

Now we need to understand two committees because Trump has his goals. He is the "ambassador" of the Treasury, and he will tell you what they really want to do. So how do they transform the Treasury and the Federal Reserve, two independent entities, into a cooperative body to achieve these goals?

First, we are talking about the Federal Reserve Board of Governors. It has seven governors, all nominated by the president and confirmed by the Senate. This is very important. Trump currently controls the Senate, and we will see after the midterm elections in November 2026 if he can maintain control. But if there are any signs, it is that his nominees are having a very hard time getting through. Steven Moran, who was recently appointed by Trump to the Federal Reserve Board, was approved last week by only one vote. So the situation is very tense. If Trump cannot get his nominees approved in the next 12 months or so, he is out of luck because the opposing Democrats will not approve his Federal Reserve Board nominees. So he needs more votes. This board controls the interest rate on excess reserves and influences the rate at which banks borrow from the 12 regional Federal Reserve discount windows. Most importantly, the presidents of the regional Federal Reserve Banks are all approved by the Federal Reserve Board by simple majority vote. So the first step is for Trump to get four votes on this board to control the short end of the yield curve and get more people into the Federal Open Market Committee (FOMC), so they can ultimately control the balance sheet.

The FOMC has 12 members, seven of whom are board members, and five are rotating presidents from the regional Federal Reserve Banks, with the president of the New York Fed having a permanent seat due to its significant influence on the U.S. financial ecosystem. So what does the FOMC do? We know they are responsible for setting the federal funds rate, and they meet monthly or almost monthly to manage the System Open Market Account (SOMA). They decide the scale of quantitative easing, the pace of bond purchases, and which bonds to buy, which is extremely important.

So how does Trump gain control of the Federal Reserve Board? You need to roll the dice and get "snake eyes" and "the dealer." Here is a very interesting chart. We basically see that Trump has two senators, Bowman and Waller, who we know want to become Federal Reserve governors. They were in opposition during the July meeting; they wanted to lower interest rates, while Jerome Powell and the majority wanted to maintain rates. They have publicly pledged loyalty to Trump.

Cook is the person who recently left the Federal Reserve. She suddenly resigned in August. There are rumors that her husband engaged in unethical insider trading during Federal Reserve meetings, and she resigned to avoid being forced out by an angry Trump. This is why Steven Moran was able to get in. Now Trump has three out of seven votes. The fourth is Lisa Cook. If you have been following the media, she is a member recently appointed by Biden. There are allegations that she was involved in mortgage fraud, falsely reporting her primary residence to obtain a lower mortgage rate. Her case has been referred to the Department of Justice and may undergo a criminal investigation. Currently, she is very stubborn, refusing to leave or resign. But I think by the end of the year, she will get some political assurance she wants, and then she will exit. This way, Trump will have four votes and control the board.

The first thing they want to do is accelerate the decline of short-term interest rates. There is an interesting arbitrage behavior that can force the FOMC—even if Trump has not fully taken control—to lower rates faster than expected. If the board lowers the interest rate on excess reserves and the discount window rate, a lot of money will flood into the federal funds market. This opens up an arbitrage opportunity for large commercial banks. What will they do? Commercial banks will pledge assets to the discount window to borrow funds at a rate lower than the federal funds rate and then lend them out at around 4%, which is a great arbitrage opportunity for storing funds. This arbitrage is essentially happening at the Federal Reserve, and the Federal Reserve now has to print money and give it to banks, which is completely absurd, and this is why it will essentially force the FOMC to lower rates.

I saw Steven Moran's recent interview, I think it was yesterday or this morning on Bloomberg. He said that the Federal Reserve's monetary policy is too tight by 2%. This basically gives you the direction they want to go. They want the federal funds rate to drop to around 2%, and they want it to happen yesterday. In fact, if Trump can get Lisa Cook out, he could execute this arbitrage by the end of the year and possibly bring the federal funds rate below 2% very soon.

How Does Controlling the Federal Reserve Board Lead to Control of the FOMC?

As I said, all members of the Federal Reserve Board are permanent voting members of the FOMC. And the board approves the regional Federal Reserve presidents to become rotating voting members of the FOMC. I believe that, apart from New York Fed, Philadelphia, Cleveland, and Minneapolis will be the other four regional Federal Reserve presidents with voting rights in 2026. And all 12 regional Federal Reserve presidents will face "re-election" in February next year.

How does this happen? Each regional bank of the Federal Reserve (there are a total of 12) has its own board of directors. This setup dates back to the past when each region of the U.S. had different interest rate needs for agricultural tax collection. Each regional Federal Reserve's board consists of three categories of members. Among them are six Class B and Class C board members who jointly elect the president of that bank. So what kind of people are these board members of the regional Federal Reserve? Here is a list, and all this information will be published online later. You will notice that the board chairs of these Federal Reserve banks are either bankers or industrialists. What do bankers and industrialists always want? They want cheap money. They want a lot of money. So how could these people oppose Trump's policies of lowering interest rates and increasing the money supply? This would increase their wealth. Because we are all self-interested, I think they are likely to vote for those who will follow Trump's wishes, i.e., adopt a more accommodative monetary policy. If they do not do so, the board controlled by Trump will basically imply that if you do not vote for a dovish chair, we will not approve him.

So now Trump has seven votes, and he will gain control of the FOMC sometime in the first half of 2026. So once he gains a majority in the FOMC, what can they do? They can return to quantitative easing. They can stop participating…

Now we are in a period of quantitative easing because the Treasury has a lot of debt to issue. And now, the Treasury is afraid to issue long-term debt. They are scared, just like during the Great Depression, of long-term debt. So now all that is being issued is short-term debt, which is why the clever action against overregulation is so important, as they need a price-inelastic buyer who can buy these government bonds or Treasury bills at any time. But if they control the FOMC, and the FOMC agrees that yield curve control is necessary to achieve the political industrial goals of the Trump administration, they will invest trillions of dollars in debt. The Federal Reserve will purchase most of these bonds because the members of the FOMC have restarted quantitative easing.

Therefore, through this control of the board and the FOMC and the timeline advancement, Trump can essentially create the yield curve I showed from 1942 to 1951.

Why Should We as Cryptocurrency Investors Care?

I certainly have a question; there are many mathematical issues regarding the money market here. I know this is a bit like a map of the money market, looking at Japan's situation. But, guys, we are here for this. So, with the yield curve control that the U.S. is about to implement, how high can the price of Bitcoin go? This number, you know, is obviously absurd, $3.4 million. Am I standing here in front of you today believing that by 2028 we will have Bitcoin at $3.4 million? I would probably say no. But I am interested in its direction of development and the potential scale it might reach. So I hope we can reach a million; others hope to reach it, which is good, but I am very skeptical about it.

This is not just based on adaptive numerical thinking dimensions but on the amount of government bonds that will be issued. What will the situation be like when Trump and his team leave office at the end of 2028? I checked my Bloomberg terminal and researched how many government bonds will mature to get these people to lower interest rates, and then I added the estimated $2 trillion federal deficit from now until 2028. This is about the estimate of the fiscal deficit by the U.S. Congressional Budget Office. This gives us a number: $15.3 trillion in new government bonds must be issued over the next three years.

How much did the Federal Reserve buy during the COVID-19 pandemic? The Federal Reserve bought about 40% to 45% of the bond issuance. I think during this period, this ratio will be higher because the likelihood of foreigners buying U.S. government bonds is lower than before, especially considering Trump's actions. He tends to increase debt for the re-industrialization of the U.S. by devaluing the dollar, which makes others uneasy. So why would I do this? I don’t know; I wouldn’t do it. So we effectively get $7.5 trillion in credit creation. This is the amount our balance sheet will grow from now until 2028.

The second part is "false" credit creation. How many loans will be issued to small and medium-sized enterprises across the U.S.? This is a very difficult number to predict. So I say, okay, look at what happened during the COVID-19 pandemic. This was their last successful implementation of this policy, basically from February 2020 to the peak at the end of 2021. If you look at the Federal Reserve's weekly statistics on the U.S. banking system's balance sheet, this is a good measure of credit and loan growth. I estimate that during these years, we had $3 trillion in growth. So, we have three years, multiplied by three, which totals about $15.2 trillion in credit creation.

So what does this mean for the price of Bitcoin? Again, returning to the experience of the COVID-19 pandemic, I use a very rough slope to measure the relationship between the percentage growth in Bitcoin's price and the credit created per dollar based on this framework. This slope is 0.19. You multiply this slope by the $15.2 trillion in credit growth and then multiply it by the benchmark price of Bitcoin, $115,000. This is how we arrive at the conclusion that by 2028, the price of Bitcoin will be about $3.4 million, and I am almost 100% sure this will not happen. But I think this is a framework for understanding the credit creation flowing from the Federal Reserve to the Treasury and then from the banking system to fund the re-industrialization of the U.S. We know what happened when this policy was pursued for just one year during the COVID-19 pandemic. What if it lasts for three years? When the Federal Reserve and the Treasury work together, printing money and, in their words, sending the U.S. economy into "Valhalla," we will see Bitcoin prices exceed $1 million.

That is why I am very confident that the four-year cycle does not apply in this particular cycle. We are in a "military-religious" realignment, and if they can take control of all monetary policy leadership and believe they are highly motivated, this is what will happen. Thank you all.