"Expression" is a new essay by Arthur Hayes. Brief retelling

In my essay “Bad Girl,” I said that Fed Chairman Jerome Powell was, at best, an errand boy for US Treasury Secretary Janet Yellen.. This attitude was on full display at the December FOMC press conference.

The Wall Street Journal laid out Powell’s fateful turnaround clearly:

Officially, the Fed’s statement indicates that policymakers remain open to raising rates again.

“It’s too early to declare victory, and there are certainly risks,” Powell said.

But further comments from the Fed chairman effectively canceled this policy communiqué, indicating that officials were considering the possibility of cutting rates.
Along with this, new forecasts emerged for three possible cuts next year, marking a departure from the position of raising rates as much as necessary to reduce inflation (even to the point of recession).

The rate cut comment was also surprising because just two weeks earlier, during a speech at Spelman College in Atlanta, Powell said it was too early to talk about rate cuts.

The first and biggest turnaround came in Q1 2023, when the Fed and Treasury joined forces to push through a $4 trillion bailout for the banking system and the US Treasury market through the Term Bank Funding Facility.. Powell’s recent comments are only confirmation of the loose monetary policy of the United States.

US 2-Year Treasury Yield. Data: Arthur Hayes.

What has changed in two weeks? … Policy.

• What’s the worst fate for a politician? He won’t be re-elected.
• What is the worst fate of an American politician from the Democratic Party? Donald Trump will be re-elected along with a wave of Republican congressmen and senators.

If we take these two theses into account, the motives for the Fed’s actions from 2021 to the present become quite clear.

Amid high inflation following the coronavirus pandemic, President Joe Biden has tasked Powell with tackling the problem.. As you can see from the chart above, by March 2023, the rate on two-year US Treasuries rose from 0% to 5%.

The huge amount of money printed to stimulate the economy during COVID-19 has triggered the biggest inflation in more than 40 years.. Several months of Fed tightening were not enough to solve the problem before the US midterm elections in November 2024.

In an attempt to stabilize the situation, the Biden administration, along with Janet Yellen, sharply increased fiscal spending in 2023 and shifted borrowing to the short end of the US Treasury yield curve.. I talked about this at length in my essay “Bad Girl.”

The result was a booming US economy, growing 5.2% in Q3 2023 and projected to add another 2.6% in Q4 – impressive numbers for the world’s largest economy.. But even this is not enough to compensate for the mistakes attributed to Joe Biden and his administration.

To further boost the economy, the Fed should loosen financial conditions, even though this could lead to even more inflation (preferably after the election). That’s why Powell is shying away from the Fed’s desire to keep financial conditions so “tight.”

Now financial assets will rise until the US enters a recession or inflation begins to rise. Given that the federal government is committed to spending as much as necessary to maintain high GDP growth, it is unlikely that we will see a recession in 2024.

But let’s not focus on the future. Now the Fed, the US Treasury and the leader of Pax Americana are screaming at you: buy, buy, buy. But the best manifestation of this trade is cryptocurrency.

Now that we’ve identified the macroeconomic reason for the bullish sentiment, it’s worth breaking down some of the pitfalls associated with digital assets to avoid falling into them.

This is one of the most pointless topics in the crypto market right now.. If we just think about the meaning of these words, it will immediately become clear that such projects are doomed to failure.

• permitted – implies that some centralized organization will decide who can and cannot make transactions;
• decentralized – implies that there is a network of entities that collaborate without trust to operate the financial network. It is a permissionless activity that is not controlled by a central authority.

Given the meaning of these words, this narrative makes no sense at all, unless you are a TradFi shark who wants to find a new way to scam retail investors.

These projects are created for institutional investors, whose rules in many cases prohibit them from trading real DeFi projects. This is bad because there is a lot of retail trading happening in the free DeFi market, and retail markets are the best for large players.

They allow “smart” institutions to take profits from “dumb” retail investors, since the former have fast computers that make trades without human emotions. At least that’s how it works in TradFi.

But permissioned DeFi won’t have enough retail traders because they don’t need to trade against institutional investors. It is institutional traders who need to trade against retail.

After the hype dies down, these permissioned DeFi will simply be a network of high-frequency traders. The result is a bogeyman with zero activity or interest from both retail and institutional traders.

Venture capital firms are picking up on this theme. Most of them passed by Uniswap, dYdX, Compound, Aave and others. And instead of analyzing what made them miss out on these innovative primitives, they decided to jump on something that, at first glance, looks similar and sounds cool.

As always, there will be those who can sell something to these desperate venture capitalists. I have no hatred for the founders spreading this nonsense, they are just taking money from mentally retarded accredited investors. But you should not become the exit liquidity for the governance tokens of these projects.

RWA is an evolution of security tokens that emerged in the last bull cycle. RWA projects aim to tokenize real estate, marketable debt securities, shares, etc., create a special purpose vehicle (SPV), and then offer fractional ownership to users who do not have the funds to purchase a full home or access certain asset markets.

The main problem is that due to inflation, many millennials and zoomers are unable to buy their own homes. Solving this problem through fractional ownership is a noble goal, but there are several obstacles.

Firstly, young people trying to start their own family do not want a piece of a house or apartment on the blockchain. They need a structure with four walls and a roof that they can actually live in. Purchasing a token that provides the financial characteristics of a property does not solve this problem.

Secondly, each property is unique. The buyer must understand the location, local real estate regulations, taxes, and finally really want that specific property. It will never approach the liquidity of a standardized stock or bond.

Third, and most importantly, you can already own fractional shares of property by investing in large, liquid real estate investment trusts (REITs).. Many TradFi stock markets around the world offer these types of securities. They are run by large and reputable companies.

Why pay a premium for decentralization when there is a centralized option that is already extremely cheap and liquid? I don’t see any reason why we need to do all this blockchain tricks and launch a token.

Invest in these low liquid RWA tokens at your own risk. But an even worse use of capital is buying the governance token of the issuing platform itself.

Debentures

Another popular incarnation of RWA is the tokenization of ownership of revenue debt. The most popular projects offer token holders yield on US Treasury bills.

Tether is great because it allows people who don’t have access to US dollar banking to send tokens pegged to the US dollar.. But Tether does not generate income. What if there was a dollar stablecoin that also offered the yield of Treasury bills?

This is a good vector of development, and I support competition, which gives more interest margin to the holders of these instruments. Using and storing them is not bad in itself, but investing in a project’s governance token is stupid.

If USD interest rates remain above zero, then the project can accumulate profits and pass them on to governance token holders. If interest rates fall back to near zero, the project will lose money because it has to pay for developers, lawyers and compliance.

Leave the “real” world, which is governed by state laws, to TradFi intermediaries. They can offer a more consistent and cheaper investment product to get the same result. A true DeFi project should depend only on well-written code, and not on laws that must be made and interpreted by fallible humans.

Once TradFi on the US East Coast submitted their bids, a Bitcoin ETF began to look much more acceptable to the US political establishment.

However, if the ETFs controlled by TradFi asset managers prove too successful, they will completely destroy Bitcoin.

Every other monetary asset that human civilization has ever used exists physically due to the laws of nature. Gold as a substance is gold because of the arrangement of its atoms. The interactions between these atoms are governed by universal laws. Fiat is a physical sheet of matter. But Bitcoin is completely different.

Bitcoin is the first monetary asset in human history that exists only in motion. Once the Bitcoin block reward reaches zero, miners will only receive income when using the network. But if holders didn’t transact, miners wouldn’t be able to afford the energy they need to keep the network secure. Without miners, the network will die and Bitcoin will disappear.

BlackRock, the world’s largest asset manager, accumulates assets for which it issues traded securities.. They do not use held assets, which could be a major problem for Bitcoin.

If Bitcoin becomes just another government-controlled financial instrument, it will die because it is not used. The death of Bitcoin creates space for another cryptocurrency money network to grow in its place.. Let’s hope that the second time we learn not to give our private keys to institutions.

To Survive the Continued Depreciation of Fiat Money, You Must Choose a Side. Either you are trading a financial asset to earn more fiat money, or you are trying to preserve energy wealth using a financial system outside of government control. In the first case, ETFs are suitable for you, that’s what they exist for. But for the second goal, you need to buy Bitcoin and withdraw it to your wallet.

2024 will see the largest number of national elections in hundreds of years.. Any politician who wants to win elections must give gifts to voters:

• rich asset holders – free financial conditions through money printing.
• to the poor – handouts to cover the rising costs of food and energy that arose due to the previous point.
• middle class – tell them to pay their taxes and be glad they have the right to vote.

Because of this, it makes no sense for politicians seeking re-election to stop the depreciation of fiat.. The voices of those who profit from the depreciation of fiat money will outweigh the voices of those who suffer. Therefore, in 2024, the issue of money will increase sharply in all countries of the world.

If you think this has never happened, take a look at the chart below of the gold-denominated value of various reserve currencies.. Fiat always strives for zero. No political system can resist the temptation of a money printer.

The value of gold expressed in world fiat reserve currencies. Data: Arthur Hayes.

The best time to buy Bitcoin and start your journey in the cryptocurrency industry was yesterday, the next best time is now.

It is obvious that the investment community recognizes the promise of cryptocurrencies in the fight against the depreciation of fiat money. This makes your choice of the best execution of your trading strategy much more important.. The state will offer you sweet and tasty candies. But do as your parents taught you – don’t take candy from strangers.