(Any views expressed here are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)

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It’s that time again when I become an armchair meteorologist. Concepts like La Nina and El Niño enter my lexicon. Predicting a storm’s wind direction is just as important as the amount of snowfall when determining which aspects to ski. I use my rudimentary knowledge of weather patterns to opine on when autumn ends and winter begins in Hokkaido, Japan. I discuss with other local ski bums my dream of an early start to the powder ski season. Instead of my favorite crypto charting app, the most refreshed app on my smartphone is Snow-Forecast.

As data points start trickling in, I have to decide on when to arrive on the slopes with incomplete information. You don’t know what the prevailing weather patterns will be sometimes until the day before you strap on your skis. A few seasons ago, I arrived in mid-December to find a mountain covered in dirt. A single lift opened to service a few thousand yahoos. The line was hours long to ski a flat beginner to intermediate slope with minimal snow coverage. The next day it dumped, and I had one of the most epic powder days at my favorite ski resort in the area that is covered in glades.

Bitcoin is the free-market weathervane of global fiat liquidity. It trades on the expectation of future fiat supply. Sometimes reality matches expectations, and other times it does not. Money is politics. And political rhetoric, which changes rapidly, influences the market’s expectations of future filthy fiat supply. One day our imperfect leaders call for cheaper money in larger quantities to pump the bags of their favorite constituents, other days they call for the opposite to fight inflation that destroys the plebes and their chances of re-election or a continuation of their autocratic rule. As with science, in trading it pays to have strong convictions loosely held.

Post the debacle that was the US Liberation Day on April 2nd, 2025, I called for Up Only! I believed that US President Trump and his Treasury Secretary Buffalo Bill Bessent learned their lesson about trying to alter the world’s financial and trade operating system too quickly. To regain popularity, they would hand out goodies, financed with printed money, to their backers, who own a fuck ton of financial assets like houses, stonks, and crypto. On April 9th, Trump TACO’d, called a truce on tariffs and what looked like the beginning of another great depression turned into the best buying opportunity of the year. Bitcoin rallied 21%, and selected shitcoins (primarily Ether) rose as well, demonstrated by a failing Bitcoin dominance from 63% to 59%.

However, recently, the Bitcoin implied dollar liquidity forecast deteriorated. From its all-time high reached in early October, Bitcoin is down 25%, and many altcoins get beat harder than a capitalist in a New York City mayoral election. What changed? The rhetoric from the Trump administration hasn’t altered. Trump still lambasts the Fed for keeping interest rates too high. He and his lieutenants continue to talk about pumping the housing market through various means. And most importantly at every turn, Trump caves to China in that he delays forcing the trade and financial imbalances between the two economic juggernauts to reverse because the financial and political pain is just too much to bear for politicians who must face voters every two to four years. What also hasn’t changed, and the market now ascribes more weight to this than words from politicians, is a contraction in USD liquidity.

My USD Liquidity Index (white) fell 10% from April 9th, 2025, while Bitcoin (gold) rose 12%. Part of this divergence is because of liquidity-positive rhetoric from the Trump administration. Part of this divergence is because retail investors looked at Bitcoin ETF inflows and DAT mNAV premiums as proof that institutional investors wanted Bitcoin exposure.

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Institutional investors piled into Bitcoin ETFs, or so the narrative goes. As you can see the net inflows between April and October provided a constant bid for Bitcoin even though USD liquidity fell. I must add a caveat to this chart. The largest holders of the biggest ETF by AUM (Blackrock’s IBIT US) use the ETF as part of a basis trade; they are not long Bitcoin. They short a CME-listed Bitcoin futures contract vs. buying the ETF to earn the spread between the two.[1] This is capital efficient because usually their broker allows them to post the ETF as collateral against their short futures position.

These are the five largest holders of IBIT US. They are large hedge funds or proprietary trading focused investment banks, i.e. Goldman Sachs.

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The above chart shows the annualized basis these funds harvest by buying IBIT US and selling a CME futures contract. While the exchange above is Binance, the CME annualized basis is essentially the same. When the basis is markedly above the Fed Funds rate, hedge funds will pile into the trade, creating large and persistent net inflows into the ETF. This creates the impression, to those who don’t understand the market microstructure, that there is massive interest from institutional investors for Bitcoin exposure when in reality they don’t give a fuck about Bitcoin, they only play in our sandbox for a few extra points over Fed Funds. When the basis falls, they quickly dump their positions. Recently as the basis fell, the ETF complex recorded massive net outflows. Now retail believes these same investors don’t like Bitcoin and creates a negative feedback loop that influences them to sell, which decreases the basis, finally causing more institutional investors to sell the ETF.

Digital Asset Treasury (DAT) companies offered another way for institutional investors to obtain Bitcoin exposure. Strategy (ticker: MSTR US) is the largest DAT that holds Bitcoin. When its stock trades at a large premium to its Bitcoin holdings, called mNAV, it allows the company to issue shares and other forms of financing to acquire Bitcoin cheaply. As the premium fell into a discount, the rate at which Strategy acquired Bitcoin decreased.

This is a cumulative holding chart rather than a rate of change of said variable, but you can visualize that the increase in holdings slowed as Strategy’s mNAV premium evaporated.

Bitcoin ETF inflows and purchases by DATs allowed Bitcoin to rise even though dollar liquidity contracted from April 9th to the present. But this state of play is over. The basis is not juicy enough to keep institutional investors consistently buying ETFs, and with most DATs trading at a discount to mNAV, investors now shun these Bitcoin derivative securities as well. Without these flows obscuring the negative liquidity picture, Bitcoin must fall to reflect the current short-term worry that dollar liquidity will contract or not grow as fast as the politicians promised.

Show Me

It’s time for Trump and Bessent to put up or shut up. Either they have the juice for the Treasury Dept to run roughshod over the Fed, create another housing bubble, hand out more stimulus checks, etc. or they are a bunch of limp-dick charlatans. What further complicates the situation is that the Team Blue Democrats discovered, which should be of no surprise, that campaigning on variants of affordability is a winning strategy. Regardless of whether the opposition party can make good on these promises, like free bus passes, a plethora of rent-controlled apartments and government-run grocery stores, is not the point. The point is the people want to be heard and at least lie to themselves that someone in power looks out for them. The people don’t want to be gaslighted into believing that what they see and feel daily regarding inflation is fake news by Trump and his army of MAGA social media influencers.[2] They want to be heard like Trump heard them in 2016 and 2020 when he told them he would beat up on China and deport the brown people so their well-paying jobs would magically reappear.

For those of you with a multiyear outlook, these short-term lulls in the pace of fiat money creation don’t matter. If the Team Red Republicans cannot print enough money, the stock and bond market will crash, and that will give the holdouts from both parties’ religion to return to the satanic cult of money printing. Trump is an astute politician and, similar to former US President Biden, who faced a similar revolt amongst the plebes over the COVID-stimulus induced inflation, will publicly change course and lambast the Fed for causing the inflation that afflicts the median voter. But don’t worry, Trump won’t forget the wealthy asset holders who fill the campaign coffers. Buffalo Bill Bessent will be under strict orders to print money in creative ways the plebes won’t understand.

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Remember this photo op from 2022? Our favorite beta cuck towel bitch boy Fed chairperson Powell got a talking to by then-President Slow Joe Biden and US Treasury Secretary Bad Gurl Yellen. Biden explained to his subjects that Powell would crush inflation. And then because he needed to juice the financial assets of the rich folks who put him in power, told Yellen to undo all of Powell’s rate hikes and balance sheet contraction by any means necessary. Yellen issued more Treasury bills than notes or bonds, which sucked $2.5 trillion out of the Fed’s Reverse Repo Program from 3Q2022 until 1Q2025, which pumped stonks, housing, gold, and crypto. To the average voter, and some of you readers, what I just wrote might as well be Aramaic, and that’s the point. The inflation you feel directly results from a politician who told you he cared about solving affordability. Buffalo Bill Bessent must work similar magic. I have 100% confidence that he will engineer a similar outcome. He is one of the most knowledgeable money market plumbers and currency traders there ever were.

The Setup

The 2H23 and 2H25 market setups are eerily similar. The debt ceiling fight ended in mid-summer (3 June 2023 and 4 July 2025) forcing a rebuild of the Treasury General Account (TGA) sucking liquidity out of the system.

2023:

2025:

Bad Gurl Yellen pleased her boss. Can Buffalo Bill Bessent find his BBC and Bismarck the markets into shape for the Team Red Republics to get out the vote amongst those who hold financial assets in the 2026 midterm elections?

Whenever politicians listen too closely to most of their subjects who suffer under inflation, they talk tough about reigning in central bankers and finance ministry officials who love printing money. To disabuse them of the idea of allowing credit to contract, the markets present a Hobson’s choice. After a swift fall in equity and bond prices because of a realization by investors that money printing is verboten in the short term, either politicians print money to save the highly leveraged filthy fiat financial system that supports the broader economy but allows inflation to re-accelerate, or allow credit to contract which destroys rich asset holders and causes massive job losses because over leveraged businesses must reduce output and employment. Usually, the latter is more politically palatable because 1930s-style unemployment and financial distress are always an election loser, but inflation is a silent killer that printed money financed subsidies to the poor can hide.

Just like my confidence in the Hokkaido snow machine, I am 100% confident that Trump and Bessent want their Team Red Republicans to maintain power and thus will find a way to both look tough on fighting inflation and print the money necessary to continue the Keynesian fractional reserve banking con game that is the US and global economic situation. On the mountain, being early sometimes earns you dirt skiing. In the financial markets, before we get back to Up Only, the markets must, in Nelly-speak, drop down and get their eagle on.

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They don’t make music videos like they used to.

The Bull Case

The counterargument to my negative dollar liquidity theory is that as the US government resumes operations post the shutdown, the TGA decreases by $100 to $150bn to hit the target $850bn in short order, which adds liquidity to the system. In addition, the Fed will stop shrinking its balance sheet as of December 1st, and soon resume balance sheet expansion via QE.[3]

I initially held a bullish view of risk assets post the shutdown. However, as I dug into the numbers, I noticed that since July approximately $1 trillion of dollar liquidity evaporated based on my index. An addition of $150bn is great, but what next?

While various Fed governors hint that a resumption of QE is necessary to rebuild banking reserves to ensure money markets function correctly, this is just talk. We will know they are serious when Fed whisperer Nick Timiraos at the Wall Street Journal proclaims that a resumption of QE is green lit. But we aren’t there yet. In the meantime, the Standing Repo Facility will get tapped to print money, in the 10s of billions, to ensure the money markets can handle the gargantuan issuance of treasury debt.

Bessent could in theory run down the TGA to zero. Unfortunately, because the Treasury must roll over hundreds of billions of dollars weekly in bills, they must keep a large cash buffer just in case something happens. They cannot afford to default on a maturing treasury bill, which removes the possibility of instantly injecting the remaining $850bn into the financial markets.

Privatizing the government-sponsored mortgage entities, Fannie and Freddie, will definitely happen, but not within the next few weeks. The banks will also do their “duty” and lend to those building bombs, nuclear reactors, semiconductors etc., but again this lending will happen over a longer time period and this credit won’t immediately course through the veins of the dollar money markets.

The bulls are correct; over time, money printer go Brrrrrr. But first, the markets must retrace the gains since April to better align with the liquidity fundamentals. Finally, before I come to Maelstrom’s positioning, I am not conceding the four-year cycle is valid. Bitcoin and certain shitcoins will hit new all-time highs only after the markets puke enough to speed up the pace of money printing.

Maelstrom Positioning

Over the weekend, I raised our USD stables position in anticipation of lower crypto prices. The only crypto I believe can outrun the negative dollar liquidity situation in the short-term is Zcash (ticker: $ZEC). With AI, big tech, and big government, privacy across most sectors of the internet is dead. Zcash and other privacy cryptos using zero-knowledge proof cryptography are humanity’s only chance to fight this new reality. That is why Balaji and others believe the privacy meta-narrative will drive crypto markets for many years to come.

It should offend our sensibilities as disciples of Satoshi that the third, fourth, and fifth largest cryptos are a USD-derivative, a do-nothing coin on a do-nothing chain, and CZ’s centralized computer. What the fuck are we doing this for if after 15-years these are the largest cryptos after Bitcoin and Ether? I have nothing against Paolo, Garlinghouse, and CZ; they are masters of creating value for their token holders. Please take note, founders. But Zcash or a similar type of privacy crypto belongs right below Ethereum. And I believe that the grassroots crypto community is waking up to the fact that what we implicitly support by affording these types of coins or tokens these high market caps is at odds with a decentralized future where we as red-blooded humans retain agency in the face of oppressive tech, government and AI giants. Therefore, Zcash or another privacy-focused crypto will enjoy a secular rise in price whilst we wait for Bessent to get his money-printing groove back.

Maelstrom is still long as fuck, and if I have to buy back higher, as I have done too much chagrin earlier this year, so be it. I take my L’s with pride, because having spare fiat on hand allows me to go big for a W and make it fucking count. Having liquidity if an April 2025 setup presents itself defines your PNL for the cycle more so than hitting a bunch of singles that you give back to the market as you invariably lose money trading.

The Bitcoin dive from $125,000 to the low $90,000s whilst the S&P 500 and Nasdaq 100 indices hover around all-time highs tells me that a credit event is brewing. I corroborate this view when I observe the decline in my dollar liquidity index from July until now. If my view is correct, a 10% to 20% correction in stonks coupled with a 10-year Treasury yield approaching 5% will be enough to create the urgency to roll out some scheme to print money from the Fed, Treasury or another US government agency. Bitcoin could absolutely drop to $80,000 to $85,000 during this period of weakness. And if the broader risk markets implode, and the Fed and Treasury accelerate their money printing capers, then Bitcoin could zoom towards $200,000 or $250,000 at year end.

I still believe that China will reflate. But Chinese President Xi Jinping will pull the trigger once the US definitely accelerates the creation of dollars. Rightly or wrongly, Xi wants to project a strong yuan versus the dollar, and that prevents him from allowing an enormous increase in the broad money supply. The tell is that the PBOC, for the first time since January, purchased a small amount of government bonds. This is the beginning of China QE. The dragon will awaken and pour Maotai on the fire of the raging 2026 crypto bull market. And one last point about China before I depart to two-step in beautiful Argentina; isn’t it funny that Beijing is upset that the US “stole” the Bitcoin of a Chinese national engaged in alleged scam farms. Obviously, Xi thinks Bitcoin is valuable and an asset to be preserved and owned by the Chinese state or ethnic Han Chinese, rather than the US government. If both Trump and Xi, leaders of the two largest economies globally, believe that Bitcoin is valuable, why are you not bullish long term?

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[1] The CME is the Chicago Mercantile Exchange. It lists a Bitcoin/USD futures contract. For most institutional investors, this is the only Bitcoin derivative they can trade.

[2] MAGA stands for Make America Great Again. This one of the best political slogans ever because it means absolutely nothing and everything at the same time. Make America great again for who? When was America great? Because there is nothing specific about what it means a politician can always claim success.

[3] QE stands for quantitative easing. A process by which the Fed creates banking reserves or dollar liquidity by purchasing securities from the banking system.