Why Trump's New Fed Chair Means Bitcoin Number Go Up | Arthur Hayes

Excellent.

I don't think so. I still think that at the end of the day, the reason why Bitcoin and crypto has value is it does something differentiated from the traditional financial system. Why would banks invest time and money onboarding clients that trade crypto if it did the same thing that every other financial product does, which is a liability of the banking system, and that comes with issues. So, the value of Bitcoin is that it's outside of the system. Now, obviously, there's trading volume that's going on. Banks make business of allowing the clients to trade stuff. So, as it got to a large enough asset class with two something trillion dollars, then of course they want to trade it. Of course they want to earn fees in this new asset class that's uncorrelated with everything else that they're selling to their clients. So I don't think this is any sort of philosophical alignment on what Bitcoin is because at the end of the day this is all about sound money and banks are all about the exact opposite of that. This is about a bank is in the business of making money. Their clients want to trade this thing and they're going to allow them to trade it in a way that they feel comfortable with which is all these sort of derivatives and on balance sheet crypto products. And so yeah, I don't think Bitcoin is becoming suits. It's just that okay, the suits feel like they can make some money so they're coming to the conference. Great. I mean, it's an open source system, that's the whole point. Anyone can participate. Here are the set of rules and if you want to join, come on board.

It's definitely concerning. I hope that we don't, you know, that Coinbase doesn't get hacked or have some sort of issue. And I hope that all these folks don't have to learn why we say not your keys, not your coins though, in their own lives because, you know, it's not very nice to have your stuff ganked. But at the end of the day, this is the point, right? It's not your keys, not your coins. If you don't control the private keys, then you are just, you know, a schmuck that is hoping that Coinbase does, you know, good on security. And I don't think they've been hacked to date. So the record is perfect. But there's no such thing as 100% safety in this world. So there is that risk. You have to balance that risk versus okay, if you forget your password or you don't secure your coins, you know, well, there's not like there's another option that's like completely risk-free. It's just you're responsible for that. So people have to make those decisions and sort of use a product that makes sense for them.

So I think the first thing is if you look over the history of Bitcoin, this is the presentation that I gave like last week in Miami, the person in charge doesn't really matter. And I'm talking about in the US context. Obviously the big world out there and there's seven, eight billion people. So really only talking about a 400 million. But at the end of the day, if you talk about in the United States, Bitcoin had the biggest price appreciation under a Democratic president, President Obama. Then there was Trump, then there was Biden, then there was the second coming of Trump. And obviously, you know, Trump second time around, the rhetoric changed in terms of the crypto rhetoric around, okay, enforcement agencies acceptance and all these sorts of things. But at the end of the day, like Bitcoin went from zero to something, you know, big something with no regulatory clarity, with no support. The only thing that Trump has actually done in terms of bills signed is I think the Genius Act, right? That was signed in July of 2025. So, we've gotten to an all-time high, at least in the United States context, with absolutely no clarity, absolutely no regulation, absolutely no support. So, that isn't the constraining factor in the price. And I think that the price performance of Trump post inauguration in the second term has proven that the price is down something like I don't know 20%. So in my mind this proves that Bitcoin's value has nothing to do with regulations or the lack thereof or crypto regulation has everything to do with how much fiat liquidity is there in the system and Bitcoin will respond to that. And so it doesn't matter. It's nice that Trump says nice things about crypto and he shows up to the events and obviously takes people's money for the campaign donations and you know the SEC and the CFTC have wind down certain enforcement actions against crypto people like great but again at the end of the day the price action says it doesn't matter either way and to the point about the previous administration if you go back before the FTX implosion in 2022, Gary Gensler was a much different person in terms at least a rhetorical stance towards crypto. It was a lot more positive. You know, Sam Bankman-Fried was about to get almost every single license on offer in the United States. It was only because he basically bribed all these politicians with hundreds of millions of dollars. Then turned out just stole that money from his customers because the Democratic Party had to completely switch their attack on crypto because they looked so compromised. And so all of a sudden it was this is the most evil thing in the world. But, you know, Elizabeth Warren and all these other people took Sam's money and were perfectly willing to, you know, expound on the benefits of crypto as long as they were getting campaign donations. And so, I think this whole people had remembered actually what happened. It's not that the Democrats are against crypto. It's that they looked compromised because their poster child was a thief. He was found out to be a thief and therefore in order to save their political skin they had to turn a different tact to become their party of anti-crypto and so things can change right and so I think people need to understand that politics is fickle the priorities of politicians change all the time it's all about compromise and horse trading and so there is no like demonstrative like this party is great for crypto and this party is bad for crypto things will change and so I think people need to keep that in mind.

I think for the broader crypto ecosystem, the Clarity Act pass or doesn't pass has no effect on the price, no effect on the trajectory of Bitcoin. However, if you are a founder or builder inside the United States and your product or service is predicated on access to that market or you are a CEO of a centralized exchange like Jeremy Allaire or Brian Armstrong, this is a very important bill for you, right? Because this is going to define how you interact within this system against the banks and other institutions in the financial services sector and what that means for crypto. Now, obviously the mainstream media is very western focused, US focused and so they're blaring out all this nonsense about the Clarity Act this and the Clarity Act that. But in general, it will have no effect on the price whether it passes or it doesn't pass. But again, if that is your market, if the United States market is what you care about in terms of, you know, crypto financial services, yes, it is very important. I have not read the bill. I will not read the bill. It has no effect on crypto. You know, from my own perspective, if it does end up passing both the House and the Senate, I hope Trump vetoes it because it's not necessary. It's just adding more complexity, red tape, legal costs, all these sorts of things that have nothing to do with crypto. Has nothing to do with open source tech development. If anything, it's going to hamper open source tech development inside the United States. But again, it'll have no impact on the price either way.

So, I think people put too much emphasis on the Fed chair and what they will or won't do. At the end of the day, the Federal Reserve is a part of the American Empire and it will do what it has to do to make sure that the government is well funded and you can read if you really care about Fed history, there's a speech in 1979 by Arthur Burns, former Fed chairperson, and he basically laid out that you might have all these thoughts about what you think monetary policy should be as a Fed board member or chairperson, but at the end of the day, you are a servant of the American people. If the American people want to spend a bunch of money on wherever the hell they want to spend a bunch of money on and they will buy their representatives in Congress and the Senate, then the Fed must step up and has always stepped up to print the money. And that's what he is saying. And so I think this speech is called the anguish of central banking or something like that. And so I think this fixation on who the Fed chairperson is is a sort of a waste of time. Like yes, Kevin Warsh came out and said he was hawkish. But if you read the actual papers that underpin what he means by hawkish, they're going to reduce their holdings of treasuries, but the banking system is going to increase by the same amount. So the net effect is zero. It's just passing the potato between two different hands. But if you want to talk about reducing inflation, reducing the amount of credit in the ecosystem, that is not what Kevin Warsh is going to do. And so I know that initially people were bearish on liquidity creation because they believe that Warsh is a hawk but I don't think they actually interpreted what he said correctly and have read the papers coming out of the Fed where other governors explain what they mean by reducing the balance sheet and how they want to do it. What no one is ever suggesting is that the Fed take their call it $6 trillion portfolio of US treasuries, mortgage backed securities and sell them at the market and immediately drop the size of the balance sheet. All these proposals are about slow and steady ways in which they can change the regulation so that the banks buy the things that the Fed is selling. So the net effect on the liquidity situation is zero. But the Fed can stand up to the people and say yes we care about the inequality. We reduce our balance sheet. But the net effect is zero. And inflation will be what inflation is and the Fed will have no effect on that. I don't really care. Doesn't matter. Warsh is going to do what Trump wants him to do, which is more money creation, lower rates, and that's what's going to happen.

Number go up. The Fed's balance sheet is increasing. I don't see that stopping. It started increasing December of last year when they stopped the quantitative tightening and started reserve management purchases. That's not going anywhere. And yes, again, all these people talk about the previous administration at the Fed or in Bessent's case, the previous Treasury Secretary, but when they get in that seat and they see the numbers and the message from the boss hasn't changed, right? Free money for my voters. Now the Democrats give out free money to their people and the Republicans give out free money to their people. And guess what, Bessent or Warsh, give up the program, print the money. And I don't care that you came out and you derided your predecessor. You're going to keep the same policies because the policies did what they're supposed to do, which is provide the credit for the politicians to spend.

I mean, what do you consider explosive price movement? Because if you think about the low is what like 15 to 20,000 FTX high at 126. So that's a good 6x in two years. So what is explosive to you, right? I think people need to understand like what does that mean? Oh, I didn't get the blowoff top. What's that number? What are we talking about here? And I think the failure to be able to define that tells me that you don't really understand financial markets in terms of what it means for your portfolio and what is the return you're trying to achieve over a particular time frame and you're just going with vibes and vibes usually means your portfolio value is going down.

Again, best days. I think people have this romantic vision that oh if I was in crypto in 2013 or whatever year, you know, 20-some teens, I would have made so much money because the price went up so quickly and yada yada yada, right? And then people forget that like, you know, when I started in crypto, Bitcoin went from $250 to like $60 in the span of a week or two, right? Or let's say that you bought at the Mount Gox high at like 1300, it went down to $135 over the next year and a half, right? So, there have been yes amazing price returns, but have been punctuated by massive volatility. So, while the volatility of Bitcoin will decline due to the law of large numbers, that also reduces the risk that it goes to zero, the Lindy effect, right? And so you can't say that you wish that it was like that in the past but then would not have been able to suffer the volatility on the downside as well. And I think this is the problem with a lot of people who get into crypto is that it took them 10 plus years of getting berated with, you know, this guy got the Lambo after trading crypto for two weeks or looking at the social media of this person go to the nightclub that they wanted to go to or the fancy restaurant or whatever it is that they thought that they need in their life and they don't understand that put your mentality and how you think about markets in that time span. Can you suffer a 50% drawdown in 24 hours? Because I've been trading crypto for a long time. That absolutely happened back in the day. But tell me recently when Bitcoin's gone down 50% on massive volumes in 24 hours. I guess maybe March 13th or whatever it was in 2020, but like since then I haven't really seen that sort of volatility. So again, I think it's this rose tinted glasses, this nostalgia for the past and people don't actually understand how they would approach that situation if they were there. And therefore, they have unrealistic expectations of crypto and to meet their unrealistic expectations, they pile on leverage, they get wrecked, and they say, 'Oh, Bitcoin didn't perform or I should have been in the NASDAQ or gold.' No, you just don't have the right expectations and the right dedication to the art of trading.

True. But I think a lot of people did not make it out on the other side, right? How many people do we know who round-tripped some massive gains? Because you know the volatility works in both ways.

Yeah, exactly.

It makes things harder and easier at the same time, right? It forces honesty in the, if I'm going to loan you Bitcoin, right, I'm going to have to have very high confidence in whatever it is, the venture or something because I can't just go and create more Bitcoin or there's some centralized authority that can go and create more Bitcoin. So the type of economic activity that happens under hard sound money must be very, very valuable to the community in which it's being created as opposed to today where it's really like it's a financialized economy and if you are privileged enough to have direct access to the credit spigot then you can do all sorts of nonsense in terms of, I mean look at however many services at least in the United States are VC backed because they just raise a bunch of free money, you know, your Uber and Lyft was heavily subsidized, your DoorDash was heavily subsidized, your pet walking app was heavily subsidized. So the true cost of all these services is essentially just free money and then you complain about all the inflation that pops up because obviously this free money has to find an outlet into a hard asset. It's going into real estate, it's going into stocks and other things. So I think it creates a more honest society, but at the end of the day, the types of services offered are completely different and the price in some respects might be higher, but it's going to be a high quality product or service.

I mean, I don't think most people want financial freedom at the end of the day. If you think about the political rhetoric, depending on, doesn't matter if you're, you know, democratic or authoritarian or whatever, right? If you listen to Trump speak, listen to Xi speak, listen to European leaders speak, listen to African leaders speak, listen to Russian leaders speak, it's all about what am I going to do for you that's not going to cost you anything. And the reason why they're able to do that is because they have access to the printed press and fractional reserve banking and the way this system is set up. And these are the very popular political messages. Nobody is out there saying, 'Hey, somebody that you don't know spent all this money a decade ago and now you got to pay for it and we're not going to create any more money for you. So, sorry, it's just going to be a little bit harder for you.' That is not the political message anywhere around the world. And so, that means that you don't want hard money. The average person in the world does not want hard money. They want to get the free thing, but their neighbor doesn't get it, right? So, I'm on team Democrat and I want my free money to do my thing, but screw you, team Republican. You don't get free money for your thing. And then the roles reverse and the red says, 'No, screw you. I want my free money for my thing. No free money for your thing.' And that's essentially the world politics, right? Politicians just jive to say, 'Oh, I'm going to give you more free money, so please elect me or please support my authoritarian regime.' Nobody says, 'Hey, we've done too much. It wasn't really your fault, you weren't even born, but sorry, you got to suffer the consequences.' That's just not a political message. And so, I think Bitcoin will exist. There will be those who appreciate hard money, who appreciate being able to save and beat inflation. But from a human perspective, I don't think that humanity is going to move to hard money. But maybe AI agents will. And maybe the agentic economy and the currency that I think is yet to be created that will support AI agent commerce will be a form of hard money and if we believe the AI cheerleaders that economy is going to be so much bigger than what we consider this carbon-based human economy to be and so I think if there is going to be hard money it'll be enforced by AI agents not by humans because you know most humans don't want it.

Well, at the end of the day, AI or an AI agent just doesn't have a, you know, a lawyer. They don't want to interface with the human squishy feely semantic way that we do deal with things, right? They're a different type of organism at the end of the day, one that's based on silicon and computers and logic and all these sorts of things. And so, and this is my philosophical belief that they're going to value a different type of money that, you know, if computers can persist forever and the infrastructure is there, an AI agent can exist forever, right? In theory. Obviously, that's not going to happen in practice. And so, whatever form of value that they're going to trade amongst each other that represent sort of the compute power that they need to do tasks, it's going to have to withstand the test of time and not have to rely on subjective judgments from humans or another actor. It has to be based in math. It has to be provable that it is scarce or that the inflation rate is known, right? These are things that you can't do in human forms of money because they're all based on political consensus about what we decide to do and that can change. And there's all these rules that have to be adjudicated between humans to determine what the value of this money is and what it can and what it can't do. You can't really run an agentic economy that's on 24/7 with a currency like that. So maybe it's Bitcoin, maybe it's something else, but it certainly cannot be a fiat currency.

I mean, I love slinging some AI stones, right? I got a whole portfolio of stuff that I did zero research on, but it's AI and supplies AI and somebody said it in a podcast. AI, so I bought it, right? Screw it. It's fun. Like, are we going to overdo this capital allocation? Absolutely. We're humans. There was a truth here, right? Machine intelligence is better at certain things than human intelligence. Faster, better, stronger, cheaper, what have you. That all makes sense. And so we're going to extrapolate an amazing future, bring it back to today's present, and invest based on that. And we're going to overdo it. Now, have we overdone it yet? I don't know. Credit's still flowing. The banks are still lending. The two largest superpowers are still supporting AI as their national security and national economic interest, US and China. And so, the party's going to continue until something, an outside force acts upon it. The inertia is to continue to spend money, to continue to forecast this amazing utopian future where the robot does everything and we just sit around and draw squiggly lines on canvas and drink mold wine or whatever, right? So, I think obviously that's not going to happen in the time frame that the market thinks it's going to happen. And that mismatch is going to cause...

This optimism turns to questions. Once you start asking too many questions and you're like, maybe I'm overpaying for this AI future, that's when the thing crashes. Again, I don't think that's right now. But I do believe that we will overdo it because we've overdone every other technological advance. But at the end of the day, we've got railroads. We've got the internet. We've got all these massive capital buildouts that improved human civilization on a longer time frame, but people still lost a ton of money on the boom and bust cycle.

I did not catch that one. That's crazy. 50x, like SanDisk has been around for decades and decades. And it was my father-in-law. He just, because I've been telling him you got to buy Bitcoin. And he just sends me the thing. And I'm like, 5,000% in a year. What? Like what is going on? That's crazy. And it's because of the AI stuff.