Arthur Hayes's new work: Bitcoin may peak in March next year before a pullback.

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Author: Arthur Hayes

Compiled by: Liam

Editor’s Note: The views expressed in this article are solely those of the author and should not be considered as a basis for investment decisions, nor do they constitute investment advice or trading recommendations. The article has been slightly edited.

If I had an online dating profile, it would probably be written like this:

The Language of Love:

The euphemisms and acronyms created by politicians and central bank governors for “printing money.”

This article will discuss the two most appropriate examples:

1. QE ——Quantitative Easing

2. RMP —— Reserve Management Purchase

RMP is a new abbreviation that entered my “Love Language Dictionary” on the day of the most recent Federal Reserve meeting on December 10th. I instantly recognized it, understood its meaning, and cherished it like a long-lost love, QE. I love QE because it means printing money; fortunately, I hold financial assets such as gold, precious metal mining stocks, and Bitcoin, which are appreciating faster than the creation of fiat currency.

But this is not for myself. If various forms of money printing can drive the price and popularity of Bitcoin and decentralized public blockchains, then I hope that one day we can abandon this dirty fiat fractional reserve system and replace it with a system driven by honest money.

We have not yet reached that point. But with the creation of each unit of fiat currency, this “redemption” is accelerating.

Unfortunately, for most people today, printing money is destroying their dignity as producers. When the government deliberately devalues currency, it severs the connection between energy input and economic output. Those hard-working “laborers” may not understand complex economic theories, but they can intuitively feel like they are running in quicksand - they understand that printing money is by no means a good thing.

In a “one person, one vote” democracy, when inflation surges, the populace will vote the ruling party out of office. In an authoritarian regime, the populace will take to the streets to overthrow the government. Therefore, politicians are well aware that governing in an inflationary environment is tantamount to political suicide. However, the only politically feasible method to repay massive global debts is to dilute them through inflation. Since inflation can destroy political careers and dynasties, the secret lies in: fooling the populace into believing that the inflation they feel is not actually inflation at all.

To this end, the central bank governors and finance ministers have thrown out a pot of boiling, hideous acronyms to obscure the inflation they impose on the public, thereby delaying the inevitable systemic deflationary collapse.

If you want to see what severe credit contraction and destruction look like, think back to the feelings during the period from April 2 to April 9 — when President Trump announced the so-called “Liberation Day” and began significantly raising tariffs. It was unpleasant for the rich (the stock market plummeted), and for others as well, because if global trade slows to correct decades of accumulated imbalances, many people will lose their jobs. Allowing rapid deflation is a shortcut to triggering revolutions, ending political careers, and even lives.

As time passes and knowledge spreads, all these disguises will eventually fail, and the public will link the current abbreviations to money printing. Just like any clever drug dealer, when the “junkies” become familiar with the new jargon, the monetary bureaucrats must change their tricks. This linguistic game excites me because when they start to change their tactics, it means the situation is very critical, and they must press that “Brrrrr” (the sound of the money printer) button hard enough to elevate my portfolio to a new dimension.

Currently, the authorities are trying to make us believe that RMP ≠ QE, because QE has been equated with money printing and inflation. To help readers fully understand why RMP = QE, I created several annotated accounting T-account diagrams.

Why is this important?

Since the low point in March 2009 after the financial crisis of 2008, risk assets such as the S&P 500, Nasdaq 100, gold, and Bitcoin have surged out of the river of deflation, recording astonishing returns.

This is the same chart, but standardized to an initial index value of 100 in March 2009. The appreciation of Bitcoin by Satoshi Nakamoto is so remarkable that it deserves a separate chart for comparison with other traditional inflation hedging tools, such as stocks and gold.

If you want to get rich during the QE era of the “Pax Americana,” you must own financial assets. If we have now entered another era of QE or RMP (whatever they call it), hold tight to your assets and do everything you can to turn your humble salary into more assets.

Since you are starting to pay attention to whether RMP is equal to QE, let's do some accounting analysis of the money market.

Understanding QE and RMP

Now it's time to take a look at the accounting T chart. Assets are on the left side of the ledger, and liabilities are on the right side. The simplest way to understand cash flow is to visualize it. I will explain how and why QE and RMP create money, leading to inflation in finance and goods/services.

The first step of QE

1: JPMorgan Chase is a primary dealer, has an account with the Federal Reserve, and holds government bonds.

2: The Federal Reserve conducts a round of quantitative easing by purchasing bonds from JPMorgan Chase.

3: The Federal Reserve creates money out of thin air and pays for bonds by injecting reserves into JPMorgan's account.

End balance: The Federal Reserve created reserves and purchased bonds from JPMorgan. How will JPMorgan handle these reserves?

The second step of QE

1: The Federal Reserve creates money out of thin air, namely reserves. Once JPMorgan uses these funds, they will have a stimulating effect. JPMorgan will only buy another bond to replace the one sold to the Federal Reserve when the new bonds are attractive from the perspective of interest rates and credit risk.

2: The U.S. Treasury issues new bonds through auctions, and JPMorgan Chase has purchased these bonds. Government bonds are risk-free, and in this case, the bond yield is higher than the reserve rate, so JPMorgan Chase will buy the newly issued bonds.

3: JPMorgan Chase uses reserves to pay bond payments.

4: The Treasury will deposit reserves into its Treasury General Account (TGA), which is its checking account at the Federal Reserve.

5: JPMorgan received the bonds.

EB: The Federal Reserve's money printing has provided funding for the increase in bond supply (holdings of the Federal Reserve and JPMorgan Chase).

Step three of QE

1: Printing money allows the Treasury to issue more bonds at a lower price. This is purely financial asset inflation. Lower yields on government bonds will increase the net present value of assets with future cash flows (such as stocks). Once the Treasury distributes benefits, there will be inflation in goods/services.

2: The Tim Walz Somali Child Care Center (serving children with poor reading skills but wishing to learn other skills) received a federal grant. The Treasury deducted funds from the TGA account and deposited the money into the center's account at JPMorgan Chase.

EB: The TGA account funds government spending, thereby creating demand for goods and services. This is how quantitative easing causes inflation in the real economy.

Short-term Treasury bills and long-term Treasury bonds

The maturity of short-term Treasury bills is less than one year. The most traded coupon-bearing government bond is the 10-year Treasury bond, technically referred to as the 10-year note. The yield on short-term Treasury bills is slightly higher than the reserve interest rate held at the Federal Reserve. Let's go back to the first step and replace long-term Treasury bonds with short-term Treasury bills.

EB: The only difference is that the Federal Reserve exchanged reserves for short-term treasury bills. The flow of funds from quantitative easing stops here, as JPMorgan lacks the incentive to buy more short-term treasury bills because the reserve interest rate is higher than the yield on short-term treasury bills.

The above chart shows the reserve rate minus the yield on 3-month Treasury bills, resulting in a positive value. Banks pursuing profit maximization will deposit funds with the Federal Reserve instead of buying lower-yielding short-term Treasury bills. Therefore, the type of debt securities purchased with reserves is very important. If the interest rate risk or maturity is too small, the funds printed by the Federal Reserve will remain on its balance sheet without any effect. Analysts believe that, technically, the stimulative effect of the Federal Reserve purchasing a $1 short-term Treasury bill is far less than the stimulative effect of purchasing a $1 bond under quantitative easing policy.

But what if it is not banks that hold these short-term Treasury bills, but other financial institutions? Currently, money market funds hold 40% of outstanding short-term Treasury bills, while banks only hold 10%. Similarly, if banks can achieve higher returns by depositing reserves with the Federal Reserve, why would they still purchase short-term Treasury bills? To understand the potential impact of RMP, we must analyze what decisions money market funds will make when the Federal Reserve purchases short-term Treasury bills held by money market funds. I will conduct an analysis of RMP similar to that of quantitative easing.

RMP Step One

1: Vanguard Group is a licensed money market fund that has an account with the Federal Reserve and holds short-term Treasury bills.

2: The Federal Reserve conducts a round of RMP operations by purchasing short-term Treasury bills from Vanguard Group.

3: The Federal Reserve creates money out of thin air and pays the bills by crediting the accounts of Vanguard Group with funds from the reverse repurchase agreement (RRP). RRP is an overnight financing tool, and interest is paid directly by the Federal Reserve on a daily basis.

EB: How else can Pioneer Group use the RRP balance?

Step 2 of RMP (Pioneer Group purchases more notes)

1: The Federal Reserve has created money out of thin air, which has turned into RRP balances. Once Vanguard uses these funds, they will have a stimulative effect. Vanguard will only purchase other short-term risk-free debt instruments when the yield is higher than RRP. This means Vanguard will only buy newly issued Treasury bills. As a money market fund (MMF), Vanguard has various restrictions on the types and maturities of debt it can purchase with investors' funds. Due to these restrictions, Vanguard typically only buys Treasury bills.

2: The U.S. Treasury issues new securities through auction, ultimately purchased by the Vanguard Group.

3: The Pioneer Group makes cash payments using notes in the RRP.

4: The Treasury will deposit RRP cash into its Treasury General Account (TGA).

5: The Pioneer Group has received the notes it purchased.

EB: The currency created by the Federal Reserve has provided funding for the purchase of newly issued Treasury bonds.

The yield on treasury bills will never be lower than the yield on the RRP, because as the marginal buyer of treasury bills, if the yield is the same as the treasury bills, the money market fund will keep the funds in the RRP. Technically, since the Federal Reserve can unilaterally print money to pay interest on the RRP balance, its credit risk is slightly better than that of the U.S. Treasury, which must obtain congressional approval to issue debt. Therefore, unless the yield on treasury bills is higher, money market funds are more inclined to keep cash in the RRP. This is important because treasury bills lack duration characteristics, meaning that a few basis points drop in yield due to the implementation of RMP by the Federal Reserve will not have a significant impact on inflation in financial assets. Inflation will only be reflected in financial assets and goods and services when the Treasury uses the funds raised to purchase goods and services.

Step 3 of RMP (Pioneer Group provides loans to the repurchase market)

If the yield on newly issued Treasury bills is less than or equal to the RRP yield, or if there is a shortage of newly issued Treasury bills, are there other investment methods for money market funds (MMF) that could lead to inflation of financial assets or goods/services? Yes. Money market funds can borrow cash in the Treasury bill repurchase market.

The repurchase agreement is abbreviated as repo. In this example, bond repurchase refers to money market funds providing overnight cash loans secured by newly issued Treasury bills. In a normally functioning market, the repo yield should equal or be slightly lower than the upper limit of the federal funds rate. Currently, the RRP yield is equal to the federal funds rate, which is 3.50%. The yield on three-month Treasury bills is currently 3.60%. However, the upper limit of the federal funds rate is 3.75%. If the repo transactions are close to the upper limit of the federal funds rate, money market funds can achieve a yield that is nearly 0.25% higher by lending in the repo market than by lending in the RRP (3.75% minus the RRP yield of 3.50%).

1: The Federal Reserve creates RRP balances by printing money and purchasing Treasury bills from the Vanguard Group.

2: The U.S. Treasury issues bonds.

3: LTCM (a relative value hedge fund that has come back from the dead) purchased bonds at auction, but they did not have enough funds to pay. They had to borrow in the repurchase market to pay the Treasury.

4: Bank of New York Mellon (BONY) facilitated a tri-party repurchase agreement. They received bonds from LTCM as collateral.

5: BONY received cash withdrawn from the RRP balance of the Pioneer Group. This cash was deposited into BONY and then paid to LTCM.

6: LTCM uses its deposits to pay bonds. This deposit becomes the TGA balance held by the U.S. Treasury at the Federal Reserve.

7: The Vanguard Group withdraws cash from the RRP and lends it in the repurchase market. The Vanguard Group and LTCM will decide daily whether to extend the repurchase agreement.

EB: The funds printed by the Federal Reserve were used to purchase treasury bonds from the Vanguard Group, thereby providing financing for LTCM's bond purchases. The Treasury can issue long-term or short-term bonds, and LTCM will buy these bonds at any price because the repurchase rate is predictable and affordable. The Vanguard Group will always lend at a “appropriate” interest rate, as the Federal Reserve prints money and purchases the notes it issues. RMP is a disguised way for the Federal Reserve to cash checks for the government. From both financial and real goods/services perspectives, this is highly inflationary.

RMP Politics

I have some questions, and the answers may surprise you.

Why was the announcement of RMP not included in the official Federal Open Market Committee statement like all previous quantitative easing plans?

The Federal Reserve unilaterally decides that quantitative easing is a monetary policy tool that stimulates the economy by removing long-term bonds that are sensitive to interest rates from the market. The Federal Reserve believes that RMP is a technical implementation tool that will not stimulate the economy, as it removes cash-like short-term Treasury bills from the market.

Does RMP need to go through a formal vote by the FOMC?

Yes, and no. The FOMC instructs the New York Federal Reserve Bank to implement RMP to keep reserves “adequate.” The New York Fed can unilaterally decide to increase or decrease the scale of RMP Treasury purchases until the Federal Open Market Committee (FOMC) votes to terminate the program.

What is “sufficient reserves”?

This is a vague concept with no fixed definition. The New York Fed decides when reserves are adequate and when they are insufficient. I will explain in the next section why Buffalo Bill Bessent controls the adequate reserve levels. In fact, the Fed has transferred control of the short end of the yield curve to the Treasury.

Who is the president of the New York Fed? What are his views on quantitative easing and RMP?

John Williams is the president of the New York Federal Reserve. His next five-year term will begin in March 2026. He is not going anywhere. He has been a strong advocate for the theory that the Federal Reserve must expand its balance sheet to ensure “adequate reserves.” He has a very supportive voting record on quantitative easing and has publicly stated that he fully endorses money printing. He believes that RMP is not quantitative easing and therefore does not have economic stimulus effects. This is fine because when inflation inevitably rises, he will claim “it's not my fault” and then continue to use RMP to print money.

Unlimited and unrestricted printing frenzy

The definition of quantitative easing (QE) and various sophistries around the level of reserves being 'adequate' have allowed the Federal Reserve to cash the checks of politicians. This is fundamentally not quantitative easing (QE); this is a mad printing press running! Every past quantitative easing (QE) program has set an end date and a monthly bond purchase cap. Extending the program requires a public vote. Theoretically, as long as John Williams (the Fed Chair) is willing, RMP can expand infinitely. However, John Williams does not actually have real control over the situation because his economic dogma does not allow him to consider that his bank is directly fueling inflation.

Sufficient reserves and RMP

The existence of RMP is due to the inability of the free market to cope with the enormous risks brought by the surge in Treasury bond issuance, akin to the “Alabama black snake.” Reserves must grow. They must be synchronized with the issuance of government bonds; otherwise, the market will collapse. I discussed this in my article titled “Hallelujah.”

The following is a table of the total amount of tradable government bonds issued from fiscal year 2020 to 2025:

In short, although Bessenet asserts that Yellen's refusal to extend the debt ceiling is an epic policy mistake, the U.S. Treasury's reliance on cheap short-term financing is still intensifying. Currently, the market must absorb about $500 billion in government bonds weekly, up from about $400 billion weekly in 2024. Trump's ascension to power, despite his campaign promise to cut the deficit, did not change the trend of increasing total bond issuance. Moreover, it does not matter who is in power, as even if Kamala Harris is elected, the issuance plan will not change.

What is the driving force behind the growth in the total issuance of government bonds? The massive and continuous increase in issuance is because politicians will not stop distributing benefits.

The Congressional Budget Office ( CBO ) and primary dealers agree that the deficit will exceed $20 trillion over the next three years. This reckless situation seems to show no signs of change.

Before discussing the argument of why RMP ≠ QE, I would like to first predict how Bessent will use RMP to stimulate the real estate market.

RMP-funded buyback

I know this is painful for some of you investors, but please recall what happened in early April this year. Just after Trump made the “TACO” (possibly referring to antitrust law) regarding tariffs, Bessent claimed in an interview with Bloomberg that he could stabilize the Treasury bond market using repurchases. Since then, the nominal total of Treasury bond repurchases has been steadily increasing. Through the repurchase program, the Treasury uses the proceeds from issuing Treasury bonds to repurchase earlier inactive bonds. If the Federal Reserve prints money to buy these bonds, then the short-term Treasury bills effectively provide financing directly to the Treasury, allowing the Treasury to increase the total issuance of short-term Treasury bills and use part of the proceeds to repurchase longer-term Treasury bonds. Specifically, I believe Bessent will use repurchases to buy 10-year Treasury bonds, thus lowering yields. In this way, Bessent can magically eliminate interest rate risk in the market using the Rate Market Policy (RMP). In fact, this is precisely how quantitative easing works!

The 10-year Treasury yield is crucial for the 65% of U.S. households that are homeowners and for those low-income first-time homebuyers. A lower 10-year Treasury yield helps American families access home equity loans, thereby increasing consumption. Additionally, mortgage rates will also decline, which will help improve housing affordability. Trump has openly stated that he believes mortgage rates are too high, and if he can achieve this, it will help the Republican Party continue to govern. Therefore, Besant will utilize interest rate market policies and repurchases to buy 10-year Treasuries. 10-year Treasuries and lowering mortgage rates.

Let's quickly take a look at some charts of the US real estate market.

There is a large amount of home equity available for leveraged financing.

The refinancing wave has just begun.

The current refinancing level is far from the peak of the 2008 real estate bubble.

If Trump can solve the housing affordability issue by lowering financing costs, then Republicans may be able to turn the current situation around and maintain their majority in both chambers of the legislature.

Besenet has not publicly stated that he would use buybacks to stimulate the real estate market, but if I were him, I would use this new money printing tool in the manner described above. Now let's hear the argument for why RMP≠QE.

Opponents will always oppose.

The following are criticisms from opponents of the RMP plan, questioning whether it can create inflation in finance and goods/services:

-The Federal Reserve purchases short-term Treasury bills through RMP and buys long-term bonds through QE. If there are no long-term bonds, purchasing short-term Treasury bills has almost no impact on the financial market.

-RMP will end in April, as that is the tax deadline, after which the repurchase market will return to normal due to reduced volatility in the TGA.

My accounting T-shaped chart clearly shows how the RMP's short-term treasury bill purchases directly fund new bond issuances. The debt will be used for spending, thereby triggering inflation, and may lower long-term debt yields through repurchases. Although the Rate Management Program (RMP) transmits accommodative policy through treasury bills rather than bonds, it remains effective. Nitpicking will only underperform the market.

The increase in the total issuance of treasury bonds negates the claim that the interest rate management plan failed in April. Due to necessity, the financing structure of the U.S. government is undergoing a transformation, relying more on treasury bonds.

This article refutes both criticisms and convinces me that the four-year cycle has come to an end. Bitcoin clearly disagrees with my view, gold thinks my perspective is “fair at best,” but silver is set to make a big profit. To this, I can only say: be patient, buddy, be patient. At the end of November 2008, after former Federal Reserve Chairman Ben Bernanke announced the first round of quantitative easing (QE1), the market continued to plummet. It wasn’t until March 2009 that the market bottomed out and rebounded. But if you were just waiting on the sidelines, you missed an excellent buying opportunity.

Since the introduction of RMP (Random Monetary Policy), Bitcoin (in white) has dropped by 6%, while gold has risen by 2%.

Another liquidity factor that will change with RMP is that many of the world's major central banks (such as the European Central Bank and the Bank of Japan) are shrinking their balance sheets. Reducing the balance sheet does not align with the strategy of cryptocurrencies only going up and not down. Over time, RMP will create billions of dollars in new liquidity, and the exchange rate of the dollar against other fiat currencies will plummet. While the depreciation of the dollar is beneficial for Trump's “America First” re-industrialization plan, it is disastrous for global exporters, who not only face tariffs but also have to endure the dilemma of their domestic currencies appreciating against the dollar. Germany and Japan will respectively utilize the European Central Bank and the Bank of Japan to create more domestic credit to curb the appreciation of the euro and yen against the dollar. By 2026, the Federal Reserve, European Central Bank, and Bank of Japan will join forces to accelerate the demise of fiat currency. Long live!

Trading Outlook

The scale of $40 billion per month is certainly impressive, but the proportion of total outstanding debt it represents is far lower than in 2009. Therefore, we cannot expect its credit stimulus effect at the current financial asset price levels to be as significant as it was in 2009. For this reason, the current misconception that RMP is superior to QE in credit creation, along with the uncertainty regarding the existence of RMP after April 2026, will result in Bitcoin's price fluctuating between $80,000 and $100,000 until the start of the new year. As the market equates RMP with quantitative easing (QE), Bitcoin will swiftly return to $124,000 and quickly advance towards $200,000. March will be the peak of expectations for RMP driving asset prices, at which point Bitcoin will decline and form a local bottom well above $124,000, as John Williams( remains firmly on the “Brrrr” button.

Altcoins are in dire straits. The crash on October 10 caused significant losses for many individual and hedge fund liquidity traders. I believe that many liquidity providers in liquidity funds looked at the net value statements for October and said “Enough!” Redemption requests came in like a tide, leading to a continuous bidding collapse. The altcoin market needs time to recover, but for those who cherish their precious funds and seriously read the exchange operation rules, now is the time to sift through the junk.

Speaking of altcoins, my favorite is Ethena. Due to the Federal Reserve's interest rate cuts leading to a decline in currency prices, and the RMP policy increasing the money supply, Bitcoin prices have risen, thereby creating a demand for synthetic dollar leverage in the crypto capital market. This has pushed up cash hedging or basis yields, prompting people to create USDe for lending at higher rates. More importantly, the spread between the basis yields of Treasury bonds and cryptocurrencies has widened, with cryptocurrencies offering higher yields.

The increase in interest income from the Ethena protocol will flow back to the ENA treasury, ultimately promoting the buyback of ENA tokens. I expect the circulating supply of USDe will increase, which will be a leading indicator of a significant rise in ENA prices. This is purely the result of the interplay between traditional finance and cryptocurrency dollar interest rates, a similar situation occurred when the Federal Reserve initiated the easing cycle in September 2024.