币界网报道：(This article is the author's personal opinion and does not constitute the basis for investment decisions, nor should it be considered as advice or recommendation for investment transactions.) Equity investors have been chanting: "Stablecoins, stablecoins, stablecoins; Circle, Circle, Circle." Why are they so bullish? Because the US Treasury Secretary (BBC) said so: The result is this chart: This is a chart comparing the market value of Circle to Coinbase. Remember, Circle must hand over 50% of its net interest income to its "dad" Coinbase. However, Circle's market value is close to 45% of Coinbase. This makes people think... Another result is this sad chart (because I own Bitcoin instead of $CRCL): This chart shows the price of Circle divided by the price of Bitcoin, and is based on the index of 100 when Circle went public. Since the IPO, Circle has outperformed Bitcoin by nearly 472%. Crypto enthusiasts should ask themselves: Why is the BBC so bullish on stablecoins? Why did the Genius Act have bipartisan support? Do American politicians really care about financial freedom? Or is there something else going on? Perhaps politicians do care about financial freedom in the abstract, but empty ideals don’t drive action. There must be other, more realistic reasons for their about-face on stablecoins. Back in 2019, Facebook tried to integrate the stablecoin Libra into its social media empire, but was forced to shelve it due to opposition from politicians and the Federal Reserve. To understand the BBC’s enthusiasm for stablecoins, we need to look at the main problem he faces. The main problem facing US Treasury Secretary Scott “BBC” Bessent is exactly the same as that faced by his predecessor Janet “Bad Girl” Yellen. Their bosses (i.e. the US President and members of Congress) like to spend money but don’t want to raise taxes. So the burden of raising funds falls on the Treasury secretary, who needs to borrow money to fund the government at a reasonable interest rate. However, it soon became clear that the market was not interested in long-term government bonds of highly indebted developed economies - especially in a high price/low yield situation. This is the "fiscal distress" that the BBC and Yellen have witnessed over the past few years: The trampoline effect of global bond yields: Here is a comparison of 30-year bond yields: UK (white), Japan (gold), US (green), Germany (pink), France (red) If rising yields are bad enough, the real value of these bonds is even worse: Real value = bond price / gold price TLT US is an ETF that tracks 20+ year Treasury bonds. The following chart shows TLT US divided by the gold price and benchmarked to 100. Over the past five years, the real value of long-term Treasury bonds has plummeted by 71%. If past performance is not enough to worry about, Yellen and current Treasury Secretary Bessent also face the following constraints: The Treasury's bond sales team must design an issuance plan to cope with the following needs: · Federal deficits of about $2 trillion per year · $3.1 trillion in debt maturing in 2025 This is a chart that details the main spending items of the US federal government and their year-on-year changes. Notice that every major expenditure is growing at the same or faster rate than nominal U.S. GDP. The previous two charts show that the weighted average interest rate on outstanding Treasury bonds is currently below the point on the Treasury yield curve for all bonds. · The financial system issues credit against nominally risk-free Treasury bonds. Therefore, interest must be paid or the government will face nominal default risk, which will destroy the entire fiat financial system. Since the Treasury yield curve as a whole is above the weighted average interest rate on current debt, interest payments will continue to increase as maturing debt is refinanced at higher rates. · The defense budget will not decline, after all, the United States is currently involved in wars in Ukraine and the Middle East. · Healthcare spending will continue to increase, especially in the early 2030s when the baby boomers enter their peak period of needing a lot of medical care, which is mainly borne by large pharmaceutical companies funded by the US government. Keep the 10-year Treasury yield below 5%· When the 10-year yield approaches 5%, the MOVE index (a measure of bond market volatility) soars, and financial crises often follow. Issuing debt in a way that stimulates financial markets· Data from the Congressional Budget Office show that although the data only covers 2021, capital gains tax revenue has soared since the global financial crisis in 2008 as the US stock market has continued to rise. · The US government needs to avoid huge fiscal deficits by taxing the gains of the stock market year after year. The US government's policies have always tended to serve wealthy asset owners. In the past, only white men who owned property had the right to vote. Although modern America has achieved universal suffrage, power still comes from a small number of people who control the wealth of public companies. Data shows that about 10% of households control more than 90% of the wealth in the stock market. A notable example is during the global financial crisis in 2008, the Federal Reserve bailed out banks and the financial system by printing money, but banks were still allowed to repossess people's homes and businesses. This phenomenon of "the rich enjoy socialism and the poor suffer capitalism" is why New York mayoral candidate Mamdani is so popular among the poor - the poor also want to share some of the benefits of "socialism". When the Federal Reserve implements quantitative easing (QE) policies, the job of the Treasury Secretary is relatively simple. By printing money and buying bonds, the Fed not only allows the US government to borrow cheaply, but also pushes up the stock market. However, now the Fed must at least appear to be fighting inflation, unable to cut interest rates or continue QE, and the Treasury has to shoulder the heavy responsibility alone.In September 2022, the market began to sell bonds marginally due to concerns about the persistence of the largest peacetime deficit in US history and the hawkish stance of the Federal Reserve. The 10-year Treasury yield almost doubled in two months, and the stock market fell nearly 20% from its summer high. At this time, former Treasury Secretary Yellen launched a policy called "aggressive debt issuance" (ATI) by Hudson Bay Capital, which reduced the Fed's reverse repurchase (RRP) balance by $2.5 trillion by issuing more short-term Treasury bonds (Treasury bills) instead of interest-bearing bonds, injecting liquidity into financial markets. This policy successfully achieved its goals of controlling yields, stabilizing markets, and stimulating the economy. However, now that the RRP balance is almost exhausted, the question facing current Treasury Secretary Bessent is: How can he find trillions of dollars to buy Treasury bonds in the current environment with high prices and low yields? The market performance in the third quarter of 2022 was extremely difficult. The following chart shows the comparison between the Nasdaq 100 Index (green) and the 10-year Treasury yield (white). The sharp decline in the stock market coincided with the surge in yields. The ATI policy effectively reduced the RRP (red) and drove up financial assets such as the Nasdaq 100 (green) and Bitcoin (magenta). The 10-year Treasury yield (white) never broke through 5%. The large "too big to fail" (TBTF) banks in the United States have two pools of funds that are ready to buy trillions of dollars of Treasury bonds if there is enough profit potential. The two pools are: · Demand/time deposits · Reserves held by the Federal Reserve This article focuses on eight TBTF banks because their existence and profitability depend on the government's guarantee of their liabilities, and bank regulatory policies tend to take care of these banks rather than non-TBTF banks. Therefore, these banks will cooperate with the government's requests as long as they can obtain a certain degree of profit. If the Secretary of the Treasury (BBC) asks them to buy Treasury bonds, he will do so in exchange for a risk-free return. The BBC's enthusiasm for stablecoins may stem from the fact that by issuing stablecoins, TBTF banks can unlock up to $6.8 trillion in Treasury bond purchasing power. These dormant deposits can be re-leveraged in the fiat financial system, driving the market up. In the following sections, I will detail how Treasury purchases can be achieved through the issuance of stablecoins and how this can improve the profitability of TBTF banks. In addition, I will briefly explain that if the Fed stops paying interest on reserves, up to $3.3 trillion may be released for purchasing Treasury bonds. This will become another policy that is not technically quantitative easing (QE), but has similar positive effects on fixed-supply monetary assets such as Bitcoin. Now, let's get to know the BBC's new favorite - stablecoins, the "monetary heavy weapon". Stablecoin flow model My forecast is based on the following key assumptions: Treasury bonds receive a full or partial exemption from the supplementary leverage ratio (SLR) · Exemption significance: Banks do not need to hold equity capital for their Treasury bond portfolios. If fully exempted, banks can purchase Treasury bonds with unlimited leverage. · Recent policy changes: The Federal Reserve just voted to reduce bank capital requirements for Treasury bonds, and it is expected that this proposal will release up to $5.5 trillion of bank balance sheet capacity to purchase Treasury bonds in the next three to six months. Markets are forward-looking, and this buying power could flood into the Treasury market in advance, lowering yields, all else being equal. Banks are profit-oriented, loss-minimizing organizations · Risk Lessons for Long-Term Treasury Bonds: From 2020 to 2022, the Fed and the Treasury urged banks to buy large amounts of Treasury bonds, and banks rushed to buy long-term coupon-bearing bonds with higher yields. However, by April 2023, due to the fastest increase in the Fed's policy rate since the 1980s, these bonds suffered huge losses, and three banks collapsed within a week. · Umbrella of TBTF Banks: In the TBTF bank sector, Bank of America's "held-to-maturity" bond portfolio has lost more than its entire equity capital. If forced to mark to market, the bank will face bankruptcy. To resolve the crisis, the Fed and the Treasury effectively nationalized the entire US banking system through the "Bank Term Funding Program" (BTFP). Non-TBTF banks may still lose money, and if they go bankrupt due to losses on Treasury bonds, their management will be replaced and the bank may be sold cheaply to Jamie Dimon or other TBTF banks. Therefore, bank chief investment officers (CIOs) are cautious about buying large amounts of long-term Treasury bonds, fearing that the Fed will "pull the rug out" again by raising interest rates. · The appeal of Treasury bonds: Banks will buy Treasury bonds because they are actually high-yield, zero-term cash-like instruments. · High net interest yield (NIM) is key: Banks will only use deposits to buy Treasury bonds if Treasury bonds can bring high net interest yields and require little or no capital support. JP Morgan recently announced plans to launch a stablecoin called JPMD. JPMD will run on Base, a second-layer network developed by Coinbase based on Ethereum. As a result, JP Morgan's deposits will be divided into two types: 1. Regular Deposits· Although it is also a digital deposit, its flow in the financial system requires banks to use traditional old systems for docking and requires a lot of manual supervision. · Traditional deposits can only be transferred between 9 am and 4:30 pm on weekdays (Monday to Friday). · The yield on traditional deposits is extremely low. According to the Federal Deposit Insurance Corporation (FDIC), the average yield on ordinary demand deposits is only 0.07%, and the yield on one-year time deposits is 1.62%. 2. Stablecoin deposits (JPMD) · JPMD runs on the public blockchain (Base)Customers can use it 24/7 all year round. · JPMD cannot pay out returns by law, but JPMorgan Chase may attract customers to convert traditional deposits to JPMD by offering generous cash back consumer rewards. · It is not clear whether staking yield is allowed. · Staking yield: customers receive a certain return on their JPMD while locking it in JPMorgan Chase. Customers will move their funds from traditional deposits to JPMD because JPMD is more practical and the bank also offers consumer rewards such as cash back. Currently, the total amount of demand and time deposits of TBTF banks is about 6.8 trillion US dollars. Due to the superior stablecoin products, traditional deposits will be quickly converted to JPMD or similar stablecoins issued by other TBTF banks. If all traditional deposits are converted to JPMD, JPMorgan Chase will be able to significantly cut the costs of its compliance and operations departments. Here are the specific reasons: The first reason is to reduce costs. If all traditional deposits are converted to JPMD, JPMorgan Chase can effectively eliminate its compliance and operations departments. Let me explain why Jamie Dimon was so excited when he learned how stablecoins actually work. Compliance, at a high level, is a set of rules set by regulators and enforced by a group of humans using technology from the 1990s. The structure of these rules is something like: if X happens, then X action is performed. This "if/then" relationship can be interpreted by a senior compliance officer and written into a set of rules for an AI agent to perfectly execute. Because JPMD provides a completely transparent record of transactions (all public addresses are public), an AI agent trained on relevant compliance regulations can perfectly ensure that certain transactions will never be approved. The AI can also prepare any reports required by regulators on the fly. And regulators can verify the accuracy of the data because all data exists on a public blockchain. Overall, "too big to fail" (TBTF) banks spend $20 billion per year on compliance and the operations and technology required to comply with banking regulations. By converting all traditional deposits into stablecoins, this cost will be reduced to almost zero. The second reason JPMorgan is pushing JPMD is that it allows the bank to risk-free buy billions of dollars of T-bills with the custody stablecoin assets (AUC). This is because T-bills have almost no interest rate risk, yet their yields are close to the Fed Funds Rate. Remember, TBTF banks have $5.5 trillion of T-bills buying power under the new leverage ratio requirements (SLR). Banks need to find a spare cash reserve to buy this debt, and stablecoin custody deposits are perfect for that. Some readers may counter that JPMorgan can already buy T-bills with traditional deposits. My response is that stablecoins are the future because they not only create a better customer experience, but also allow TBTF banks to save $20 billion in costs. This cost savings alone is enough to incentivize banks to accept stablecoins; the additional net interest margin (NIM) earnings are the icing on the cake. I know many readers may want to invest their hard-earned money in Circle ($CRCL) or the next shiny stablecoin issuer. But don’t underestimate the profit potential of “too big to fail” (TBTF) banks in the stablecoin space. If we take the average price-to-earnings (P/E) ratio of 14.41 for TBTF banks as a base and multiply it by the cost savings and stablecoin net interest margin (NIM) potential, the result is $3.91 trillion. The total market capitalization of the eight TBTF banks is currently about $2.1 trillion, which means that stablecoins could increase the TBTF bank’s stock price by an average of 184%. If there is a non-consensus investment strategy in the market that can be executed at scale, it is to go long an equal-weighted portfolio of TBTF bank stocks based on this stablecoin thesis. What about competition? Don’t worry, the Genius Act ensures that non-bank-issued stablecoins cannot compete at scale. The act explicitly prohibits technology companies like Meta from issuing their own stablecoins; they must work with banks or financial technology companies (FinTech). Of course, in theory anyone can obtain a banking license or acquire an existing bank, but all new owners must be approved by regulators. As for how long this takes, we will have to wait and see. Another provision in the bill that cedes the stablecoin market to banks is a prohibition on paying interest to stablecoin holders. Unable to compete with banks by paying interest, fintechs will not be able to attract deposits away from banks at a low cost. Even successful issuers like Circle will never be able to touch the $6.8 trillion TBTF traditional deposit market. In addition, fintechs like Circle and small banks do not have a government guarantee on their liabilities, while TBTF banks have this guarantee. If my mother were to use a stablecoin, she would definitely choose a stablecoin issued by a TBTF bank. Boomers like her would never trust fintechs or small banks for this purpose because they lack a government guarantee. David Sachs, the "crypto czar" of former US President Trump, agrees. I believe that many corporate cryptocurrency donors will be unhappy with the result - after donating so much to cryptocurrency campaigns, they were quietly excluded from the lucrative stablecoin market in the United States. Maybe they should change their strategy and truly advocate for financial freedom instead of just providing a stool for the "toilet" of those TBTF bank CEOs. In short, the TBTF (Too Big to Fail) bank's approach to stablecoinsNot only does it eliminate competition from fintechs for its deposit base, it also reduces the need for expensive and often underperforming human compliance officers. In addition, it does not require interest payments, which improves its net interest margin (NIM), ultimately driving its stock price higher. In return, in gratitude for the gift of stablecoins granted by The BBC, TBTF banks will purchase up to $6.8 trillion in Treasury bills (T-bills). ATI: Yellen's Play: Stablecoins and The BBC Next, I will discuss how The BBC Act frees up another $3.3 trillion in static reserves from the Fed's balance sheet. Interest on Reserve Balances (IORB) After the 2008 Global Financial Crisis (GFC), the Fed decided to ensure that banks would not fail due to insufficient reserves. The Fed created reserves by purchasing T-bills and mortgage-backed securities (MBS) from banks, a process known as quantitative easing (QE). These reserves sit quietly on the Fed's balance sheet. In theory, banks could convert the reserves held by the Fed into circulating currency and lend them out, but they choose not to do so because the Fed pays them enough interest by printing money. In this way, the Fed "freezes" these reserves to prevent inflation from soaring further. However, the problem facing the Fed is that when it raises interest rates, the interest on reserve balances (IORB) will also increase. This is not good because the unrealized losses in the Fed's bond portfolio will also increase with the rate hike. As a result, the Fed is in a dilemma of insolvency and negative cash flow. However, this negative cash flow situation is entirely the result of policy choices and can be changed. U.S. Senator Ted Cruz recently said that perhaps the Fed should stop paying interest on reserve balances (IORB). This will force banks to make up for the lost interest income by converting their reserves into Treasury bills. Specifically, I think banks will buy Treasury bills (T-bills) because of their high yield and cash-like properties. According to Reuters, Ted Cruz has been pushing his Senate colleagues to remove the Fed's power to pay interest on reserves to banks, believing that this change will help significantly reduce the fiscal deficit. Why does the Fed print money and prevent banks from supporting the "empire"? There is no reason for politicians to oppose this policy change. Both Democrats and Republicans love deficits; why not enable them to spend more by unleashing $3.3 trillion of bank purchasing power into the Treasury market? Given the Fed’s reluctance to assist “Team Trump” in financing their “America First” goals, I believe Republican lawmakers will use their majorities in both chambers to strip the Fed of this power. So the next time yields spike, lawmakers will be ready to unleash this flood of money to support their spending spree. Before concluding this article, I want to talk about Maelstrom’s cautious strategy layout between now and the third quarter, given the inevitable increase in dollar liquidity during the BBC Act. A Cautionary Tale Although I am very optimistic about the future, I think there may be a brief lull in dollar liquidity creation after the passage of Trump’s spending bill, known as the “Big Beautiful Bill.” As it stands, the bill will raise the debt ceiling. Although many of the provisions will become political bargaining chips, Trump will not sign a bill that does not raise the debt ceiling. He needs additional borrowing power to support his agenda. There are no signs that Republicans will try to force the government to cut spending. The question for traders, then, is what impact will this have on USD liquidity when the Treasury resumes net borrowing? Since January 1, the Treasury has primarily funded the government by draining the balance of its Treasury General Account (TGA). As of June 25, the TGA balance was $364 billion. According to the Treasury's guidance in its most recent quarterly refunding announcement, if the debt ceiling were raised today, the TGA balance would be replenished to $850 billion through debt issuance. This would result in a $486 billion contraction in USD liquidity. The only major USD liquidity item that could potentially mitigate this negative shock is the release of funds from the overnight Reverse Repo Program (RRP), which currently has a balance of $461 billion. Due to the Treasury General Account (TGA) replenishment plan, this is not a clear-cut Bitcoin short trading opportunity, but a market environment that requires caution - the bull market may be temporarily interrupted by short-term volatility. I expect the market to trade sideways or slightly lower between now and August's Jackson Hole speech by Fed Chairman Jerome Powell. If the TGA replenishment has a negative impact on USD liquidity, Bitcoin could drop to the $90,000 to $95,000 range. If the replenishment plan does not have a substantial impact on the market, Bitcoin may fluctuate in the $100,000 range but struggle to break through the $112,000 all-time high. I suspect Powell may announce an end to quantitative tightening (QT) or other seemingly mundane but influential bank regulatory policy adjustments. By early September, the debt ceiling will be raised, the TGA account will be mostly replenished, and the Republican Party will focus on wooing voters in the November 2026 election. At that time, as money creation surges, bulls will fight back against bears with strong green candles. Maelstrom will increase his allocation to collateralized USDe (Ethena USD) from now to the end of August. We have liquidated all our positions in illiquid altcoinsAnd may reduce Bitcoin exposure depending on market performance. Risk positions bought into altcoins around April 9 this year achieved 2x to 4x returns in three months. However, in the absence of a clear liquidity catalyst, the altcoin sector may be hit hard. After the market correction, we will have the confidence to reposition and look for undervalued assets, perhaps seizing 5x to 10x return opportunities before the next round of fiat liquidity creation slows down (expected to be late Q4 2025 or early Q1 2026). The gradual adoption of stablecoins by systemically important banks (TBTF) could create up to $6.8 trillion in purchasing power for the U.S. Treasury short-term note (T-bill) market. The Fed's cessation of paying the interest on excess reserves (IORB) could further release up to $3.3 trillion in T-bill purchasing power. Overall, due to the "BBC" policy, there may be $10.1 trillion flowing into the T-bill market in the future. If I’m right, this $10.1 trillion liquidity injection will have a similar effect on risk assets as former Treasury Secretary Yellen’s $2.5 trillion liquidity injection – sending markets “booming”! This adds another liquidity arrow to the BBC’s policy toolbox. With the passage of Trump’s Big Beautiful Act and the debt ceiling increase, this tool may be forced into action. Soon, investors will again worry about how the US Treasury market will absorb the massive amount of debt that will be issued without collapsing. Some are still waiting for the so-called “monetary Godot” – waiting for Fed Chairman Powell to announce another round of unlimited quantitative easing (QE) and rate cuts before selling bonds and buying cryptocurrencies. But I’m here to tell you that this is not going to happen at all, at least not until the United States is actually in a hot war with Russia, China, or Iran, or a systemically important financial institution is on the verge of collapse. Even a recession is not enough to make “Godot” appear. So stop listening to the “weak” man and pay attention to the one who is really in control! The next few charts will show the opportunity cost that investors incurred by waiting for the “Monetary Godot”. The Fed’s balance sheet (white line) shrank while the effective federal funds rate (gold line) rose. By rights, Bitcoin and other risk assets should have fallen during this period. But former Treasury Secretary “Bad Gurl” Yellen did not disappoint the rich and stabilized the market by implementing ATI (probably referring to the asset-backed liquidity instrument). During this period, Bitcoin (gold line) rose 5 times, while overnight reverse repurchase (RRP) balances fell 95%. Don’t make the same mistake again! Many financial advisors are still persuading clients to buy bonds because they predict that yields will fall. I agree that central banks do cut rates and print money to avoid a collapse in government bond markets. Moreover, even if the central banks do not act, the Treasury will do something. The core point of this article is that by supporting stablecoin regulation, relaxing SLR (supplementary leverage ratio) restrictions, and stopping IORB payments, the Fed may unleash up to $10.1 trillion in Treasury purchasing power. But the question is, is it really worth holding a bond to earn a 5% to 10% return? You could miss out on a 10x increase in Bitcoin to $1 million or a 5x increase in the Nasdaq 100 to 100,000, which could happen by 2028. The real stablecoin “game” is not betting on traditional fintech companies like Circle.