4th November 2025 > > Arthur Hayes.

tl;dr

Arthur Hayes serves up another very insightful piece, which I have helped translate for the non-bankers out there.

Market Snap

Market Wrap

A weak BTC market has led to a much greater sell-off in alts exacerbated by the liquidation of a bunch of leveraged children, as always. The techies are out in force, selling their snake-oil to the naïve on the nonsensical basis that “everything is in the price”. Clearly, it isn’t, not least because the purchasers of snake-oil use leverage, both a nuance and an irony that simply passes them by.

Curious Cryptos’ meme corner

h/t The Milk Road

Curious Cryptos’ Commentary – Arthur Hayes

Arthur’s latest essay contains a lot of jargon, a lot of TLAs, and touches on several concepts I suspect are alien to most normal people, and certainly to those who have not had a career in banking:

https://cryptohayes.substack.com/p/hallelujah#poll-400039

But the points he makes are valid, so I am going to do my best to simplify it all for you, with some added context that I feel is relevant.

Much of the essay is a discussion of the marginal buyer for US debt, which turns out to be hedge funds based in the Cayman Islands. These buyers are using the cash and carry trade to make very tiny margins – buy the treasury bond, sell the future, and make a basis point or two. The margins are so tight that the trade is done not only in size, but it must also be leveraged.

This worries me, for it is the cash and carry trade that took down LTCM in the 1990s causing financial pain globally, and one day it will take down the algorithmic stablecoin at the heart of the Ethana ecosystem. But until that happens, everything looks rosy in the garden.

So, how do the hedge funds leverage the trade? Well, they borrow money in the repo markets by pledging the treasuries as collateral. The lenders of that money range from money-market funds to commercial banks to – yep, you’ve guessed it – the US government itself. And it is the latter that is doing the heaving lifting, The government prints money, lends that money to hedge funds, who lend it back to the government by buying government debt, which then fritters it away as it sees best. This is why it is called fiat money (fio, fieri, factus sum. Third person singular, present, subjunctive and clearly passive – “Let it be made”).

The US deficit this year is predicted to be just shy of $2 TRILLION which must be financed by the Cayman Island hedge funds. This number is dwarfed by the need to roll-over $9 TRILLION of maturing debt, which again must be financed by the Cayman Island hedge funds. $11 TRILLION created every year out of thin air is a lot of extra liquidity going into the markets.

And that number will only grow. After Elon Musk’s futile attempts to cut $2 TRILLION of spending from the annual budget of $7 TRILLION – thus at least stabilising the amount of debt at current levels – no US politician is ever going to advocate to cut government spending, quite the opposite.

The current on-balance sheet debt (the off-balance sheet debt is many multiples more) of $37 TRILLION (including $7 TRILLION the US government owes to … the US government) is on an ever-increasing trajectory and is increasingly funded by the government itself. Madness, utter madness, but great for the value of hard assets versus the dollar over any reasonable timeframe.

…

But that’s a medium-term view. One might wonder why crypto markets have not pushed on to new ATHs since early October.

Arthur blames that on the current US government shutdown, and specifically the ever-growing TGA balance. This is the rainy-day fund that the government uses for short-term cash requirements, and it is rapidly growing because of the shutdown. It is reasonable to expect that when the shutdown ends, that extra liquidity immediately returns to the markets, giving a short-term boost to all asset prices.

Now, I cannot claim that Arthur can be described as an unbiased observer of the crypto markets, but it is worth pondering his conclusion anyway:

“Given that the four-year cycle anniversary of the 2021 Bitcoin all-time-high is nigh, many will mistake this period of market weakness and ennui as the top and dump their stack. That’s assuming they weren’t deaded (sic) in the altcoin collapse a few weeks back. That is a mistake, the dollar money market plumbing doesn’t lie. This corner of the market is shrouded in obtuse jargon, but once you translate the lingo into print money or destroy money, it becomes quite easy to know how to dance.”