Editor's note: In Arthur Hayes' latest article "The Butterfly Touch," he explicitly predicts that the liquidity of the US dollar and Chinese yuan will continue to rise, and Bitcoin and the entire cryptocurrency market will be the direct beneficiaries of this liquidity feast. In his view, the current vigorous AI foam is not a risk trap, but a core opportunity worth grasping in the encryption market.

AI optimism: Behind epic investments, there will inevitably be excessive expansion

The capital expenditure (CAPEX) supporting AI model training and inference has reached an unprecedented level in the history of human civilization. Many people firmly believe that this massive investment in the field of intelligence will create value for humanity that surpasses all previous technological constructions, and I strongly agree with this. But the essence of human nature determines that we will always exert too much force - there is no positive infinity or absolute perfection in the universe, so when we are full of expectations for the future driven by machine intelligence, we are likely to fall into the dilemma of overproduction.

Nowadays, AI advocates are citing nationalism as an excuse for squandering funds, but patriotism should not be put on the price tag. Both China and the United States regard AI technology and technological hegemony as the core key to ensuring the survival of their own territories. Tech giants are also happy to exaggerate "survival anxiety" to the high-level officials of both countries: if the other party takes the lead in mastering machine intelligence hegemony, what kind of crisis will their own countries face. Objectively speaking, the leaders of both countries have witnessed firsthand the decisive role of AI and drones in actual combat. Therefore, they will inevitably focus their primary economic and military goals on building the most efficient machine intelligence system within their borders.

From the perspective of funding sources, most of the current AI capital expenditures in the United States come from the operating cash flow of the most profitable software companies. However, considering the current and future expenditure scale, relying solely on self owned funds is far from enough, and financing must be increased through credit channels in the future. Chinese banks are gradually slowing down their support for the real estate industry and shifting their credit resources towards the technology industry. In addition, both China and the United States are continuously investing huge amounts of money to expand power supply to support the computing power demand needed for AI development.

This means that major central banks around the world are continuously creating more fiat currencies and relaxing financial conditions. The willingness to "win the AI competition" at the political level and the willingness to "support construction through printing money and loans" at the financial level have overlapped, creating a perfect growth environment for cryptocurrency. The number of fiat currencies in the future will far exceed that of the present, and the surge in AI and electrification spending is accelerating this process. As the cost of unit intelligence decreases, the complexity of tasks performed by AI continues to increase, and the consumption of computing power also increases exponentially - this is the core essence of the Jevons paradox.

In addition, the 'Red Queen Effect' is further driving the unlimited expansion of AI capital expenditures: as competitors continue to improve model efficiency, the AI capital expenditures already invested by a company will rapidly depreciate. This has sparked an endless competition - companies must continue to increase their spending and build better models to defeat their opponents, which will make the hundreds of billions of dollars invested by their opponents (soon to reach trillions) completely obsolete. Therefore, unless hindered by external market events, the expansion of AI capital expenditures will not stop.

When will this carnival end? Two key events will rewrite the landscape

I believe that two things will happen almost simultaneously, completely changing people's perception of the necessity of investing trillions of dollars in building AI and ending the current frenzy.

Firstly, the market suffers from indigestion. When a large-scale and financially irresponsible AI related IPO or massive merger occurs, the market will be unable to undertake it, and the frenzy will instantly cool down. People will wake up from blind optimism and begin to question rationally: Is machine intelligence really worth such a huge investment?

Secondly, there has been a shift in political direction. The 2028 US election will be an important turning point: the large-scale construction of AI has pushed up the prices of raw materials, labor, and especially electricity, which is not popular among the public in many regions. In addition, 90% of Americans do not hold a large number of stocks and are unable to benefit from the AI driven surge in stock prices. At the political level, it will be extremely easy for politicians to campaign with slogans such as' anti AI, focus on human labor value, and curb inflation '.

But it must be clear that before these two major events occur, the liquidity of the US dollar and the Chinese yuan will continue to rise, and Bitcoin and cryptocurrencies will continue to benefit from it.

Every country, sweep the snow in front of their doors: collapse of faith in US dollar assets, reconstruction of global investment logic

The Trump administration's bombing of Iran did not take into account the impact of the war on the global economy; Even with some consideration, the assumption that this year's "special military operation" can quickly win has been proven to be overly optimistic. The United States has unique advantages - abundant and inexpensive fossil fuels, as well as fertile farmland. Even if the Strait of Hormuz is partially closed and prices rise, Americans will not face hunger unless politicians choose to invest funds in war rather than for livelihood security.

But people in most parts of Europe, Africa, and Asia are not so lucky. Unfortunately, the political elites of these countries make a fatal mistake: they believe that American politicians will consider their food and energy shortages when deciding whether to launch another war that threatens the flow of basic commodities. Out of trust in the United States, these countries store a large amount of trade surplus in US dollar financial assets, but neglect to build energy pipelines, trade routes, or stockpile essential goods such as food and energy.

Marco Papic from BCA Research has a very insightful evaluation of this: "The entire Earth - literally - is connected for American hegemony... Why is Germany's defense insufficient for Russia? Because... the United States. Why do most Gulf countries have almost no energy transportation infrastructure to avoid the Strait of Hormuz? Because... the United States. Why is global manufacturing concentrated in China? Because... the United States

When these countries cannot obtain fertilizer or fuel due to a war they have not participated in, it becomes meaningless to hold US treasury bond bonds or S&P 500 ETFs. In order to make up for their own shortcomings, sovereign states will gradually liquidate their US dollar assets in the future and instead invest funds in infrastructure construction, defense security, and physical commodity reserves.

This is undoubtedly a huge hidden danger for the US financial market - after all, foreign countries hold a large amount of US dollar assets. If US dollar assets are allowed to continue to be liquidated, the market will inevitably experience a decline. US Treasury Secretary Bessent and other decision-makers are well aware of this and have two response plans: one is to encourage the use of US dollar swap quotas, and the other is to modify banking regulatory regulations.

This is like the choice between "two types of Australia": the "bad" choice is to sell US bonds to buy aviation kerosene; The 'good' option is to borrow US dollars from the Federal Reserve and then purchase aviation kerosene. If the US market needs more momentum to offset the selling pressure from sovereign countries, regulators can relax regulations and allow banks to hold more US bonds and US stocks - the relaxation of capital requirements related to eSLR (Supplementary Leverage Ratio) is a step in this direction.

Since the establishment of the petrodollar system in the 1970s, investing surplus savings into US dollar assets has been regarded as the "best practice". But now, holding US dollar assets can no longer guarantee obtaining a ship of fertilizer or oil. The era of just in time logistics has come to an end, and the era of just in case has officially arrived. This is a structural trend that will continue for decades, and it also means that monetary policy makers must maintain a loose financial environment to fill the gap left by foreigners investing their savings in physical infrastructure rather than "virtual dollar financial assets".

Higher+longer: Under loose liquidity, the cryptocurrency bull market has become a foregone conclusion

War is inherently inflationary, and the US Iran conflict is no exception. And AI capital expenditure and infrastructure construction have become excuses for countries to increase lending and expand the money supply. Politicians tacitly approve or even support printing money due to the necessity of reality and perception - this is also the core reason why Bitcoin has performed better than other major risk assets such as gold and US tech stocks since February 28th.

Earlier this year, Bitcoin hit bottom in the $60000 range, supported by trillions of dollars and yuan that have yet to be created. Its return to $126000 is now a certainty. Many bearish investors refuse to participate in this round of market trends simply because Bitcoin's performance in the past 24 months has not been as good as that of technology stocks and gold, but they overlook the core value of Bitcoin as a "hedge against fiat junk issuance" - its sensitivity to fiat liquidity expansion, which will be fully reflected in this round of market trends. I expect that the rise of Bitcoin will continue to intensify, and when the price breaks through $90000 and a large number of call option sellers are forced to liquidate their positions, its upward trajectory will become extremely explosive.

I don't know how high Bitcoin will eventually rise, but I will adjust Maelstrom's investment portfolio risk to the highest level, unless there is a major change. By the midterm elections in November, the attitude of the US political class towards AI and inflation may become extremely hostile, which may become a small obstacle in the process of Bitcoin's rise.

But please remember: the harm of high oil prices to Trump is not as great as people imagine. The MAGA camp is destined to lose in California - where energy policies have led to the highest oil prices in the United States, but the $100/barrel crude oil price, as well as infrastructure reconstruction in Venezuela and the Middle East, will greatly benefit the oil and gas industry in the state where Trump supporters are located. As long as it can make the pockets of ordinary Americans bulge, Trump still has time to win re-election. So, go ahead baby, the S&P 500 is heading towards 10000 points!

The timing for layout has arrived: the frenzy of counterfeit coins has begun, seize the opportunity to make up for the rise

Now, it's time to lay out Shitcoin. Besides our already heavily stocked Hyperliquid ($HYPE) and Zcash ($ZEC), my next most promising variety is $NEAR. My next article will elaborate on the core logic: why the combination of "privacy narrative" and "Near Intents" will create stable positive cash flow for the protocol. This logic will completely reverse the long-term sluggish price performance of $NEAR, creating a huge opportunity for it to make up for the decline and quickly reach its historical peak many years ago.

At present, the bull market has been established. Close your eyes and press the buy button. There will always be a time to sell in the future, but definitely not now. Don't mess it up, let's go crazy together in this bull market.