US Treasury yields are approaching 5%, and Hayes deduces the top three trends in BTC
According to Woofun AI, US Treasury Secretary Scott Bessent is facing a serious challenge where the 10-year US Treasury yield is approaching the 5% sensitive line. This macroeconomic pressure forced the authorities to re-examine liquidity management strategies, which in turn triggered deep deductions about potential trends in the global risk asset market, particularly the crypto market.
The first scene of the story is set on an iconic night at Brooklyn's renovated Mirage Club, now renamed New York's Pacha Club, regarded as the heart of the American hegemonic order. The top elites gathered here and swayed along with Keinemusik's melody. The main character of the story, Scott Bessent, dubbed “Bill the Bison,” went straight to the exclusive deck behind the DJ in the VIP area, and ridiculed the rhythmic sense of the group of white people in front of him. At this point, Citadel's Kenny G was live celebrating his defeat of Leopold Aschenbrenner from San Francisco, a highly leveraged betting market. Bessent noticed that the gorgeous woman close to Kenny G was actually Leopold's wife, and the thrill of humiliating his opponent made him feel a little balanced.
However, to his surprise and annoyance, Kenny G was sitting next to his predecessor, former US Treasury Secretary Janet Yellen. Yellen was talking to Hunter Biden and waved to Bessent. Bessent's heart was full of imbalances, wondering how she could afford the $20,000 card, and immediately realized the profit margins behind her government tenure. Through the hustle and bustle, Yellen mocked the laughter of former Vice President Kamala Harris, saying that he was nothing more than a puppet of Trump.
Afterwards, Yellen let loose. Her male partner was wearing a diamond dog collar customised by Jacob the Jeweler, whispering the lyrics of Cardi B and holding Reta in her hand. An angry Bessent passed by Arthur and Ansem's decks, and a group of crypto gamblers were talking loudly. Arthur waved to Bessent, saying that the crypto community supported him and called on him to insist on printing money; otherwise, the market crash would cause the rich to lose their dividends, ordinary people get nothing, and may even face the risk of AOC raising taxes.
At this moment, Bessent made up his mind to become the finance minister doing his best. If Trump needs 10 trillion dollars to support the market, he will do it at any cost.
The camera switches to the level of macrologic. Regardless of differences in rhetoric before taking office, Janet Yellen and Scott Bessent are essentially the same type of people. They are all constrained by politicians who are passionate about spending money, but they think the cost of holding the highest financial power in the US is affordable. Every time the treasury bond market shakes violently, they come up with sophisticated money printing strategies. When the Ministry of Finance reduces treasury bond yields by printing money, it releases dollar liquidity to the market, and this liquidity eventually flows into the Bitcoin and crypto markets.
Hayes compared two periods of history: Yellen issued a large number of short-term treasury notes at the end of 2023 to reduce the supply of long-term bonds, and now Bessent interferes with the USD/JPY exchange rate and expands the scale of treasury bond repurchases. In both of these operations, Bitcoin rebounded strongly from its low point. Both Yellen and Bessent are extremely afraid that the 10-year US Treasury yield will approach 5%, because this is the most important pricing anchor in the American financial order, where interest rates on 30-year fixed mortgages, corporate bonds, and various consumer credit products are anchored. Once the yield exceeds 5%, the financing costs for residents and businesses will be unbearable, and economic activity will cool down. This is also the reason why the supervisory authorities are desperately trying to keep up with this hurdle.
An in-depth analysis of Yellen's operating mechanism at the end of 2023. At the time, American voters were most concerned about the cost of living. The Biden team knew that cutting interest rates or expanding the table would trigger inflation expectations, so as the 2024 election was imminent, the government had to take into account voter pressure. Yellen conceived a sophisticated set of disguised money printing operations designed to provide liquidity to the market while being ostensibly inconspicuous. At the time, about 2.5 trillion US dollars were deposited in the reverse repurchase of RRP. This capital lay on the Federal Reserve's balance sheet and could not be repeatedly pledged by banks to derive credit, and the currency multiplier was equal to zero.
However, if the IMF MMF transfers funds from the RRP to buy T-bill, a short-term treasury bill with a higher yield, the banking system can re-pledge this asset. Liquidity then poured into the bond market to depress yields and push up stock prices, leading to the bottom of Bitcoin after FTX's bankruptcy. Short-term treasury notes have a term of less than one year and are more liquid and more attractive to the IMF because their yield must be slightly higher than reverse repurchase RRP to cover policy risks. Theoretically, lending to the US government in dollars is risk-free, but in reality, debt repayment requires congressional approval. The farce about debt ceilings affects market nerves, and investors are unwilling to hold securities with uncertain maturity payments. As a result, by expanding the supply of short-term treasury notes, Yellen caused securities prices to fall and yield to a level significantly higher than RRP, and profit-seeking monetary funds moved capital from reverse repurchases and completed the release of liquidity.
Woofun AI collated the data and showed that this conduction logic was clearly verified in data. When Bessent took office on 2025-01-20, the RRP balance had shrunk from $2.5 trillion to $100 billion, which is equivalent to $2.4 trillion in liquidity investment, funded by the pandemic stimulus plan. Large amounts of capital poured into financial markets, driving the NASDAQ 100 and Bitcoin prices to take off. The 10-year US Treasury yield quickly fell from a dangerous 5%, while the federal funds rate remained around 5.3% without a reduction during the same period.
This phenomenon explains why Bitcoin and risk assets are still rising sharply against the backdrop of the Federal Reserve maintaining the highest interest rates since 2008 and shrinking. The academic community coined the term ATI-Activist Treasury Officials to describe Yellen's magic operation, that is, to proactively issue debt from the Treasury. The root cause of the market's optimistic expectations is this shift in liquidity structure. If crypto traders don't understand this logic, they will miss out on a new round of bull markets.
Currently, Bessent is facing the exact same dilemma as Yellen, and his boss is keen to spend a lot of money on names such as the Middle East War. Although the name of the president's spending money doesn't matter, the finance minister's job is to help the government borrow money at an affordable cost. Short-term treasury notes are the most profitable and most secure quasi-cash instrument in the US dollar system. Everyone is willing to hold them, including stablecoin derivatives such as USDT and USDC held by the crypto community. Bessent knows that the market can eat a large number of short-term treasury bonds, but the problem is that short-term bonds expire within a year. The higher the share, the faster the debt compound will roll. Every week, the Treasury issues more and more debt to cover new expenses and repay old debts, leading to an accelerated expansion in the size of America's total debt.
By increasing the share of short-term treasury bills, Bessent can leverage the most important marginal buyer, the Federal Reserve. Currently, the Federal Reserve creates bank reserves through the Reserve Management Plan RMP and prints money to buy short-term treasury notes. The RMP monthly purchase scale is determined by New York Federal Reserve Chairman Williams, who favors easing, or “dovish” in the words of the Federal Reserve. If Williams determines that the market lacks dollar liquidity, it will order traders to create reserves to buy short-term treasury notes on the open market. Essentially, the Federal Reserve prints money to pay for politicians' bills. With the Federal Reserve taking over, Bessent can issue a large number of short-term bonds, get capital to buy back medium- and long-term bonds, and wantonly manipulate the yield curve.
Looking back at recent policy actions, as early as the “Liberation Day Incident” last year, Bessent hinted at holding treasury bond buybacks as a powerful weapon. At the time, Trump once wanted to use aggressive tariffs to rewrite the global trade pattern, but after the market plummeted, Bessent warned the market not to test its policy tools. More than a year later, Bessent actually took action and announced large-scale repurchases to force down long-term yields. On August 19, Bessent announced without warning that the scale of long-term bond repurchases in the next fiscal quarter would increase by an additional $20 billion. As soon as the news came out, the 10-year yield declined briefly, and Bitcoin rallied strongly for two consecutive days.
However, after just one trading day, the 10-year US Treasury yield once again surpassed the level before the policy was announced, which is why Bessent was unhappy at the party. First, the $20 billion buyback is worth nothing compared to the total debt of $40 trillion. Second, the market sensed a signal of panic. A few weeks ago, Bessent proposed abolishing the limit on the FIMA instrument to allow Japan and other major US bondholders to use their Chinese and US bonds as collateral to borrow dollars directly from the Federal Reserve instead of selling bonds and smashing the market in the open market. Finally, the market believes that as long as the 10-year yield is pushed upward, it will force Bessent to replicate Yellen's approach and inject trillions of dollars in liquidity into the market.
In terms of market psychology, Bitcoin is seen as a smoke alarm for global liquidity, and this signal has been keenly captured. If Bessent were an upgraded version of Yellen, Bitcoin would start a wild market from a low point. There are several evolutionary paths that follow. For assets such as Bitcoin, which are highly sensitive to the liquidity of the US dollar, the worst scenario is that US politicians, led by Trump, chose to reduce fiscal spending, but considering that a new round of elections is not far away, this probability is extremely low. Leaving aside post-apocalyptic fantasies, Bessent has a variety of ways to activate the money printing machine. The best scenario for Bitcoin is: Bessent followed the Bank of Japan's bond market intervention model and announced to the outside world that as long as the yield of 10-year bonds is above 5%, they will repurchase bonds without limit. In the early days of the news, the price of long-term bonds skyrocketed and yields fell rapidly, and the market would temporarily be in awe of Bessent. However, any intervention that violates the laws of the market economy will eventually be tested, and the market will test whether Bessent is actually willing to use the dollar cannon to deliver on its promises.
The most likely intermediate route is that unless the MOVE Volatility Index breaks through 130 and the market is under acute pressure, Bessent will step up repurchases in small steps while exploiting other unpopular tools to release liquidity in disguise. One obvious method is to use TGA funds from the Treasury General Account to support the buyback. Bessent has leaked the proposal to CNBC, and the TGA account holds about $1 trillion. Hayes believes that unless the AI credit bubble actually bursts in the next few years, it will be difficult for the Federal Reserve to directly cut interest rates or restart unlimited QE at the political level. Voters' biggest concern is still the cost of living. Now even young people who post short videos understand that interest rate cuts and QE are tantamount to printing banknotes. Therefore, regardless of whether Bessent releases water quickly or gradually, Bitcoin will eventually continue to rise, and the volatility will increase. Even if the general direction is upward, there will still be a ferocious short-term correction.
Based on the above deduction, the investment strategy advice is clear: don't use leverage unless you are a full time trader. You should buy Bitcoin or a small currency you are optimistic about, hold on, and wait for Bessent's policy to ferment. Within the Maelstrom Fund, a risky asset strategy has been adopted. The core bets include Bitcoin, Ether, Ethena, and Ether.fi, and expect them to run wild. This is another typical example of a rise in crypto assets driven by fiscal policy, following the restructuring of liquidity during the Yellen period. Market participants need to pay close attention to the joint actions of the Ministry of Finance and the Federal Reserve.