Arthur Hayes on Tuesday warned in his essay “The Butterfly Touch” that AI could become one of the biggest political fights in America before the November midterm elections, especially if rising power costs, job fears, and inflation keep hitting the middle class.
Arthur added that Bitcoin is already beginning to price itself accordingly. He pointed out that the bull run is directly connected with the American bombing of Iran that took place on February 28, and that there will be an influx of additional dollars and yuan into the economy, as both America and China continue to invest in data centers, energy, chips, military equipment, and disaster relief infrastructure.
Arthur says AI spending will hit voters before the midterms and force more money into Bitcoin
According to Arthur, the rise of AI is not simply a passing trend within the world of technology. In fact, he believes that the U.S. and China have begun to see artificial intelligence as a way to gain an advantage over each other through power games, ensuring that both Donald Trump and Xi Jinping continue to fund its development.
“The politics in the US will turn very nasty towards AI and inflation going into the November mid-term elections.”
Arthur explained that the large software companies financed the initial AI wave with their cash flows. It is not sufficient for the next stage.
For the next stage, credit will be required, which means involvement of the Federal Reserve System, the People’s Bank of China, and commercial banks. China has already encouraged banks to move from real estate financing to tech financing.
The U.S. also supports data centers and increases electricity production.
“Central or commercial banks will provide the capital the tech bros require.”
However, according to Arthur, it is beneficial for cryptocurrency since fiat creation continues. Moreover, he claims that AI tools are becoming cheaper; thus, firms are employing more computing power rather than reducing expenses. Arthur named this phenomenon “Jovan’s Paradox.”
He also introduced the “Red Queen Effect” to account for rapid growth in artificial intelligence investments: once an enterprise creates a superior model, its competitors react, and yesterday’s expensive computers become obsolete.
“There will be vastly more units of fiat tomorrow than today, and the rate of change is accelerating due to rapidly increasing yearly AI and electrification CAPEX expenditures.”
Arthur pointed out that AI party would come to an end if the excessive growth of any firm’s initial public offering or mega-mergers exceeds market capacity.
In addition, he argued that the candidate of the Democratic Party could strongly criticize artificial intelligence in 2028.
They may defend manual work while criticizing the inflation created by data centers. Arthur emphasized that only ten percent of Americans own enough securities to benefit from the AI era. Thus, discontent might grow dramatically when prices increase.
Arthur says war, dollar stress, and supply-chain fear will keep liquidity loose
Arthur explained that one thing was clear from the Trump-Iran war, which is that many nations relied on American dominance way too much.
Rather than putting their resources into concrete assets such as pipeline construction, fuel corridors, food storage, fertilizers, and military defenses, they put all their eggs in the basket of paper money, US Treasury Bonds, US equities, and S&P 500 exposure.
“There is no point in owning a US treasury or S&P 500 ETF when you cannot obtain food and energy because of a war you didn’t start and with which you disagree.”
Arthur cited Marco Papic of BCA Research, who said the world was built around American power.
Marco listed Germany’s weak defense, Gulf energy routes through Hormuz, China’s role in global manufacturing, Australia’s fuel dependence, and Canada’s reliance on US demand as examples of systems built under US protection.
“This is a big problem for the rest of the world as the entire planet is – quite literally – wired for American hegemony.”
Arthur added that it is possible that some nations may begin to dump dollar assets to finance real security. Such an event can destabilize the US markets because foreign funding assists in financing America’s deficits.
In such circumstances, the US government can utilize dollar swap facilities that allow friendly nations to borrow dollars rather than sell their dollar reserves.
Moreover, regulatory bodies can relax regulations related to the eSLR requirement, which allows financial institutions to increase investments in Treasuries and stocks with reduced capital.
He explained that keeping national funds in dollar reserves started back in the petrodollar age in the 1970s and became more popular after the Asian Financial Crisis of 1997-1998.
In his view, today the “just in case” approach dominates instead of the previous “just in time” approach in international trade.
Arthur believes that Bitcoin has already beaten gold, the Nasdaq 100, the IGV ETF, and US tech equities since February 28.
It is expected that the cryptocurrency has bottomed at $60,000, may rise to $126,000, and the rally may be excessive beyond $90,000 due to covering call sellers.
“I have no fucking idea how high Bitcoin can go, but I will take Maelstrom’s portfolio to maximum risk unless anything drastically changes,” said Arthur.
