Original title: The Butterfly Touch
Original by:Arthur Hayes, BitMEX
This post is part of our special coverage Libya Protests 2011

 

AI OPTIMISM

CAPITAL SPENDING (CAPEX) IN SUPPORT OF AI MODEL TRAINING AND REASONING IS UNPRECEDENTED IN THE HISTORY OF HUMAN CIVILIZATION. MANY BELIEVE THAT THIS INVESTMENT IN INTELLIGENCE WILL CREATE A VALUE FOR HUMANITY THAT IS DIFFERENT FROM ALL PREVIOUS TECHNOLOGICAL DEVELOPMENTS. I AGREE; HOWEVER, AS HUMAN BEINGS, WE WILL ALWAYS OVERDO IT. IN THIS UNIVERSE, INFINITY AND PERFECTION ARE BEYOND REACH. THEREFORE, WE MAY BUILD SURPLUS IN ANTICIPATION OF A FUTURE DRIVEN BY MACHINE INTELLIGENCE。

AI ADVOCATES HAVE INVOKED NATIONALISM AS A JUSTIFICATION FOR EXCESSIVE SPENDING OF MONEY, BUT PATRIOTISM SHOULD NOT BE PRICED ... BOTH UNITED STATES AND CHINA BELIEVE THAT AI AND TECHNOLOGICAL HEGEMONY ARE ESSENTIAL TO THE SURVIVAL OF THEIR TERRITORIES。

THE TECHNOLOGISTS ARE ALSO VERY HAPPY TO SELL THEM STORIES OF TERROR: WHAT WOULD HAPPEN IN THIS COUNTRY IF EACH OTHER FIRST GAINED THE POWER OF MACHINE INTELLIGENCE? OBJECTIVELY, BOTH LEADERS HAVE WITNESSED AND ARE CONVINCED THAT THE SPREAD OF AI AND DRONES IS A VICTORY. THEREFORE, THEY WILL ENSURE THAT THE PRIMARY OBJECTIVE OF THE ECONOMY AND THE MILITARY IS TO FURTHER BUILD THE MOST EFFICIENT MACHINE INTELLIGENCE WITHIN THE COUNTRY。

IN THE UNITED STATES, MOST OF AI CAPEX SO FAR COMES FROM OPERATING CASH FLOWS FROM THE MOST PROFITABLE SOFTWARE COMPANIES. HOWEVER, GIVEN THE SCALE OF CURRENT AND FUTURE EXPENDITURES, ADDITIONAL FINANCING THROUGH CREDIT CHANNELS IS ALSO NEEDED。

In China, banks are slowing down the financing of real estate and moving towards financing the science and technology sector. In addition to data centre-related expenditures, both countries continued to invest in increasing the supply of electricity。

In other words, central banks are creating more currency and relaxing financial conditions。

THE COMBINATION OF POLITICAL WILL (TO WIN THE AI COMPETITION) AND FINANCIAL WILL (TO FINANCE CONSTRUCTION THROUGH PRINTING AND LOANS) CREATES A PERFECT ENVIRONMENT FOR ENCRYPTED CURRENCY。THERE WILL BE FAR MORE FRENCH UNITS TOMORROW THAN TODAY, AND THE RATE OF CHANGE IS ACCELERATING BECAUSE OF THE DRAMATIC INCREASE IN AI AND ELECTRIFICATION SPENDING. AS UNIT SMART COSTS FALL, AI BECOMES MORE COMPLEX IN CARRYING OUT TASKS, WHICH MEANS AN EXPONENTIAL INCREASE IN COMPUTING CONSUMPTION; THAT IS THE ESSENCE OF THE “JEVENS PARADOX”。

AND THERE'S THE RED QUEEN EFFECT: AS COMPETITORS IMPROVE THE EFFICIENCY OF MODELS, AI CAPEX, A COMPANY'S INPUT, IS RAPIDLY DEVALUED. THIS HAS LED TO FURTHER INCREASES IN SPENDING TO CREATE BETTER MODELS TO DEFEAT RIVAL COMPETITIONS, WHILE ALSO MAKING OBSOLETE THE HUNDREDS OF BILLIONS OF DOLLARS INVESTED BY RIVALS, WHICH WILL SOON REACH TRILLIONS OF DOLLARS. THUS, UNLESS HAMPERED BY EXTERNAL MARKET EVENTS, AI CAPEX SPENDING WILL EXPAND INDEFINITELY。

When will this party end

I THINK TWO EVENTS WILL HAPPEN ALMOST SIMULTANEOUSLY AND CHANGE THE PERCEPTION OF THE NEED FOR TRILLIONS OF DOLLARS TO BUILD AI。

Market indigestion:A LARGE AND FINANCIALLY IRRESPONSIBLE AI-RELATED IPO OR LARGE-SCALE M&A OCCURS, MAKING THE MARKET UNSUSTAINABLE. THIS WILL AWAKEN THE MARKET FROM FANATICISM, AND PEOPLE BEGIN TO QUESTION WHETHER MACHINE INTELLIGENCE REALLY IS WORTH SO MUCH。

Political change:UNITED STATES GENERAL ELECTIONS 2028. THE INCREASE IN THE PRICE OF RAW MATERIALS, LABOUR, ESPECIALLY ELECTRICITY, RESULTING FROM LARGE-SCALE CONSTRUCTION HAS NOT BEEN WELCOMED IN MANY AREAS. IN ADDITION, 90 PER CENT OF AMERICANS DO NOT HOLD LARGE SHARES AND CANNOT BENEFIT FROM SOARING STOCK PRICES. POLITICALLY, IT IS EASY TO RAISE VOTES BY OPPOSING AI, FOCUSING ON HUMAN LABOUR VALUES AND CURBING INFLATION。

But at this time, the liquidity of the dollar and the renminbi will continue to rise。BitcoinAnd encrypted money will benefit。

Every country, every one of them

The bombings of Iran by Trump do not care about the impact of war on the global economy. Or he may care, but the assumption that this year's “special military operation” will win quickly has proved overly optimistic. The United States has God-given cheap energy (fossil fuels) and fertile agricultural land. Things may become expensive, but even if the Strait of Hormuz is partially closed, Americans will not go hungry — unless politicians decide to spend money on Fallujah instead of food vouchers。

But people in most parts of Europe, Africa and Asia are less fortunate. Unfortunately, the political elites of these countries wrongly believe that American politicians will take into account their food deficit when deciding whether to launch another war that threatens the flow of basic commodities. Because of their trust in the United States, those countries had stored surpluses in United States dollar financial assets, not in the construction of pipelines, trade routes or the accumulation of essential goods。

Marco Papic from BCA Research said the best:

“The whole planet — literally — is connected to American hegemony ... Why is Germany's defense inadequate for Russia? Because America. Why do most Gulf countries have little energy transport infrastructure to avoid the Strait of Hormuz? Because America. Why is global manufacturing concentrated in China? Because of the United States.”

BECAUSE OF THE LACK OF ACCESS TO FERTILIZERS OR FUEL, INVESTMENT DECISIONS IN THESE COUNTRIES WILL CHANGE DRAMATICALLY. WHEN YOU DON'T HAVE ACCESS TO FOOD AND ENERGY BECAUSE YOU'RE NOT INVOLVED IN A WAR, IT'S POINTLESS TO HAVE A US TREASURY DEBT OR 500 ETF. IN ORDER TO REMEDY THOSE SHORTCOMINGS, SOVEREIGN STATES WOULD IN THE FUTURE BE MARGINALIZING DOLLAR ASSETS AND INVESTING IN INFRASTRUCTURE, DEFENCE AND PHYSICAL GOODS。

This is a problem for the financial markets of the United States because of the large share of foreign holdings。If left unchecked, the slow liquidation of United States dollar assets would lead to a decline in the market. US Treasury Secretary Bessent and other decision makers understand this. They have two options: to encourage the use of dollar swaps or to modify banking regulations。

“By” Australia:Selling American debt to buy aviation kerosene。

"Good" Australia:FromFederal ReserveBuying aviation kerosene in United States dollars。

If the United States market needed more incentives to offset sales by sovereign countries, regulation could be relaxed to allow banks to hold more United States debt and equity. The easing of capital requirements associated with eSLR (complementary leverage ratio) is an initiative in this direction。

Since the establishment of the oil dollar system in the 1970s, saving surplus in dollar assets has been “best practice”. But today, holding dollar assets no longer ensures that you get a boat of fertilizer or oil. Just-in-time is dead and just-in-case is alive. This is a structural trend that will continue for decades. This means that monetary policymakers must maintain a liberal financial environment in order to fill the gap left by foreigners who invest savings in physical infrastructure rather than in “false dollar financial assets”。

Higher plus Longer

WAR IS INFLATIONARY, AND THE AMERICAN-IRANIAN CONFLICT IS NO EXCEPTION. AI CAPEX AND INFRASTRUCTURE DEVELOPMENT ARE PRETEXTS FOR INCREASING LENDING. POLITICIANS SUPPORT THE PRINTING OF BANKNOTES OUT OF REAL AND PERCEIVED NEED. THAT IS WHY THE BITCOIN AFTER FEBRUARY 28 OUTPERFORMS OTHER MAJOR RISK ASSETS, SUCH AS GOLD AND THE USU。

Bitcoin hit the bottom of $60,000 earlier this year, backed by trillions of uncreated dollars and renminbi$126,000 is already a nailI don't know. Many black men refuse to participate in this turn, because the past 24 months have been worse for bitcoin than for technology and gold. They do not understand why bitcoin is still valid as an instrument of currency abuse. However, it will demonstrate extreme sensitivity to the expansion of French currency liquidity. I expect the increase to increase, and when there's a breakthrough of $90,000, and many prospective vendors are forced to settle, the trajectory will become explosive。

I don't know how high a bitcoin can go, but I'll push Maelstrom's portfolio risk to the top, unless it changes dramatically. By the mid-November elections, America’s political attitude towards AI and inflation could have become very bad, which could have been a little bit of a pull-up。

BUT REMEMBER: HIGH OIL PRICES HAVE NOT HURT TRUMP AS MUCH AS ONE MIGHT THINK. MAGA IS DESTINED TO LOSE IN CALIFORNIA (WHERE ENERGY POLICIES LEAD TO THE HIGHEST OIL PRICES IN THE UNITED STATES), BUT $100 IN CRUDE OIL AND THE RECONSTRUCTION OF INFRASTRUCTURE IN VENEZUELA, THE MIDDLE EAST, WILL BENEFIT THE OIL AND GAS INDUSTRY IN THE STATE WHERE TRUMP’S SUPPORTERS LIVE. TRUMP STILL HAS TIME TO WIN A SECOND TERM AS LONG AS THE MONEY'S IN HIS POCKET. SO GO, BABY, POP 500 HEADING TO 10,000 POINTS

Time to playYamamoto(Shitcoin) Out。Except for what we already haveOutside Hyperliquid ($HYPE) and Zcash ($ZEC)My next favorite species is$NEARI don't know. In my next article, I will explain our argument as to why “private narratives” combined with “Near Intens” would create a positive cash flow for the agreement. That would completely reverse the low price performance of the currency and create an enormous opportunity for retrogression, which would rapidly push it to the highest point in history many years ago。

It's Bullstown; close your eyes and press the buy-in button. There will be times to sell, but not now. Don't screw it up, let's go crazy together。