The End of the Carry Trade: A $1 Million Bitcoin Scenario

Bitcoin as the Lifeboat: How Asia Could Trigger a U.S. Treasury Crisis

By Arthur Hayes – Explained and Adapted

*�🇸💸 The Setup: Why the Carry Trade Keeps the Dollar Strong

For years, Asian investors—both sovereign and private—have poured capital into U.S. assets, especially long-term Treasury bonds. They do it for yield. The interest rate difference between the U.S. and their local economies (i.e., the “carry”) makes holding dollar-denominated bonds attractive—even without hedging against currency risk.

But here’s the catch: this only works while U.S. yields are significantly higher. If that spread shrinks, the carry trade begins to break down.

*� The Flip: When Capital Reverses Course

If Asian currencies begin to strengthen—due to shrinking rate differentials or a weaker dollar—capital will start flowing back home. Investors will sell U.S. assets, convert dollars back into local currency, and repatriate capital.

The first target? 10-year U.S. Treasuries.

That’s because:

Long-term debt is riskier when inflation and rates are volatile.

No one wants to hold long bonds when capital controls become more likely.

As selling pressure builds, yields on 10-year Treasuries will rise. This is the first major signal of systemic stress. Critical danger zone: If yields cross 4.5–5%, the over-leveraged financial system starts to crack.

*� Volatility, MOVE Index, and Regulatory Panic

Once 10-year yields start spiking, bond market volatility will surge. That’s reflected in the MOVE Index—a “VIX for bonds.” If the MOVE Index crosses 140, expect fast and aggressive intervention by central banks.

Meanwhile, Asian central banks (like those in Taiwan and South Korea) may stop defending their weak currencies, leading to a stronger won and New Taiwan dollar. That hurts exports, but becomes politically inevitable.

If Asian players start exiting the carry trade, others will follow—especially before capital controls are officially introduced. The smart money always moves first.

*� Enter Bitcoin: The Lifeboat in a Balkanized World

As the world drifts further into financial “balkanization” (fragmentation of global capital flows), capital controls will become the norm—even in the U.S.

No longer will you be able to assume your capital can move freely to the safest, most profitable fiat assets. In the past, gold served as the universal reserve. But today, Bitcoin is emerging as its digital successor.

Even in countries like China, where centralized exchanges have been banned since 2017, over-the-counter (OTC) markets remain active. Bitcoin can’t be banned as long as the internet is functioning.

That’s why:

Gold = State-level neutral asset

Bitcoin = Private-sector neutral asset

*� What Happens When Capital Moves into Bitcoin?

The U.S. hosts $33 trillion in foreign portfolio investments. Even 10% ($3.3 trillion) shifting into Bitcoin would be seismic.

Currently, there’s about $300 billion in BTC sitting on exchanges. A $3 trillion inflow would mean the market grows by 10x—but the price could rise by much more than 10x.

Yes, some investors will sell into strength, especially if BTC approaches $1 million. But before that happens, a massive short squeeze could launch Bitcoin into “astronomical” territory.

Why not just use gold?

Because gold needs physical or paper custodians. These custodians are bound by national laws. Bitcoin is bearer, borderless, permissionless. That makes it ideal for escaping capital lockdowns.

⚠️ Bonus Catalyst: The U.S. Will “Default” (Softly)

The U.S. has already started monetizing its debt since the 2008 financial crisis—and then at warp speed during COVID.

Now, under a potential Trump 2.0 administration, that process could accelerate again. Not through missed payments—but through inflation. Investors may get their dollars back, but those dollars will buy less.

A real default—one that devalues debt against hard assets like gold and Bitcoin—is underway.

*� Why $1 Million by 2028?

Two macro forces drive this projection:

Repatriation of foreign capital

Debt devaluation through monetary debasement

Why 2028? It’s the next U.S. presidential election. The policy future beyond that is unpredictable. If

America ever attempts a true “debt detox,” markets could collapse. That’s why Hayes urges: act before the chaos.

*� Trading Strategy (From Hayes)

As CIO of Maelstrom, Hayes says he reduced risk and moved into fiat at the end of January.

He has since started rotating back into Bitcoin.