The Crypto Game of the Midterm Elections: Analyzing the Logic Behind Trump’s Embrace of Crypto

Written by: Zuo Ye Wai Bo Shan

Old Biden has fallen in love with boomer coins again. BTC is already a debt-reduction tool, and next up is $HYPE . I am not pessimistic, but neither do I feel the excitement of participating in a mass frenzy. That is indeed how it should be: people in this world do not distinguish right from wrong; they only ever look at rises and falls.

This article is not a timely piece written to fit the occasion. The bull market has arrived, but it will rapidly collapse amid a violent bubble. The bubble itself is not frightening; what is frightening is failing to see it before prosperity, failing to participate during prosperity, gloating after it bursts, and then being left empty-handed.

For participants in financial markets, not holding the current mainstream assets is equivalent to shorting them. To short successfully, you must earn funding fees or profit from falling prices. If you earn nothing at all, it is equivalent to being driven higher by the entire market and then hunted down, bearing the market's unjust gains for nothing:

Cheap money X leverage mechanism ——> ultra-high returns

Whether it was the 2008 financial crisis or the massive liquidity injection that came with the pandemic in 2020, both created "cheap money." This is a macro backdrop we cannot interfere with. However, the "leverage mechanism" built on it is often projected onto various assets or financial products, creating a mechanism for explosive rises. $HYPE surged after being mentioned by Trump, but would opening a contract position at that point really produce major results?

Trump only tells you how the bull market will arrive, but you must know for yourself that the bull market will disappear, and how to establish yourself and survive during the precious window of opportunity.

Converting stocks into coins, benefiting the party, Trump, and the election

The United States has already become a financial theocracy. Its strikes against Iran have not progressed smoothly and are gradually turning into a turn-based game. In recent days, the conflict has shifted further into the financial and trade spheres.

The world is material. Leaving aside whether US hegemony can continue, the most important matter at present is the midterm elections. As the date approaches, this will directly determine the extent of Trump's presidential power over the next two years.

At the level of material production, the return of manufacturing to the United States is not going smoothly. The trade war against the world is merely a truce and has never truly ended. Meanwhile, new Federal Reserve Chair Warsh believes AI will go into factories to tighten screws, ultimately increasing production and lowering inflation, but this has clearly not yet become reality.

Against the dual backdrop of troubled material production and an unfavorable war with Iran, the president needs immediately visible achievements to win the midterm elections and strengthen economic data. The only remaining choice is the crypto sector.

Image caption: US Treasury debt surpasses $40 trillion

Image source: @WSJ

This is not to say that US stocks, the US dollar, and US Treasury bonds are unimportant. On the contrary, they are too important and are already overburdened. At the very least, some ammunition must be reserved for the next two years. Therefore, Trump has chosen to go all in on crypto at this moment. Put harshly, crypto is like a chamber pot: it is used when needed and discarded after use, taking on the role that Chinese real estate played before 2020.

Coincidentally, as the crypto president, Trump not only made huge profits by issuing $TRUMP coins, but also escaped a successful attack by the Democrats, because the stock trading of Pelosi and others is hardly clean either.

At this point in time, although the Democrats can obstruct the CLARITY Act, ultimately this is not a core dispute between the two parties, and the Democrats may potentially reach a compromise.

Image caption: Wave of crypto-friendly policy

Image source: @zuoyeweb3

That is why you are seeing the SEC, CFTC, Treasury Department, OCC, and other agencies intensively release positive signals on crypto policy. What matters is not the specific content, but the timing.

Crypto has already split into four branches: cryptocurrencies, prediction markets, stablecoins, and Perps:

• As an old geezer, Trump can only encourage everyone to buy BTC and other boomer coins

• Bessent wants to use stablecoins to expand the US dollar and digest US Treasury debt, making him the most normal-looking human

• The CFTC treats prediction markets and Perps as standalone trading instruments, pointing toward the trading of assets such as AI and computing power

• The SEC's cryptocurrency rules point toward restarting ICOs and relieving pressure on the already strained US stock market

Everyone is talking about cryptocurrencies, but everyone's actual direction is completely different. Yet everyone can see their own value in cryptocurrency, and that is enough.

Using this framework, we can understand Trump's intentions: before the midterm elections, he wants to create a controllable economic high distinct from the existing one. In a highly financialized country, computing power is worth more than oil, and stock prices matter more than computing power.

Image caption: The purchasing power of the US dollar continues to depreciate

Image source: @stlouisfed

Not only that, the Treasury Department has effectively bypassed the Federal Reserve and begun de facto small-scale QE, initiating buybacks to push down long-term bond yields. But all of this comes at a cost and will damage the US economy over the long term. That does not matter, however: the long term lies in the future, while the election is right in front of us.

Of course, this is the macro source of cheap money. What matters for market participation is liquidity and exit. But first, you must adopt the right mindset. Do not fantasize about using talking points to make a token appearance in social circles. The spectator mindset is unacceptable. You must participate in cyclical changes. Even if you cannot make money in the current cycle, maintaining your feel for the market, reviewing and reflecting, is what allows you to discover or even create the next cycle.

Golden September and silver October: the bull comes and goes into the sea

The section above discussed how the bull market will arrive; the section below discusses how it will disappear.

Whether I am the one writing this article or you are the one reading it, we are most likely outsiders. We can only watch the dealer deal the cards and find the right moment to check-raise. Such signals are not difficult to find.

On August 18, Arthur Hayes announced that he would become CEO of Flop and began betting on the combination of AI and crypto. Slightly earlier, on August 15, CZ once again toyed with everyone using $MarsCoin . Once or twice may be coincidence, but when Hyperliquid appears on Trump's lips, it can only mean that everyone is working hard, merely choosing different paths.

Image caption: The election has yet to move, but investment comes first

Image source: @Reuters

But they have already made their choices, and it is a time-limited bull market. As mentioned earlier, after the midterm elections, crypto will be handled coldly regardless of the outcome:

2. US stocks are the real main business. AI, computing power, and pharmaceuticals taking turns rising is what serves long-term interests, just as VC coins have a value narrative. Pure nihilism cannot inspire lasting love;

3. If Trump loses and the two chambers switch to the Democrats, a lame-duck president will be able to do even less than he can now, while the crypto billionaires who went all in on the Republicans will also suffer collateral damage, such as Justin Sun.

The White House is pushing things forward, but power does not all lie in the White House. Congress determines long-term rules, while independent regulatory agencies control the speed of implementation.

Outside of politics, we are an information source further down the chain than CZ, Hayes, and Hyperliquid. They make their moves before we enter the trap, so there will also be signals before they exit, such as the passage of the CLARITY Act.

Yes, even the passage of the bill could be an exit signal, because it would mean Trump has reached a compromise, or that the good news has been fully priced in and becomes bad news. The market's treachery has always been ruthless.

However, the great bubble has already been inflated. At present, two main threads can be seen:

2. CZ is already anxious. He is still at the table, but has already been marginalized; both the person and the product are being marginalized. The market's next moves will be bigger, and HYPE vs. Binance will continue to be the main narrative

   • Binance has started making markets, and CZ warmed up Meme on August 15. He is unable to participate in Trump's closed-door meetings or the CFTC IAC meeting, and cannot obtain a MiCA license in Europe. Therefore, mainland users will be his only effective market-making direction. Look forward to a wave of positive news

3. Binance cannot possibly be a player in the US-compliant market. Before the result comes out, all major players know this. If you do not know it, you are not a major player. Coinbase can scrape by on the single US market, while Nvidia only reached $5 trillion after listing its shares in the US. If Perps plus computing power blow up into an epic bubble, Coinbase or Robinhood could also receive multiplied benefits

4. New opportunity: the Genius Act. The Treasury Department is implementing it, while the OCC is urging banks to compromise in order to reach an agreement on the most closely watched yield distribution mechanism in the CLARITY Act. The CLARITY Act will clarify the regulatory scope and legalize third-party distribution of yields. Exchanges or public chains will therefore further become "channels or routers." Their greatest value will no longer be issuing and creating assets, but their ability to reach end users more cheaply and across a broader audience.

Image caption: CFTC IAC membership list

Image source: @CFTC

Whether Hyperliquid becomes compliant in the United States or prediction market Kalshi chooses to go public through an IPO will not be especially significant unless you buy the related assets. The reason is actually paradoxical: Americans are not short of financial trading tools. If they can tell a compelling institutional story or remove potential regulatory action, it may benefit the related assets.

However, look at the BTC spot ETF: before approval, it was eagerly anticipated by everyone; after approval, the crypto world fell silent and entered an even deeper depression. How to exit before the depression is a required lesson for everyone.

In addition, the CFTC's approval of Pre-IPO Perps or Stock Perps will most likely be delayed for a while, because the value of the US stock market itself cannot be harmed excessively. At least, market participants need to be given some time to prepare.

Conclusion

I see a new world again. The world that existed before has passed, and the sea is no longer there.

From the perspective of the crypto market, the US stock market is DeFi. It is now preparing to add mechanisms such as Perps or prediction markets, but the value of its main tokens, US Treasury bonds and staked dollars, is unstable. It urgently needs token inflation to release liquidity and restore confidence.

But this inflation cannot be achieved directly through US Treasury bonds. A new leverage mechanism—cryptocurrency—is needed to add freshness and attract new players to enter.

There is nothing new under the sun. Before joining the game, be sure to prepare for your exit.