Trump Bubble: What’s Next for Bitcoin?

Source: Vernacular Blockchain

In the new US presidential election in 2024, Trump was re-elected. The capital market also ushered in a wave of enthusiasm, the US dollar index hit a new high, and the crypto market was unstoppable. The total market value of the global crypto market exceeded 3 trillion US dollars for the first time. After Bitcoin broke through the $90,000 mark, it seemed that $100,000 was within reach.

Trump's election has undoubtedly injected a dose of stimulant into the capital market, especially the crypto market. Can the various favorable expectations released during the campaign be implemented? How will the future crypto market go?

@packyM made an outlook on the "Trump bubble", and Vernacular Blockchain compiled it excerpts. The following is the text:

As we all know, one of the biggest risks facing crypto companies at present is that government regulation may slow down their development or even lead to stagnation. Over the past week, I have been closely following the political trends in the United States and found that the current situation has many similarities with what I usually discuss, and is more optimistic than expected. My intuition tells me that we are standing at the beginning of all bubbles-a bubble maker, a bubble that breeds countless bubbles: the Trump bubble.

One of the most shocking things about last week's presidential election was how many people seemed to be extremely excited about Trump's victory, and the extreme excitement of some people about a certain vision of the future is precisely the sign that a bubble is beginning to form. Over the weekend, I read "Boom: Bubbles and the End of Stagnation" by Byrne Hobart and Tobias Huber. The core idea of ​​the book is that certain types of bubbles play a huge role in moving the world forward. They believe that bubbles are a good solution to the problem of stagnation.

As I read the book, I noticed that the post-election reaction was strikingly similar to the productive bubbles described in the book: the Manhattan Project, the Apollo program, Moore’s Law, the golden age of corporate R&D, the shale revolution, and Bitcoin.

Byrne and Tobias summarize five common characteristics of all the technologies and top projects they studied: · Obvious optimism and focus

• Fear of missing out (FOMO) and a live-in-the-moment (YOLO) mentality

• Excessive risk-taking and overinvestment

• Parallelization and coordination

• Reflexivity and hyperstition

01 Defending the Bubble

The “Trump Bubble” may sound worrisome. When the average person hears the word "bubble," they usually think of "something that is overinflated and destined to burst." The word often has negative connotations, especially when it comes from some bad bubbles. But there are more than just these types of bubbles. In the book "Boom", Byrne and Tobias describe two types of bubbles:

1) Mean reversion bubbles: "The basic bet is that the future will continue along the current trend." Think of the subprime mortgage crisis. If you bet that the future will remain roughly the same, you can increase your bet by adding leverage.

2) Turning point bubbles: "Investors believe that the future will be significantly different from the past." Think of the Internet bubble. If you think the future will change significantly, you will buy assets that will benefit from this change.

They believe that turning point bubbles drive progress. This is a similar idea to what I mentioned in my book "Infinity Missions": turning point bubbles drive progress by directing a lot of resources to important projects that cannot be executed under normal cost-benefit analysis.

Take the Apollo program:

In May 1961, when President John F. Kennedy announced that “this nation should commit itself to putting a man on the moon before the end of this decade,” no one knew how to accomplish that goal. Rockets, launch pads, space suits, hardware, software, zero-gravity food—none of these existed, nor did the experts in the fields. It wasn’t just that the space program lacked what it needed to make a moon landing possible—scientists at the time weren’t even sure it was possible.

Transition bubbles drive future progress by focusing enormous amounts of money and human capital on a very specific vision of the future, and allowing for wasteful exploration and parallelization in pursuit of that goal that wouldn’t normally occur.

Some things might never have happened without the bubble. Moore’s Law itself is a classic bubble phenomenon, Byrne and Tobias note: “The industry exhibits classic bubble behavior: predictions about the future—especially bold and nearly irrefutable predictions—end up driving behaviors that make those predictions come true.” For example, the expectation of ever-improving chips drives people to design products that can take advantage of better chips, which in turn makes chipmakers aware of the demand, spurring investments in ever-improving chips.

In other words, a sufficiently compelling vision can make it a reality. As Stripe Press writes on the Boom website, “Optimism can be a self-fulfilling prophecy.”

As Peter Thiel, Byrne, and Tobias emphasize, not all optimism is positive. Excessive optimism—the mere assumption that everything will go well—can be just as destructive as pessimism. Thus, the first common denominator of productive bubbles is explicit optimism: a belief that the future will be better, and a concrete plan to make it happen.

02 What exactly is a bubble?

In the early post-election period, I began to notice common features of bubbles, and I observed that the only unanswered question was their clarity—where the focus was.

A goal that simply “makes everything better,” such as “make America great again,” is too vague and imprecise to fit the book’s definition of a positive bubble: “The key is whether the vision includes a specific and actionable plan to transition from now to the future.”

For example, building an atomic bomb before the Germans (or the Soviets) did was clear and specific: get to the moon within a decade. Every bubble that Byrne and Tobias discuss is also clear and specific. But what about Trump’s bubble? What kind of bubble is it?

Elon Musk, who played a major role in Trump’s election and will likely continue to play a role in his presidency, has called Tesla’s Gigafactory “a machine that builds machines.” If the Gigafactory works well, making cars itself becomes simple. America, like “a machine that builds machines,” is just now accumulating dirt in its gears.

America is still capable of creating great companies, and those companies are still capable of creating great products. But the slogan “Make America Great Again” doesn’t resonate with me because I still think America is the greatest country in the world, even if it is slower and clumsier than before. Comparisons with other countries mask a deeper truth: America is not as great as it could be.

If Trump’s bubble takes shape, it will be about upgrading and cleaning the dirt out of the “machine that builds the machine” so that the American machine can run at full speed. There is no more inspiring vision for those who believe in America, capitalism, and ourselves. This vision looks powerful enough to blow up the biggest bubble in history.

03 Signs of a Bubble

While the Manhattan Project and Apollo Program are two examples of direct government regulation in the book, I think Trump’s bubble is more likely to develop like Moore’s Law.

As Byrne and Tobias write, “Moore’s Law is perhaps the most persuasive and persistent example of a two-way bubble, where the expectation of progress in one area drives progress in another, which in turn drives growth in the first.”

The two-way relationship also exists in the Trump bubble. The Trump administration’s message to people is that it will be easier to build, invest, and achieve big goals, and this expectation itself has inspired people to build, invest, and achieve big goals. The more energy and excitement people put into it, the easier it will be for the government to fix the machine.

Rainmaker’s Augustus Doricko captured the sentiment perfectly: “We have four years to do the best we can.”

With control of the Senate, the House, and the executive branch, the government promises to simplify processes and eliminate friction. In return, the private sector plans to increase risk, investment, and innovation.

While the actual simplification and elimination of friction may be much harder than expected, the mere belief in the possibility is enough to fuel a bubble.

Armed with the belief that anything is possible, people are sharing what they think the government can do.

Note the meme: Make America X Again. Bryan Johnson posted a photo of himself and RFK Jr. with the caption "MAHA," which stands for Make America Healthy Again.

Bryan Johnson is a tech founder. If he can establish connections with key people in charge of the U.S. health system, will people begin to feel that the government may be willing to listen to his advice on health and other matters?

You may think this is a good thing or a bad thing, but what we are looking at now is the dynamics of a bubble. The characteristic of a bubble is that people begin to feel that they can influence government policy with just one tweet. This also means that more and more people are beginning to share their policy suggestions on Twitter. Interestingly, some of these ideas may actually become reality.

Of course, the government can’t see all the proposals, consider only a fraction of them, and implement even fewer. But like a lottery or a bounty system, it’s almost certain that the government will try to push some previously unthinkable solutions, and some of them may succeed. And when those successes happen—like combating global warming through sulfate injections—the government will become bolder and try things it didn’t think of before.

By getting people to believe that change is possible—even if it’s just projecting their hopes onto that change—the Trump administration is making it cool to work with the government. Bryan Johnson is one of them, as is Elon Musk, the world’s richest man who just caught a 22-story rocket with chopsticks. Geniuses who never thought of working with the government in the past are now looking for opportunities to get involved. Sequoia’s Sean Maguire says he’s fielded inquiries from physics PhDs asking how they can work in the Trump administration.

This is parallelization and coordination at the national level. Parallelization lies in the fact that more and more entrepreneurs want to build in a more efficient American machine; coordination lies in the fact that more and more talented people want to participate in the work of repairing this machine because they think they have the opportunity to do so now.

These phenomena once again verify the self-fulfilling prophecy. More and more talents are invested in the work of repairing the government, and they have strong support from the people, which will make them more likely to succeed in repairing the government. This in turn will make those who are committed to building complex businesses - whether in the cryptocurrency field or the energy field - more successful in building their "machines".

The belief that ambitious projects that work within the existing government framework will eventually succeed has led to a real fear of missing out (FOMO). This phenomenon is particularly evident in the cryptocurrency market, where the high liquidity and rapid price fluctuations of cryptocurrencies make this anxiety even more felt.

As of November 12, 2024, Source: Artemis Terminal

Investors are asking what exactly can cryptocurrencies achieve if the SEC no longer attempts to exclude cryptocurrencies through means that there is currently no clear legislation?

Interestingly, a mini bubble was also created in this process. In their book Boom, Byrne and Tobias mention the case of Bitcoin, stating that “the value, security, and network effects of any currency are driven by adoption, and Bitcoin is no exception.”

a16z Crypto has always emphasized the price innovation cycle in cryptocurrencies: when prices rise, they attract more attention and developers, who start building products, making cryptocurrencies more valuable over time.

2024 Cryptocurrency Status, Source: a16z crypto

This cycle is particularly evident in the crypto space, because crypto is inherently liquid, but similar dynamics are playing out in all walks of life: rising prices attract talent, and talent creates things that support rising prices. This is a manifestation of hyperstition and reflexivity.

I think the reason why the Trump bubble is so powerful is that it has spawned these "little bubbles" everywhere, like a "bubble-making machine."

When it becomes legal to build cryptocurrencies, more people will get involved and create more valuable crypto products; when the approval process for new nuclear reactors becomes feasible, more companies will start building them; when SpaceX can launch rockets freely without interference from the FAA, it will launch more rockets. This also brings us to the concepts of FOMO (fear of missing out) and YOLO (you only live once). If you are paying attention to these movements, it is hard not to feel as if something big is happening and you urgently need to participate. I also feel that I am not involved enough, of course I mean financially, but I also mean something deeper, a spiritual feeling. I feel that I have done enough, but now I realize that I should do more and need to work harder to catch up - and this mentality is a characteristic of bubbles.

Byrne and Tobias note in their book Boom that bubbles are often accompanied by a spiritual quest, writing, “To identify areas of future technological progress, one can start with the sense of spiritual transcendence they bring.”

It does feel like we have an unprecedented opportunity to truly build our ideal future and bring our vision of the future to fruition. It’s just that no matter how much you invest, there will always be someone who invests more than you do. It is this atmosphere that is full of motivation, coordinating thousands or even millions of people to participate in this great project, whether it is to improve the existing system or to create a new, more accessible system. All of this is almost certain to lead to excessive risk-taking and overinvestment, which is the characteristic of bubbles.

While “hard core technology” (such as vertically integrated companies) is increasingly valued, many investors still prefer to proceed with caution, believing that the construction of these technologies is full of uncertainty and capital intensive, although if they succeed, the rewards will be extremely high. However, I expect that in the coming months, we may see overinvestment similar to the cryptocurrency market in areas from nuclear energy to aerospace.

But this is actually a good thing! The charm of a bubble is that even though some investors may suffer losses, it will not cause a systemic collapse, and the world will still make progress in solving major problems. In the end, companies that might not have survived will stand out and push the world in a better direction. Of course, all this will not be smooth sailing and will inevitably be full of volatility and uncertainty. But I firmly believe that this process will bring extraordinary results.

04 How the Foam Machine Was Formed

In 2021, Musk shared his five-step method for improving the manufacturing and design process in a very famous video with Everyday Astronaut:

Source: https://www.youtube.com/watch?v=t705r8ICkRw&feature=youtu.be

• Make requirements more reasonable

• Remove unnecessary parts or processes

• Simplify or optimize

• Speed ​​up cycle time

• Automation

If you think of the United States as a "machine that builds machines," then Musk's approach to building SpaceX, a "machine that builds machines," is not only worthy of attention, but also a very interesting point. Because this approach is very similar to the Trump administration’s stated plan:

• Make requirements more reasonable → Regulatory reform (e.g.: NEPA, NRC)

• Remove unnecessary parts/processes → Eliminate agencies like the Department of Education

• Simplify/optimize → Streamline remaining processes

• Speed ​​up cycle times → Increase approval speed

• Automate → Modernize government systemsObviously, these changes may bring some risks! For example, SpaceX rockets sometimes explode, showing that overly radical innovation can run into problems.

However, once these improvements and optimizations are implemented, many things will become smoother. This is why people are so enthusiastic, because they believe that this is the first government in many years that has truly pushed the limits and tested the bottom line of the existing system.

But more importantly, this "breaking the rules" approach symbolizes an attitude of re-embracing risk.

04 Summary

On November 13, Trump announced that Elon Musk and Vivek Ramaswamy will jointly lead the newly established "Government Efficiency Department".

According to Trump, DOGE will "clear bureaucratic obstacles for my government, cut excessive regulations, reduce wasteful spending, and reshape federal agencies." He also said that this will "create an unprecedented entrepreneurial way of government management" and "unleash our economic vitality." In short, the purpose is to fix the "machine that makes the machine" and promote a series of changes.

Can you understand why people are so excited? I mentioned Musk’s process for fixing the machine in the last section, and I thought the metaphor was a little too “right” at the time. As a result, right after I finished writing it, Trump appointed Musk to co-lead the organization responsible for “fixing the machine.” Musk was undoubtedly the best person for this position, and he gladly accepted the task.

While many people pointed out that DOGE has no actual decision-making power and can only make suggestions, this is not the point. The key point is that both supporters and opponents have begun to believe that government may really become more efficient. Even if Musk and Vivek cannot directly cut agencies and regulations, they can at least reveal the most wasteful parts of the federal government and promote change through the power of the public.

This is a long-awaited opportunity for people to feel that they may be personally involved in making the American “big machine” run more smoothly. Musk also stated on the X platform that they will share all of DOGE’s actions publicly.

Vivek said on Twitter that DOGE will collect public opinions through crowdfunding: "Americans voted for thorough government reform, and they should have the opportunity to participate in repairing the government."

This is exactly what was said before, any good and healthy bubble can stimulate people's sense of participation. People will feel like they can actually fix the government, so they will put more energy into trying to make it better. This could be in the form of submitting suggestions or calling their members of Congress to push them to adopt DOGE's suggestions.

Whether the final result is exactly as expected is not the most important thing. The key is that when the bubble is formed, people firmly believe that things will go in this direction, and this belief itself will shape their actions.

The issue now is no longer Democrats versus Republicans, no matter how dissatisfied and divided people are, but more importantly, the actions between those who believe that the American people can change the status quo and make the United States and the world better, and those who think that the government bureaucracy should do these things for us. This is much more important than a simple political struggle!

No one wants to pay more taxes to fund a wasteful bureaucracy. No one wants to feel that their country is broken and there is nothing they can do about it. No one wants to see things move 100 times slower than they should, or cost 100 times more than they should. There are actually many things we can agree on.

This is a "meta-bubble" that may give rise to a turning bubble in the next few decades. Welcome to the Trump bubble.