Written by: Arthur Hayes
Compiled by: Luffy, Foresight News
Is this all just my hallucination, or is investing in artificial intelligence today really as simple as subscribing to Citrini Research's service and blindly buying all the stocks they recommend?
Am I dreaming? Or has oil long lost its influence over the economy and politics? That's why Trump and the Islamic Revolutionary Guard Corps of Iran can trade barbs on social media, while a large number of ships remain stranded in the Strait of Hormuz.
With the yield on the two-year US Treasury note being 0.5 percentage points higher than the effective federal funds rate, sending such a clear market signal, will the Federal Reserve really stand pat and refuse to raise interest rates at its upcoming meeting?
Will all the dividends created by artificial intelligence for the US really only fall into the hands of a handful of tech workers?
Faced with this chaotic world, I have to perform a reality check to confirm whether I am awake or trapped in a dream. Once the check proves that everything is just an illusion, I will immediately adjust my investment portfolio. This article is the process of my check. After finishing these words and organizing my thoughts, my portfolio positioning will also undergo major changes, or remain as is.
I'll start with my core judgment: the current market state is more akin to a dream. Within the entire investment system, the price of oil and other hydrocarbon energy is the core variable with reverse transmission effects. The essence of human perception of the world is the conversion of energy into biological intelligence, and the logic of artificial intelligence is the same. This law will never be broken. The market may temporarily diverge from this common sense, but reality will eventually bite back.
This article will start with oil prices and ultimately land on the US election. The current situation is likely to trigger a burst of the AI stock market bubble and bring down the entire crypto market along with it. Only after the dust settles will Bitcoin have a chance to bottom out. I previously asserted that Bitcoin would never again touch the $60,000 mark. Clearly, that judgment was wrong—a common occurrence in market predictions. I always adhere to one principle: views can be clear-cut, but there's no need to be stubborn.
Let's proceed with the analysis.
To Negotiate or Not: The Core Dilemma
Politicians always act in their own interest. Trump's unprovoked military action against Iran, the reasons behind it probably only he himself knows. Faced with the barrage of claims he and his aides make at every moment, the outside world simply cannot discern the truth. Since things have come to this, agonizing over the cause is meaningless. The real question is whether Trump and Iran's Islamic Revolutionary Guard Corps will choose a ceasefire and how they will end the confrontation.
This conflict is now entirely directed by Trump, and for him and the Republican camp, starting a war in an election year is undoubtedly a disadvantageous position.
In the US, the prices of necessities like gasoline and food often directly determine election outcomes. Currently, the Strait of Hormuz is blocked, energy and food inflation continue to rise, and the root cause of all this is the Trump administration's rash action against Iran initiated without public discussion. Some might point fingers at Israel, but that argument simply doesn't hold water. Anyone familiar with US history knows that domestic forces would never take orders from external actors.
As long as the war doesn't affect their own lives or cause casualties among loved ones, the American public isn't averse to foreign wars. Trump has also repeatedly emphasized that only thirteen US soldiers died in this special military operation. This is why the US is keen on using high-tech, long-range weapons and waging "game-like wars." Even though launching this Middle East war lacks a clear winning strategy and goes against the expectations of many supporters, his base still sides with the Republicans. The fact that some Republican lawmakers lost their seats under pressure from Trump within the party for wavering on their stance also confirms this.
Trump's core vulnerability isn't that his base voters won't turn out in November, but that soaring prices will push a large number of swing voters towards the Democrats. The cost-of-living issue has become Trump's biggest problem on the campaign trail.
To win over swing voters, Trump at least needs to stabilize current oil prices. Supply chains are only just beginning to digest the pressure from rising energy and various raw material costs; it's already unrealistic to completely curb inflation. All Trump can do now is manage market expectations about inflation, not change inflation itself.
Whether Trump is willing to reach a settlement with Iran depends entirely on oil price movements. As oil prices keep climbing, his rhetoric will tend towards moderation; but once the market predicts negotiations are imminent and oil prices fall in response, he'll change his tune again. After all, from a geopolitical perspective, any agreement reached from this negotiation would likely be more disadvantageous than the deal the Obama administration signed with Iran. In the eyes of many voters, this would be equivalent to "defeat," and the Republicans would pay the price at the polls.
Negotiation always requires concessions from both sides, and Iran's Islamic Revolutionary Guard Corps has similar considerations. When oil prices are too high, its major trading partners will pressure Iran to make concessions to the US; but once Iran signals willingness to negotiate and oil prices drop, pressure from trading partners will also ease.
At current oil price levels, neither side has an incentive to back down proactively. While prices are significantly higher than pre-war, they haven't reached a level that would trigger a full-blown crisis. Commodity markets are generally stable, there's no widespread famine globally, and most countries can supplement key industrial materials from other channels.
But this delicate state of balance cannot last. A significant reduction in global core energy supply while prices remain remarkably calm fundamentally defies market logic. Once global spare capacity is exhausted, spot prices will inevitably surge—a consensus among many commodity analysts. The full-scale crisis hasn't erupted yet only because global energy inventories were ample before the war.
If the US-Iran stalemate persists until the end of Q2, spot prices for hydrocarbons and various basic commodities will inevitably see a sharp rise in Q3 of this year.
To borrow Churchill's words: Politicians always exhaust all other options before doing the right thing. Only when the situation is completely out of control will Trump and Iran truly sit down at the negotiating table. In my view, the blockage of shipping in the Strait of Hormuz is likely to continue until early Q3.
Let's assume oil prices will gradually rise amid volatility. In this context, what will be the interplay between rising oil prices and Trump's campaign rhetoric?
The November Election Showdown: Republicans vs. Democrats
According to the odds on prediction market Polymarket, Republicans currently only hold a slight advantage in maintaining control of the Senate, while facing significant losses in House seats.
It's widely believed Republicans will lose the House, but I hold a different view. Trump still has a chance to turn the tide, and the breakthrough lies in shifting the narrative, making statements regarding regulation and taxation targeting data center construction and the AI industry.
The current distribution of votes among parties is as follows (218 votes are needed to pass a bill):
Based on Polymarket's current odds, here is the expected party composition after the election:
The post-election outlook for Republicans in both the Senate and House is not optimistic. However, Republicans could use redistricting to change the game. When the existing rules guarantee loss, changing the rules becomes inevitable. Assuming Polymarket's predictions are correct, Republicans need to gain 19 seats. Redistricting can reduce this number.
Here's the potential impact of redistricting:
Now Republicans only need 11 more seats. Next, let's look at which races are close. Based on current polls, which districts within the margin of error might lean slightly Republican.
There are 35 seats with significant uncertainty in their outcome. As mentioned earlier, high inflation and rising living costs are a negative issue Trump cannot easily reverse. Another major topic that can galvanize voters across the spectrum right now is the expansion of data centers and the impact of AI on the job market.
Aside from the ultra-wealthy, almost everyone is worried about data center construction driving up costs and fears AI taking away jobs. Many places have already enacted policies to pause new data center projects, and calls are growing to levy taxes on AI companies to subsidize ordinary citizens. After all, the vast majority are not AI company executives or highly-paid professionals.
For voters in competitive districts, such issues are highly influential. Trump could easily secure the remaining key seats by taking a stance on the AI industry. At this stage, merely making statements is enough, no specific legislation is required. He only needs to promise ordinary citizens that if Republicans win, they will start regulating the AI industry after the election.
As a seasoned politician, Trump has always been adept at making campaign promises he rarely keeps. His handling of the Epstein-related files is a classic example: during the campaign he loudly proclaimed he would investigate those involved, but after taking office, he only released a small amount of information. He can do the same now, announcing during the campaign that he will introduce legislation to slow data center expansion, impose windfall taxes on AI companies, and use the revenue for a new round of relief payments. Once the election is over and Republicans secure power, he can gradually walk back those statements.
Some might find it hard to understand Trump mimicking the tactics of left-wing Democratic politicians. But don't forget, he introduced the largest universal relief program since Roosevelt's New Deal, and even when the relief money was spent by ordinary people on daily consumption, he didn't restrict it. To preserve his political standing, temporarily distancing himself from AI giants like Elon Musk and building an image of supporting ordinary citizens is not difficult for Trump.
If Trump does indeed make strong statements against the AI industry, the market won't see it as mere campaign rhetoric but will believe the US will substantively restrict capital expansion in AI and increase industry taxes. Panic will immediately spread, and the AI stock market bubble will burst.
Previously, Elon Musk and Trump publicly clashed on social media. Musk's related departments publicly questioned Trump, and Trump immediately stated he would cancel government cooperation orders with Musk's companies. Tesla's stock fell 18% in a single day, showing the market's sensitivity to such turmoil. Politics can foster an industry but can also strike it down instantly.
That dispute was later proven to be just a publicity stunt; the two quickly reconciled, and Musk was even invited to attend the recent summit between Trump and the Chinese head of state in Beijing. But the market believed it at the time, triggering a massive sell-off.
And that was just volatility triggered by their personal conflict. Once Trump, representing the Republican Party, explicitly states a plan to heavily tax AI models and agent-related businesses, the impact will far exceed that. When similar rhetoric emerged from South Korean political circles, the local composite stock index nearly hit a daily limit down the next day. Only after an official emergency denial did the market return to an upward trend.
The current optimistic expectations for the AI sector are based on the belief that industry revenue will continue exponential growth and that new technologies and wealth concentration won't spark public backlash. This thinking is detached from reality, more like being immersed in a dream. And Trump's statements would be the reality check that bursts that illusion. Whether he will actually act depends, once again, on oil prices.
As the Iran situation continues to push up oil prices and inflation worsens, Trump will have fewer campaign talking points to choose from, ultimately having to target data centers and the AI industry.
Trump's strong desire to avoid Democratic control of the House is very clear. If Democrats take the House, they can exercise subpoena power, constantly summoning Trump himself, his family, and key aides to testify, raising all sorts of pointed questions. If Democrats return to the White House in 2028, the Justice Department, armed with many leads, could then initiate legal proceedings and investigations into Trump's business entities.
Let's outline the entire logical chain: The US and Iran's inability to reach a settlement will inevitably lead to higher oil prices; rising prices spark voter dissatisfaction, forcing Trump to win votes by promising to regulate and tax the AI industry.
Between now and the November election, even if AI-related stocks are halved, it's an acceptable price for Trump to pay to escape endless Democratic investigations. After the election, he can always walk back his previous statements on data centers and AI, the industry will return to normal, and the S&P 500 might even hit the 10,000-point mark.
But for investors, market movements are interconnected. A sharp decline in the AI sector would fundamentally alter market expectations for its future earnings. After experiencing the shock of regulation and heavy taxation, investors will never again be able to blindly favor this sector as they once did.
The California Dream: Where Does Liquidity Flow?
Before analyzing the impact on global financial markets from the potential listings of the three giants—SpaceX, Anthropic, and OpenAI—let me address a question: why, despite continued loose dollar liquidity since the end of last Q3, hasn't Bitcoin seen a corresponding significant rally?
On November 30, 2022, ChatGPT was officially released to the public, marking the beginning of the AI super-bubble. Almost simultaneously, the scandal of FTX founder SBF misappropriating user funds was fully exposed. Bitcoin, after hitting a low of around $15,000 that year, rose all the way to $125,000 in October 2025, a cumulative increase of over sixfold. But during the same period, Nvidia's stock price increased elevenfold, and many small-to-mid-cap tech stocks reliant on computing power to convert electricity into intelligence also surged. The performance of the AI sector far outstripped the crypto market, and from late 2024 to now, the gap has continued to widen.
Even when Bitcoin (white) reached its all-time high, Nvidia's (gold) returns were still superior.
After hitting its all-time high, Bitcoin (white) performed worse and has fallen 50% since. Nvidia (gold), the world's highest market cap company, is still up 10% since late 2025.
Based on my previous logic of judging the crypto market based on fiat liquidity, Bitcoin should have seen higher gains in the current environment, but reality is quite the opposite. Where did things go wrong?
I used to focus on the overall scale of fiat money printing but overlooked the specific direction of fund flows. I originally thought liquidity would eventually flow into Bitcoin, pushing its price up. This time, my judgment was off.
My conclusion is: almost all new dollar liquidity has been absorbed by the AI sector. AI is a highly capital-intensive industry. To build the massive data centers needed to run AI, vast amounts of energy must be consumed. Hydrocarbon, nuclear, and renewable energy are converted into electricity, transmitted to data centers, where specialized chips perform model training and inference.
Starting in 2024, global data center capital expenditure began to surge, accelerating further in 2025, and industry financing needs also skyrocketed. Based on publicly disclosed data, from November 2022 to now, total debt financing of various kinds in AI-related fields amounts to $1.5 trillion. Coincidentally, the increase in the US broad money supply M2 during the same period is also exactly $1.5 trillion. The answer is obvious: all new dollars flowed into the AI sector, leaving no incremental funds for Bitcoin.
Bitcoin was able to start a strong rebound from the FTX bankruptcy low in 2022 only because the large-scale debt-fueled expansion in the AI industry mainly concentrated after 2025. Of that $1.5 trillion debt, $1.3 trillion was generated from 2025 onwards. Coincidentally, Bitcoin's price peak occurred in October 2025, exactly when AI sector capital expenditure reached an unprecedented scale.
This linkage is crucial. Once the AI stock market crashes, there will be no spare funds to deploy into Bitcoin. Banks will tighten lending, and many institutions will discover the huge risks hidden in loans previously made based on inflated revenue data. When leading tech stocks plummet by more than 50%, bank credit officers will start worrying about companies' ability to repay, credit contraction will follow, overall market liquidity will tighten further. Add to that the negative attitude of the US political sphere towards the AI industry, making short-term capital rescue for the sector unlikely.
Even if the government later steps in to rescue financial institutions, based on the current situation, such measures would only be implemented after the November election.
The link between Bitcoin and AI stock prices means we must make a judgment: is there a bubble in the AI stock market, when will it burst, and what will trigger it.
The AI Bubble: Inevitably Pricked by a Triple Threat
Three factors will prick the current AI bubble: rising energy costs, the market's inability to absorb the massive IPO fundraising from the three giants SpaceX, Anthropic, and OpenAI, and Trump's anti-AI industry policy rhetoric.
The core logic of AI is to maximize the efficiency of "energy-to-intelligence" conversion. Humans rely on consuming food to convert energy into wisdom; AI relies on electricity. Currently, most of the new electricity demand for data centers relies on hydrocarbons like natural gas. Rising energy prices mean directly increased costs for running AI and computing output, squeezing the profit margins of companies like Google, Anthropic, and OpenAI.
As costs rise, companies will raise service prices, slowing user adoption of computing power and models. The geopolitical game between the US and Iran continuously pushes up oil prices, ultimately eroding the profitability of AI companies. When the market begins to question the rationality of continued data center expansion, the industry inflection point will arrive, expected P/E ratios will contract sharply, and the bear market will officially arrive.
Additionally, the lock-up period expirations for SpaceX, Anthropic, OpenAI, and other tech companies, coupled with massive IPOs, have a total fundraising scale that even exceeds the sum of all new stock financing during the dot-com bubble era, an unprecedented volume. Whether the market can absorb such massive stock selling pressure is a big question mark.
The sustained rise of the AI sector in recent years is predicated on investors' belief that industry profits will continue to accelerate. Once the market's faith in the industry's prospects wavers, investors will lower their valuation of future earnings. The listing performance of these giants will be a bellwether for market sentiment. If listings fall short of expectations, investors will conclude the industry has peaked and initiate a collective sell-off.
Let's analyze SpaceX as an example with relatively complete disclosure information. Capital markets always follow the rule of "first mover advantage." Elon Musk, a master marketer, chose to list first, allowing the company and early shareholders to cash out maximally. Crypto market participants can easily understand this model: extremely low circulating supply with a high fully diluted valuation, similar to the logic of some altcoins.
According to SpaceX's filing with the SEC for its listing, this IPO values the company at nearly 100 times revenue. More notably, the company initially plans to release only 4% to 5% of its shares. In the current heated environment for the AI sector, the stock price is likely to surge on the first day, but such high market expectations also mean it will be difficult to continue meeting investor imagination thereafter.
Post-listing, SpaceX's market cap would reach $1.8 trillion, ranking it the world's seventh-largest company by market cap. If the stock price rises another 50%, its market cap could surpass Amazon to become the world's fifth-largest, yet its profitability is completely unmatched to this tier. Nvidia maintains a high valuation based on substantial gross margins and revenue scale. SpaceX focuses on space-based data centers, and some industry analysis indicates the construction and operating costs of such facilities are four times that of ground-based data centers, with breakeven on costs expected only within ten years. A more rational initial valuation would lead to more stable subsequent stock performance. Crypto market participants all know the logic: if secondary market investors can't profit, there will be no takers for the unlocked shares held by insiders, and the stock price will only go down.
Looking at the lock-up release schedule, from now to early September, SpaceX's float will expand fivefold. A massive influx of shares into the market creates enormous upward pressure on the stock price. Making matters worse, Anthropic and OpenAI also plan to launch their IPOs in September, both targeting trillion-dollar valuations.
From June to September this year, SpaceX might have a brief window for gains, but when three ultra-high valuation companies list in concentration, flooding the market with new shares, market disappointment is inevitable. Investors expect stock prices to soar; slight, choppy gains cannot meet expectations.
In summary, with the triple threat of rising energy costs, concentrated mega-IPOs, and Trump's regulatory rhetoric, the listing performance of these companies is unlikely to meet market expectations. Once investors no longer believe AI-related companies can maintain exponential profit growth, the entire sector's valuation will be revised downward, leading to collective stock price weakness.
Currently, there is a significant amount of stock pledge loans in the AI field, and banks have provided massive credit for industry capital expansion. After a sector crash, the banking system will bear huge bad debts.
In an environment where the global AI bubble bursts and various risk assets generally fall sharply, Bitcoin is unlikely to chart an independent course in the short term. Only after the market fully cleanses will Bitcoin bottom out first. Then, to rescue the overall economy, a new round of large-scale monetary easing will emerge, and Bitcoin will start a new round of gains. But for now, the primary task is to preserve crypto capital.
Before sharing the Maelstrom fund's stock and crypto asset positioning strategy, let's analyze the Federal Reserve's monetary policy direction.
The Fed Chair's Dilemma
New Federal Reserve Chair Kevin Warsh is in a delicate position, with mixed reviews of his style depending on how he handles the Fed's current contradictory situation.
The spread between the two-year US Treasury yield and the effective federal funds rate reflects market sentiment; the chart also shows the WTI crude oil front-month futures price.
Trump nominated Kevin Warsh as Fed Chair, hoping he would push for rate cuts. Warsh previously signaled he sees inflation from geopolitical conflicts as temporary, while productivity gains from AI are a long-term trend, giving the Fed room to lower rates.
But the market is sending a completely opposite signal. The two-year Treasury yield is 0.5 percentage points higher than the effective federal funds rate, meaning the market believes, due to persistently high inflation, the Fed should raise rates at the June 16-17 meeting, not cut.
Currently, the Fed holding rates steady is the most likely outcome. But the market will focus on interpreting the post-meeting press conference and adjustments to the reserve management plan. Even standing pat can be interpreted as hawkish or dovish.
A hawkish hold has the same impact as a rate hike. With the US-Iran conflict unresolved and oil prices rising, plus the concentration of three AI giant IPOs putting pressure on market supply, multiple negatives combined will lead to varying degrees of correction across all risk assets.
The worst-case scenario is Trump instructing Warsh to immediately raise rates in response to market calls, trying to suppress prices to win voter support. But unless the Fed raises rates sharply while selling bonds on the open market to shrink its balance sheet, it still won't keep pace with inflation. This mirrors the situation in the 1970s: the Fed raised rates aggressively, but the strength was never enough to curb inflation.
In the current environment, a Fed rate cut is highly unlikely. Whether the Fed ultimately chooses to hike or hold, the market will interpret it as a signal of tightening liquidity, further dampening confidence in the AI sector's bull market.
Combining all the above, the trend of rising oil prices will ultimately translate into negative pressure for all categories of risk assets. Now, let's discuss the specific positioning of the Maelstrom fund.
Portfolio Positioning
The operation of all things relies on energy. Since we judge energy prices will rise subsequently, positioning in energy assets is a natural choice.
Currently, the US and Iran remain deadlocked, shipping in the Strait of Hormuz is blocked, and daily losses of crude oil and natural gas supply continue to increase. Market sentiment is still calm, but if this stalemate continues, rising energy prices will become inevitable.
Various industry data point to the same conclusion: due to geopolitical conflict, global energy inventories have fallen to multi-year lows and are still declining. Once inventories break below critical levels, the entire energy supply system will face problems, and prices will rise uncontrollably.
Even under the best-case scenario—an immediate ceasefire and normal shipping resuming in the Strait of Hormuz—countries will increase purchases for restocking and strategic reserves, still pushing up oil prices.
Judging both scenarios, over the next three to six months, regardless of whether oil prices briefly retreat after a short-term peace deal, the medium-to-long-term upward trend for crude oil and natural gas prices is already established. Based on this, we are heavily positioning in US-listed energy production companies.
The energy sector has upside potential under various scenarios, and its current valuation is more favorable compared to tech sectors highly dependent on energy. Conversely, assets reliant on cheap energy to maintain high valuations face less optimistic prospects.
In an environment where oil prices climb to $150 per barrel, the AI industry will find it hard to sustain its previous strong performance. Therefore, we have liquidated all AI-related stocks.
Incremental funds once flowed steadily into AI stocks. Once that sector falls rapidly, even if crypto assets are relatively resilient, they will struggle to attract inflows. Based on this, we have reduced all non-core crypto holdings. Last week, we sold HYPE, NEAR, WLD, and also liquidated ZEC due to the Orchard Pool vulnerability issue. Preserving capital is more important than seeking returns at this moment.
Current holdings are limited to Bitcoin and Ethereum. There's no immediate large liquidation need for Ethereum, so we continue holding. I firmly believe the bursting of the AI bubble will trigger a new round of financial turmoil, after which the world will embark on another monetary easing cycle, and Bitcoin will fall first and then rise.
Facing market volatility, we will hold core positions long-term while using derivatives for short-term shorting operations to capture periodic market moves. After all, the fun of trading is something I'm unwilling to give up.
If it turns out reality moves completely contrary to my judgment and it was all a false alarm, that's fine too. Locking in profits before embarking on a Mediterranean trip is a prudent choice in itself. In early September, I will revisit market movements and previous judgments, and then decide whether to re-enter positions based on the market situation.
Unlike investment institutions needing to deliver fixed returns annually, the Maelstrom fund focuses more on long-term compound growth, giving us ample room to calmly navigate the intertwined realities and illusions of the market.
