Trump creates a "beautiful bubble"? Bank of America chief strategist: The evolution of U.S. policy towards Bitcoin has led to rampant expansion.

The renowned financial blog ZeroHedge cites the latest report from Michael Hartnett, Chief Investment Strategist at Bank of America, pointing out that the issuance of debt in the United States (and globally) will see exponential growth, with a total expected to reach several trillion dollars by 2032. Hartnett believes that under Trump's administration, the U.S. government is preparing to launch an epic offensive of deficit financing and debt. All of this points to the formation of a "beautiful big bubble," in which Bitcoin (BTC) is moving from the margins to the core.

1. The U.S. Debt Offensive: Trump's "Beautiful Big Bubble" Strategy

Hartenet pointed out that because Trump "cannot cut spending, cannot reduce defense spending, cannot reduce debt, and cannot significantly raise tariffs, the only way they can pay for 'a beautiful big bill' is to create 'a beautiful big bubble'." This means that America's fiscal policy will no longer maintain the status quo, but will instead be on a larger scale of expansion.

As a large number of new bond issuances arrive, the demand for such bonds will continue to decline until interest rates rise enough to make them attractive. And now, the speed at which stock prices are rising is becoming faster, which has certainly been realized. Hartnett summarizes the current zeitgeist as: "Bought the election, sold the inauguration, bought Liberation Day, considered selling the 'Beautiful Act', but the price trend just tells me to rotate rather than retreat."

He observed that the MOVE and VIX indices showed the lowest bond and stock volatility since February 19, which indicates that the market is less concerned about policy, and both the stock market and the cryptocurrency market are rejoicing in Trump’s shift from "detox" to "bingeing". Hartnett's advice is simple: go all in until the 30-year Treasury yield breaks the "escape" level (UK 5.6%, US 5.1%, Japan 3.2%).

2. Market Gaps and Asset Rotation: Opportunities for Bitcoin

However, cracks are beginning to show. Despite the continued strength of the global leadership of US/China tech stocks and EU/UK banks, the performance of high-yield bonds and the Bank of Japan has stagnated. Hartnett pointed out that if the US bank index can break through the January 2022 high (i.e. BKX >150), it will trigger a catch-up of lagging stocks to leading stocks. He emphasized that asset prices have become meaningless, and what matters is relative prices.

Looking at the bigger picture, Hartnett points out that while gold (114%) has been the best performer over the past decade (within his asset range), U.S. Treasuries have been the worst (-1%). He believes that the 2020s will be a decade of inflation, in stark contrast to the negative/zero interest rate policies of the previous decade, which is good news for the EU and Japan as long-term deflation has ended.

As a result, the ratio of EU stocks to bonds has currently surpassed the peak of 2000, while Japanese stocks and bonds are testing the 1989 high. With all assets outside of bonds (in the US and elsewhere) trading globally, Hartnett believes that a long-term dollar bear market has only just begun. This is why he calls for an increase in allocations to commodities, cryptocurrencies, international, and emerging markets in the second half of the 2020s (but not bonds).

3. Bubble Indicators and Market Consensus: Bitcoin's Breakthrough Point

Hartnett previewed the monthly Bank of America Fund Manager Survey (FMS) and noted that the FMS has become a good contrarian signal. He believes that the bullish sentiment in the July FMS indicators aligns with profit-taking/summer pullback. Other bubble indicators include: FMS cash levels < 4.0%, soft landing or no landing expectations > 90%, net stock allocation > 20% holdings. He emphasized that nothing illustrates "bubble" more than price action ignoring typically reliable trading rules, or as Hartnett put it, "greed is always harder to reverse than fear."

From the summer customer feedback of Hartnett, it was found that no one is worried about the economy, no one is talking about valuations, and no one is asking about China, but everyone is inquiring about bonds and deficits, avoiding long-term bonds. U.S. bank strategists believe that the macroeconomic community sees "government bonds on the brink of chaotic selling, while equity/credit clients are nonchalant about this; yet equity/credit clients say to go long TACO." Why? Because Trump needs to achieve prosperity before the midterm elections, so attention should be focused on Bitcoin's breakout.

At the same time, European/Asian customers are enthusiastic about the "Beautiful Act" and are not in a hurry to hedge against dollar risk; most expect second-quarter earnings to rise unexpectedly, with forecasts for artificial intelligence capital expenditures increasing, but there is less certainty about whether artificial intelligence earnings per share for the entire corporate sector will grow in the second quarter.

Conclusion:

Hartnett summarized with an optimistic attitude, stating that there is still "no policy dragon"—yes, global policies are still easy, but not as easy as in 2024. Even as central banks are still cutting rates (164 cuts in 2024, 95 cuts in 2025, and 81 cuts in 2026). In the U.S., a tax cut of $243 billion in FY2026 will partially offset the end of massive fiscal stimulus measures by the U.S. government. Meanwhile, fiscal stimulus measures in China/EU/NATO are increasing. It is well known that if the macroeconomy needs help, the negative effects of increased U.S. tariffs can and will be quickly adjusted down.

In such an environment full of the potential for a "beautiful big bubble," Bitcoin, as a non-traditional asset, may further highlight its characteristics of value storage and anti-inflation. The expansionary fiscal policy of the Trump administration may create favorable conditions for further rises in Bitcoin. However, investors still need to be wary of the risks of a bubble burst and carefully assess market dynamics.