Rewards1: The Hidden Time Bomb Quietly Blowing up Wall Street

The Hidden Time Bomb Quietly Blowing up Wall Street

What I'm about to share with you is already in motion.

This isn't a prediction. This isn't a forecast.

It's happening right now.

The biggest hidden risk on Wall Street is a ticking time bomb. And it's taking the $36.2 trillion U.S. Treasury market with it.

For years, I've warned my readers to stay away from long-dated bonds. My biggest concern has always been currency debasement and inflation. But what's blowing up the bond market right now has nothing to do with inflation.

Today, I'm going to walk you through what's happening… Show you how it caused the President to pivot on his tariff policy… And explain why it's creating a huge opportunity in an asset you need to own.

What Is the Ticking Time Bomb?

I bet 99% of investors have never heard of a basis trade.

The basis trade is a strategy hedge funds use to exploit small differences between Treasury bond prices in the cash market and in the futures market. They short one market and go long the other, pocketing a tiny profit.

Here's how it works.

You take two versions of the same asset — you buy a U.S. Treasury bond, and you sell short a futures contract on that bond — and bet on the tiny price difference between the futures contract and the bond converging over time.

Sounds boring, right?

But if you leverage it 50-to-1, that tiny difference suddenly turns into a juicy profit — as long as the two prices stay relatively close.

Let me give you an example:

Let's say a 10-year Treasury bond is trading for $99.50 in the cash market.
And the futures contract for that same bond is trading at $100.
You can buy the bond at $99.50 and sell the future contract at $100.
When the futures contract expires, you lock in a $0.50 profit on the difference.

The 50-cent difference might not seem like much. But if you borrow $100 million to execute the trade, that's $500,000 in "risk-free" profit. So why does the gap even exist?

Since futures contracts expire at later dates, people are willing to pay a small premium for the convenience. It's like paying more for a hotel room to get free cancellation… There's a "time and flexibility" premium baked into the futures price.

That premium ("basis") usually shrinks as the futures contract gets closer to its expiration date because the price of the futures contract and the bond it represents have to meet in the end.

That's why the trade works. Historically, the spot and futures prices always converge. But here's the problem:

They're not converging anymore. And it's killing the trade.

Why the Basis Trade Is Unwinding

In early April, two-year Treasury yields surged over 25 basis points in a single day as the President revealed his global tariff policy.

We don't know who started the selling… But once it started, it triggered margin calls from hedge funds that were wrong-footed on their Treasury arbitrage.

This isn't normal market behavior. And here's why it's happening.

Imagine you're a hedge fund running the basis trade.

You borrow a ton of money — 50x to 100x more than you actually have — to make a tiny profit off the price difference between Treasury bonds and Treasury futures. You secure your loan with Treasuries. That's your collateral.

You're betting those two prices will stay tightly linked. Normally, they move together like two train cars on the same track.

But sometimes, the train cars come loose.

That's what happened last week when the price of the 10-year Treasury dropped as much as 5%. So if you put up $1 million, then borrow at 100-to-1, you now have a $100 million bond position.

Now bonds collapse by 5%. Well, 5% of $100 million is a $5 million loss. You, my friend, are wiped out. That is exactly what has been happening on Wall Street over the last 12 days.

Lenders are calling and saying: "You're underwater. Add more collateral or we're liquidating you."

That's the margin call.

You don't have the cash. So you're forced to sell your Treasury bonds to raise money.

But guess what?

So are all the other hedge funds in the same trade. Suddenly, everyone's dumping bonds. That pushes prices down even more… Spreads widen even further… And the doom loop kicks in.

The more spreads widen, the more the trade breaks. The more it breaks, the more bonds get sold. The more bonds get sold, the worse it gets.

That's how a tiny crack in the system turns into an avalanche. And that's exactly what's happening right now in the bond market.

This isn't just about a few funds losing their shirts.

The basis trade is massive. According to the Bank for International Settlements, hedge funds had over $1 trillion in gross exposures on the trade as of late 2023.

That's nearly as much leverage as we saw in the subprime mortgage market in 2007. And just like then, all it takes is one sharp move — one liquidity freeze — for the entire trade to collapse.

That is the reason why the President had to put in a 90-day freeze on the tariffs. He had to restore confidence back to the Treasury market to stop the selling.

But it's not really working. Treasury yields are still blown out from what they were 12 days ago. And I expect more mayhem in the bond market.

That brings me to the opportunity in front of us.

Why This Could Supercharge Bitcoin

Here's where it gets interesting.

As the bond market convulses and traditional safe havens fail to deliver stability, capital is looking for a way out.

In 2020, that "way out" was gold and bitcoin. Since 2020, gold has been up as much as 121% and bitcoin has been up as much as 2,370%.

In 2025, it's once again gold and bitcoin acting as the safe haven. Since the close of April 2 (the day reciprocal tariffs were announced), gold has been up as much as 4% and bitcoin has been up as much as 3%.

Meanwhile, the S&P 500, Treasury bonds, and the U.S. dollar have been down as much as 15%, 8%, and 5%, respectively.

The market is telling us that it wants gold and bitcoin. It doesn't want U.S. stocks, U.S. dollars, or U.S. bonds.

Why are the U.S. dollar and U.S. Treasuries failing in their traditional safe haven role?

Because right now, the world does not trust the United States. I'm not saying it will be that way forever. But the reality is right now, the rest of the world is fleeing U.S. assets.

They are looking for state-neutral assets. And that is why they have been flocking to gold and bitcoin. My bet is that just like in 2020, bitcoin's gain will outpace gold's gain.

That's because bitcoin has become the ultimate asymmetric bet against financial system fragility.

When the plumbing of the Treasury market — the supposed "safest market in the world" — breaks… the world looks for something outside the system.

Bitcoin is that something.

How to Play This

This story is still unfolding. More funds will get margin called. Treasuries will see more forced selling. Bond yields will probably spike up again.

And the Fed? Eventually, it will be forced to intervene — just like in March 2020… just like always.

When it does, liquidity will explode higher — and bitcoin will go vertical.

If you want to protect your wealth and give yourself a shot at multiplying it, this is your window.

Everyone should have at least a 10% allocation to bitcoin. In a sea of uncertainty, to my eyes, bitcoin is the most certain investment you can make right now.

Friends, the basis trade isn't just a trade gone wrong.

It's a glimpse into how fragile this entire financial system is… And how bitcoin is rapidly becoming the only asset with no counterparty risk. (Technically, this is true for gold as well, but gold has custodian risk.)

The great unwind is already here.

The question is: Will you watch from the sidelines — or will you position yourself before the Fed comes riding in on a wave of easy money, pushing bitcoin multiples higher?

Let the Game Come to You!

Big T