Key Points Summary
BitMEX co-founder and Maelstrom CIO Arthur Hayes appeared on "Coin Stories" to share his unique insights on Bitcoin, macroeconomics, the disruptive impact of AI, and the global liquidity cycle.
The core topics we discussed include:
· Why Bitcoin is referred to as the "global market's liquidity alarm."
· How AI-induced job displacement could become the catalyst for the next financial crisis.
· Why central banks may need to print more money in the future compared to the pandemic era.
· Whether institutional investors are altering Bitcoin's market dynamics.
· Arthur Hayes's investment advice: Why you should wait to buy Bitcoin until central banks start printing money.
Key Highlights
"Getting Fired by Citi" and Entering the Crypto Industry
· Getting fired by Citibank in 2013 was probably the luckiest thing that ever happened to me.
· I was very disillusioned with the mainstream financial industry at the time, especially after the 2008 financial crisis, where people could no longer make the same money as they did when I was in college.
· I realized two things: first, I wasn't as smart as I thought I was; second, in the long term, it's very hard to sustainably make money through trading. If someone like me without a technical background could make that kind of money, then that opportunity surely wouldn't last.
About "Institutionalization" and Bitcoin's Original Intent
· Some people may have already forgotten the original intent behind entering this industry. The birth of Bitcoin was not to gain approval from large financial institutions.
· Why are we now going all out to court those institutions that are not interested in our interests?
· If cryptocurrency becomes another run-of-the-mill fintech product, what is its appeal? Wouldn't it be simpler to buy stocks directly in a brokerage account?
On "Liquidity Alarm" and the Macro Situation
· Bitcoin is actually a "liquidity alarm." Bitcoin's performance tells us that there is currently not enough USD liquidity in the market to meet various liquidity needs. This also explains why Bitcoin has underperformed in the last 6 to 9 months.
· The rise in gold is not due to "currency debasement trades," but because sovereign nations are gradually realizing,
· the risk of holding USD assets is increasing. Holding gold is obviously more prudent. Especially in 2022, when the US and EU froze Russia's assets, this trend became more pronounced.
On the "Minsky Moment" Triggered by AI
· The pace of AI advancement is far faster than the speed at which industrial workers were laid off years ago.
· Only 10% to 20% of white-collar jobs being replaced is enough to trigger a leverage effect in the banking system, leading to a chain reaction. This situation is similar to a "Minsky Moment": when the market suddenly realizes that the value of certain assets is zero, it triggers a panic sell-off.
On the Strategy Advice of "War and Money Printing"
· When you hear someone say "war is good for Bitcoin," what they really mean is "war means money printing, and money printing is good for Bitcoin." So my advice is to wait for the money printing, rather than trying to predict the market.
· If I only have $1 to invest right now, I would choose to stay put for the time being.
· The longer the war drags on, the more likely the Fed will resort to a money printing policy to support the situation. When the central bank starts printing money, that's when I would choose to buy Bitcoin.
On the Threat of Privacy and AI De-anonymization
· I believe the real threat will come from AI tools that can de-anonymize your transactions, which is the true "game-changer."
· Simply inputting an address and a specific individual into a large language model can yield a highly probable match.
· If you truly need a fully anonymous electronic cash system, Bitcoin may not be for you.
· This is also why I am very bullish on Zcash.
Psychological Massage for Investors
· The essence of the market is not to help you make money; the essence of the market is actually to take your money away from you.
· If you expect the market or a certain asset to bring a "life-changing" return in just 6 months, that expectation is unrealistic.
· You may see some people get rich overnight due to good luck, but I bet they are likely to lose all the money they earned in the next 6 months because they will continue to believe they can make the same fortune through risky trading strategies.
Who Is Arthur Hayes? His Legendary Story
Natalie Brunell: Hello everyone, welcome back to the show. This week, we have Arthur Hayes as our guest, who is the Chief Investment Officer of Maelstrom and also an OG.
Let's start with your background story. Your experience is very interesting. I remember reading that you grew up in Michigan, then entered the finance industry. You founded BitMEX, got involved in Bitcoin early, but then embarked on a very exciting journey. Could you share your story with us?
Arthur Hayes: Of course. I was born in Buffalo, New York, and spent most of my childhood in Detroit. I studied at the University of Pennsylvania, pursuing a bachelor's degree in Business from 2004 to 2008 at the Wharton School. During that time, I developed a strong interest in China and took Chinese and business courses at school. In 2006, I went to study in Hong Kong as an exchange student, and I really enjoyed my time there. Subsequently, I secured a summer internship at Deutsche Bank's Hong Kong branch and eventually landed a full-time job in 2008, moving to Asia where I have been living ever since.
I have spent half of my life in Hong Kong, Singapore, and other parts of Asia, never worked in the US, and rarely returned. I worked in the financial services industry for five years, with three years as a market maker supervisor for Exchange-Traded Funds (ETFs) at Deutsche Bank, at a time when ETFs were still emerging in Asia.
Later, I left Deutsche Bank and joined Citibank, doing the same job. Looking back, getting fired by Citibank in 2013 was perhaps the luckiest thing that ever happened to me. At that time, I was deeply disappointed with the mainstream financial industry, especially after the 2008 financial crisis, realizing that people could no longer make the same money as I did when I was in college.
So, I felt that there might not be much room for growth for me in this industry, so I decided to try something different. That's when I saw a post about Bitcoin on Zero Hedge, and then I read the Bitcoin whitepaper, deeply fascinated by the philosophy behind it. Even though I didn't have a technical background and was a trader, I still wanted to know "how to trade Bitcoin," so I started searching for information on various forums, researching all the trading platforms available at the time, wanting to know how to long, how to short, and if there were any derivative trades.
Later, I found a small derivative trading platform operated by two Russians in the Caribbean. At that time, I discovered an excellent arbitrage opportunity: you could sell their futures contracts while buying spot Bitcoin, with an annualized return of up to 200%. So, I bought my first Bitcoin on Mt. Gox and sold some futures contracts. A month later, I found that I had earned the expected amount of Bitcoin, so I started making such trades, which lasted for several months.
By the fall of 2013, Mt. Gox encountered some issues, such as being unable to withdraw USD. I tried to withdraw USD to my bank account but had to wait for several weeks. So I started following discussions on forums and found that others were facing similar issues. Although USD withdrawals were not possible at the time, you could withdraw Bitcoin from Mt. Gox at any time, and in the fall of 2013, the premium of Bitcoin in China surged, reaching 40%, 50%, 60%.
Therefore, I decided to use those USD that couldn't be withdrawn on Mt. Gox to buy Bitcoin and then transfer the Bitcoin to a Chinese exchange for settlement in RMB. I would take a bus to China to open a bank account, withdraw RMB, then take a bus back to Hong Kong, and I kept arbitraging using the price difference between China and Hong Kong.
Through this method, I made some money, but as a trader, I realized two things: first, I wasn't that smart; second, in the long run, trading is hard to sustain profitability. If people like me without a technical background could make this kind of money, then this opportunity definitely wouldn't last long. So, I started thinking about how to create something more sustainable to continue staying in the cryptocurrency space.
So I Thought of Derivatives. Even though I had no technical background and couldn't code, I decided to build my own Bitcoin derivatives trading platform. I sought out people in my circle in Hong Kong who could help me, and I presented to them the idea of creating a Bitcoin derivatives trading platform. In 2014, we started developing BitMEX and launched the first futures contract in November of the same year.
Of course, our most well-known product is the Perpetual Swap launched in May 2016, as your audience may know, which may be the most traded cryptocurrency product to date. We made a lot of money from it and were once industry leaders until Binance surpassed us in 2020. I then shifted focus, managing my family office, concentrating on early-stage cryptocurrency investments and making some directional trades. Now, we are launching a private equity fund that focuses on acquiring cryptocurrency companies and optimizing their operations.
The Future Trend of Bitcoin: Bullish or Bearish?
Natalie Brunell: You have been deeply involved in the cryptocurrency space for many years and have witnessed the industry's evolution. From the early block size wars to the gradual institutional adoption today, has your attitude towards Bitcoin become more bullish over time? Some early OGs have cashed out, while others have become more passionate, even predicting a price of one million dollars per Bitcoin. What are your thoughts?
Arthur Hayes: I personally love this space and the people here; they are the most interesting people I have met in my life. While I may be bearish or bullish on Bitcoin at certain stages, I always believe that the demand for stateless money is stronger now than it was when the Genesis Block was first released in 2009. So whether it's Bitcoin or other cryptocurrencies, I am thrilled to be part of this journey.
Although there are times when I may have short-term bearish views on Bitcoin or other assets, in the long run, I am very bullish on Bitcoin and the entire cryptocurrency space. In fact, apart from other matters, most of my professional career's non-workout time has been spent in the cryptocurrency industry.
Are Institutions Dominating the Bitcoin Market?
Natalie Brunell: Many viewers following my show were both puzzled and disappointed by the last Bitcoin bull run because they didn't see Bitcoin's price reach the anticipated high. Retail investor participation in the last bull run was actually very low, with the market primarily being driven by institutions. What is your view?
Arthur Hayes: I think some people may have forgotten why we got into this industry in the first place. Bitcoin's inception was not to win over large financial institutions. Throughout Bitcoin's journey to $66,000, it has never relied on government support, lacked a clear regulatory framework, and even faced opposition from the traditional banking sector and regulatory bodies. So, why are we now trying so hard to court those institutions that are not interested in our best interests?
Our focus should be on nurturing those who desire to build a brand-new financial system for the era of civilization, rather than trying to cater to the demands of the traditional financial system. Of course, I am not saying institutional investors should not hold cryptocurrency, but we should not change the essence and purpose of the entire crypto ecosystem to accommodate these institutions.
The true value of cryptocurrency lies in its ability to bring about transformational change. If we blindly cater to the needs of traditional financial institutions, cryptocurrency may ultimately devolve into another mundane financial tool. By then, people may question why they need to hold cryptocurrency at all. Wouldn't it be simpler to buy stocks directly in a brokerage account? Even to some extent, stock trading may be more secure. If cryptocurrency turns into just another ordinary financial technology product, what appeal would it have?
Is the Bitcoin Price Being Manipulated?
Natalie Brunell: There has been a lot of discussion on X recently about some institutions manipulating and suppressing the Bitcoin price, such as the recent news about Jane Street. You have extensive experience in derivatives trading, trading firms, and the traditional financial industry. How do you view these concerns and theories?
Arthur Hayes: I do not subscribe to these views. Many times, it's someone posting on X saying, "Oh, I lost money; it must be someone else's fault." This is typically a sign of a bad trader. They would say, "I made a trade, the outcome was poor, and then I saw some news about a company doing something shady, so it must be their fault." In reality, it's not like that; the issue may lie with the trader themselves—perhaps your trading strategy is not mature enough, or maybe your timing is off, or even you underestimated the complexity of the market.
I do not believe in any so-called "evil conspiracy," such as Jane Street or other market makers joining forces to intentionally suppress the price of Bitcoin. The market has its own operating rules, and different institutions participate in their own ways. Indeed, liquidity in the derivatives market plays a significant role in short-term price fluctuations, but this does not mean the market is being manipulated.
I would like to remind you that if you are not a professional cryptocurrency trader, you need to stay alert at all times. The cryptocurrency market is 24/7, which means you may need to keep your phone on and various alerts set up. If there is a significant market movement at 2 AM and your phone rings, you have to get up immediately to deal with it. If you are not mentally prepared for this and just want to casually trade after work, then I suggest you not use leverage in the cryptocurrency market and not have a short-term profit mindset.
If you just want to buy Bitcoin or other cryptocurrencies and hold them long-term, then these short-term price fluctuations are actually not important to you.
What are the factors hindering Bitcoin's development?
Natalie Brunell: What factors do you think are currently hindering Bitcoin's development? Especially as "currency debasement trading" is becoming more widely recognized. It seems that all assets are now entering a bull market against gold, and we originally hoped that Bitcoin could stand alone, but it turns out it has not been spared.
Arthur Hayes: My view is that Bitcoin is actually a "liquidity alarm." Currently, the United States, especially the United States, is facing a massive deflationary time bomb, which is closely related to the disruptive impact of artificial intelligence (AI) on the labor market. Bitcoin and some tech stocks are sending us a signal: In a highly leveraged Federal Reserve banking system, there may be a large-scale credit collapse, especially when jobs of some high-income groups are replaced by AI due to cost-cutting, making these positions more easily taken over by AI in a faster, cheaper way.
Bitcoin's performance tells us that there is currently not enough dollar liquidity in the market to meet various liquidity needs, especially those related to capital expenditures (capex) of hyperscalers. This is also why Bitcoin has underperformed in the past 6 to 9 months. If you observe the market, the Nasdaq index has been relatively stable, but Bitcoin's price has dropped by about 50%. Meanwhile, the price of gold has been steadily rising.
I believe that the rise in gold prices is not due to "currency debasement trading," but rather because sovereign nations are gradually realizing that the risks of holding USD assets are increasing. In fact, it has been proven multiple times that these USD assets do not wholly belong to the country holding them. When you hold USD assets, your economic sovereignty is essentially in the hands of individuals like the U.S. Treasury Secretary. They can dilute the value of your assets by issuing massive amounts of bonds, or they can directly freeze or even confiscate your assets through sanctions. In this scenario, why would a country still want to hold such assets in its reserves?
In contrast, holding gold is evidently more secure. That is why since 2008, central banks worldwide have consistently increased their gold reserves. Particularly in 2022, this trend has become even more pronounced after the U.S. and EU froze Russian assets.
How is the Disruptive Impact of Artificial Intelligence (AI) Changing the Market?
Natalie Brunell: Going back to your previous point about AI, you wrote a fantastic article discussing the deflationary shock triggered by AI and the risks faced by white-collar jobs. Additionally, you mentioned that private credit and the overall credit market will contract at some point, becoming a catalyst for the Fed to engage in large-scale money printing, thus driving up the price of Bitcoin.
Do you think this scenario is imminent, or do you believe it is a slow and gradual process that will eventually lead to a gradual increase in Bitcoin's value?
Arthur Hayes: I'm not sure, but I think this scenario may happen faster than most people expect, mainly because the progress of AI is exponential. If we look back at the case of the 2008 subprime mortgage crisis, it actually slowly brewed and erupted about 7 years after China joined the World Trade Organization (WTO). China's accession led to the loss of about 35% of manufacturing jobs in the U.S. These displaced workers fell into poverty, had to apply for subprime loans, and were unable to repay the debt. Although the default rate only slightly rose to single digits, due to the leverage effect, it eventually triggered a financial crisis.
Yet, the progress of AI is far faster than the speed of laying off production line workers back then. We see companies like The Block laying off 40% of their workforce overnight. And in the U.S., many companies, based on flexible labor agreements like "at-will employment," are also discussing similar layoff plans. Once these companies realize that AI can perform tasks more efficiently, they may quickly cut 10%, 20%, or even 30% of their workforce.
My point is not that all white-collar jobs will disappear, but that only 10% to 20% of white-collar jobs need to be replaced to trigger a leverage effect in the banking system, leading to a chain reaction. This situation is similar to a "Minsky Moment": when the market suddenly realizes that the value of certain assets is zero, it triggers a panic sell-off. Although the entire process may take two to three years to fully unfold, the market's reaction may be almost immediate.
We cannot accurately predict when all this will happen, but once the market forms some kind of "collective consensus," such as "the AI disruption has arrived, and many white-collar workers are being laid off," people may start to question the value of financial stocks. At that time, bank stocks could plummet by 60% to 70% in just a few days, depositors will move their funds from small and medium-sized banks to large banks like JPMorgan and Citibank, and the Fed will have to intervene rapidly.
Therefore, although this impact may take two to three years to fully materialize, the market's awareness of this change may be very rapid. Just the formation of some "collective consensus," such as "the AI disruption has had a significant impact on the economy," could trigger a large-scale market response.
The Impact of Social Unrest and Economic Pressure on the Crypto Market
Natalie Brunell: Are you worried about the potential societal impacts of these things?
The division in American society is becoming more severe, with a significant amount of public discontent and escalating social unrest. Politically, people are becoming more tribal and polarized. And as more people become unemployed, some seem to see the solution as electing candidates who promise "free welfare." This fundamental sense of frustration seems to trigger a chain reaction, and many people fail to realize that they need to own and accumulate hard assets like Bitcoin.
Arthur Hayes: Indeed, the social contract between labor and capital varies from country to country. In the United States, this contract appears very fragile, as capital clearly dominates, while the rights of laborers are relatively overlooked. In other places, the situation is somewhat more balanced. So, I do believe that in the future, we will face an extremely divisive era.
Many people once thought they were wealthy, but when they lose their jobs, they find themselves becoming the kind of people they used to look down upon, reliant on government assistance. So, what impact will this have on their self-esteem? How will they express their discontent? Through politics or through more direct means, such as taking up arms and protesting in the streets? Some may oppose the construction of data centers or direct their anger toward tech giants like Elon Musk, Sam Altman, and Mark Zuckerberg, believing they have deprived them of the American dream they thought was rightfully theirs by destroying ordinary people's job opportunities to earn outsized profits.
I cannot predict how all of this will ultimately unfold, but what is certain is that the future societal evolution will not be linear, but rather filled with uncertainty and waves, making it an inherently divisive time as the current American social contract needs to be redefined. As for how this contract will change, I cannot provide a definitive answer, but undeniably, it will be a challenging and painful process.
Can Bitcoin Solve the Global Affordability Issue?
Natalie Brunell: Many people are very frustrated with the current situation as they feel priced out of homeownership and unable to participate in the capital and wealth accumulation of the past few decades. Bitcoin seems to me like an obvious solution because people can accumulate it bit by bit. However, there are still many people hesitant about Bitcoin. Despite significant progress, there is still a lot of pushback against Bitcoin, which surprises me.
Arthur Hayes: I don't think buying a little bit of Bitcoin will really solve your problem. If you make $250,000 a year but suddenly lose your job and can't pay a $750,000 mortgage and $50,000 credit card bills every month, then Bitcoin won't help you. Of course, for those who have been accumulating Bitcoin for a long time, it is indeed a good asset, and I believe the price of Bitcoin will continue to rise in the long term. But for those who once thought they were wealthy and now find themselves in distress, Bitcoin cannot immediately solve their financial problems. They may realize that they have been spending too much each month to maintain their so-called 'ideal lifestyle'.
I believe Bitcoin is more suitable for those with idle capital who can see it as a possible solution. If you belong to those who may be replaced by AI or economic changes, then you need to rethink your lifestyle and spending structure. For example, reassessing if you really need those expensive consumer electronics or if you need to live in a high-cost city or community. Just as people often say, 'the first to sell is the best seller'. When people start to realize they need to cut back on expenses, who will take over these high-priced properties? If your income goes from $250,000 to $75,000, you may find yourself needing to make significant lifestyle adjustments.
Natalie Brunell: Nevertheless, among all possible solutions or 'lifeboats,' don't you think people's choices are very limited? If someone is living from paycheck to paycheck, work becomes increasingly unstable, there are no assets, and they even face the risk of being phased out, the future is very uncertain. In this scenario, what options are left to help them?
Arthur Hayes: To be honest, I have never experienced such a situation myself, so I can only try to analyze it from an external perspective. But I think the most important thing is to examine your cost of living and reduce unnecessary expenses as much as possible. For example, consider what things you really don't need. In the past, you may have been used to casual shopping on Amazon, but now you may need to switch to more economical options. The key is to quickly adjust your financial situation so that when a crisis truly comes, you are prepared for it and can better find a way out.
What Are Bitcoin Investors' Expectations for the Market?
Natalie Brunell: I've met some investors who only started getting into Bitcoin at the peak of the last bull market. When the price of Bitcoin reached $50,000 or even $60,000, that's when they entered. Now they feel very disillusioned because they've experienced significant price fluctuations, even crashes, on top of the overall collapse of the crypto market. They feel that their investment has not brought any life-changing returns.
These people often say: "For me, this hasn't changed anything." Sometimes I wonder, what can I say to them to help them regain confidence and continue to slowly accumulate Bitcoin through dollar-cost averaging? After all, for them, this investment has not brought any substantial change in wealth. They may feel that all the opportunities have passed, those early adopters who bought Bitcoin before 2017 or participated in mining, were able to accumulate a large amount of Bitcoin through regular income. And now, this opportunity seems to no longer exist. They may wonder, what can they still accumulate now?
Arthur Hayes: I think the first thing to do is adjust your expectations. Whether you're buying Bitcoin, stocks, or real estate, the essence of the market is not to make you money; the essence of the market is actually to take your money from you. If your investment horizon is too short and your expectations are too high, then you will take risks, even use leverage, because you are eager to make a quick profit. You might think, "I need to use some leverage to make money faster because this is a revolutionary asset."
Have you ever thought about how those people you see on TikTok who made a lot of money through Bitcoin persevered in the early days? How did they feel when Bitcoin dropped from $250 to $70 in 2013? How did they hold on when Bitcoin dropped from $1300 to $135 in 2014? Many people only see how much money these people have made today, but they fail to realize that Bitcoin's volatility in the early days was three to four times higher than it is now. If you bought $10,000 worth of Bitcoin at $100 in the early days, you might have sold it when the price rose to $200 or sold it when the price dropped to $99 due to disappointment because it didn't meet your short-term price performance expectations.
So, what I want to say is that Bitcoin will not immediately rescue your financial situation; its value is more evident in long-term accumulation. As people often say, "Stocks are the best option for long-term investment," and this statement also applies to Bitcoin. Compound interest and time are the most powerful forces in capital accumulation, but the key is time. If you can persist in the long term and continue to invest, Bitcoin may exponentially help you accumulate wealth.
However, if you expect the market or a certain asset to bring a "life-changing" return in just 6 months, this expectation is unrealistic. Of course, you may see some people get rich overnight due to good luck, but I bet they will likely lose all the money they earned in the next 6 months because they will continue to believe that they can make the same wealth through risky trading strategies.
Bitcoin in China: Current Situation and Future
Natalie Brunell: What is the adoption and investment mentality of Bitcoin like in your region or a place like China? Because the opinions I've heard are not consistent.
Arthur Hayes: In fact, the Chinese government and some local governments are still involved in Bitcoin mining. If you look at the IP data of the Bitcoin network, you will find that China's hashing power still accounts for 20% to 30% globally. As for why China has closed most non-government-affiliated mining farms, the main reason is the adjustment of energy policies, especially against the backdrop of the current war between the United States, Israel, and Iran. China does not want to rely on imported oil or other hydrocarbon energy sources. The government hopes to use energy resources for activities more in line with the country's long-term development goals, such as producing electric vehicles (EVs), batteries, humanoid robots, rather than for Bitcoin mining.
This is one of the key reasons the Communist Party of China is driving the exit from Bitcoin mining because they believe mining consumes a significant amount of energy, but does not directly help the country's economic goals. However, having said that, there are still many idle energy resources in China, allowing some smaller local governments to continue Bitcoin mining "quietly" under central government supervision. Therefore, there are still many large mining farms operating in China, and these farms are usually affiliated with local or central governments.
So, overall, although China nominally prohibits Bitcoin mining, the actual situation is not entirely as it seems.
How Do Governments View Bitcoin?
Natalie Brunell: I guess the Chinese government may have already accumulated a significant amount of Bitcoin at the national level, which may also be one of the reasons why the United States is unwilling to disclose how much Bitcoin we actually hold. Perhaps this is related to our adversarial relationship with China. What impact would it have on the situation if China holds more Bitcoin than the U.S.?
Arthur Hayes: Maybe, but I'm not sure. However, I think focusing on how much Bitcoin a sovereign nation holds is not really meaningful. Even if we assume that China holds 200,000 Bitcoins, the value of these Bitcoins may be billions of dollars, but compared to the gold market, this scale is still very small. The gold market itself is still a small market compared to the U.S. dollar stock market or real estate market. So, I don't think that either the U.S. government or the Chinese government would lose sleep over how much Bitcoin they hold. In terms of the overall size of national wealth, the influence of Bitcoin is still far from sufficient.
Natalie Brunell: So, do you disagree with Max Keiser's view? He believes that in the future, there may be a so-called "hash rate war," where governments will compete for Bitcoin mining power and try to accumulate as much Bitcoin as possible.
Arthur Hayes: I don't agree with that view. I believe that sovereign nations are not so concerned about Bitcoin. Even in the U.S., Bitcoin is more used as a tool to attract voters, as you can see from some of the policies of the Trump administration. They may promise to fight for the interests of certain voter groups during the election, but the policies implemented often do not fully align with those promises. Whether you agree or not, this shows that Bitcoin plays more of a political tool in the U.S., used to garner votes.
This is even less likely to happen in China, where the Chinese government does not care about Bitcoin itself. They are more concerned about the internationalization of the yuan and how to use the yuan in international trade circulation. As for what people do with Bitcoin, it is actually irrelevant to them.
The Current State and Challenges of Bitcoin Adoption
Natalie Brunell: Bitcoin as a technology is transformative; it can free us from the constraints of the traditional financial system and fiat currency. What do you think the future holds for Bitcoin in the next 5 to 10 years? From the perspective of adoption and growth, how do you see the future unfolding? Of course, "price appreciation" is undoubtedly helpful in driving adoption, right?
Arthur Hayes: I believe price appreciation is indeed a key driver of Bitcoin's mainstream adoption, and "price appreciation" itself is like a viral mechanism for spreading awareness about Bitcoin. Why do people hear about Bitcoin? Because its price surged in 2013, the media started covering it, I saw related articles, and then I became interested in this technology and started delving into it. So if in the next five years, Bitcoin's price rises from the current $66,000 to $500,000, it will undoubtedly attract a large influx of new users and also rekindle some people's interest in Bitcoin's technology and potential. This price leap is indeed a crucial means to drive Bitcoin's mainstream adoption.
So, what is the fundamental driving force behind all this? The answer is liquidity. That is, how much fiat currency is being created in the market, whether it's the US dollar, euro, yen, or yuan. As long as these currencies continue to be extensively printed (and I don't think this trend will stop), mathematically speaking, as the currency supply keeps expanding, Bitcoin's price will also rise accordingly.
Of course, price volatility and path uncertainty are unavoidable. For example, due to war or other unforeseen events, Bitcoin's price could plummet to $20,000 in the coming weeks. But in the long run, the existing fractional reserve banking system forces governments around the world to keep printing money, a trend that is almost irreversible. It is this continual currency issuance that will drive Bitcoin's price up in the long term. Ultimately, price appreciation will attract more people to the market, and this attraction is the core driving force behind Bitcoin's mainstream adoption.
Will Retail Investors Return to the Bitcoin Market?
Natalie Brunell: Do you think we will see another cycle of retail investor enthusiasm returning? The market's dominant force now seems to have shifted to institutional investors. Do you think there will be another wave led by ordinary people in the future?
Arthur Hayes: Certainly, but perhaps this time the protagonist may not necessarily be Bitcoin, but some other cryptocurrency. It could be something more closely associated with cultural products, such as NFTs or even things like memes. Although I know many people lost a lot of money in meme trading during the last cycle, and this frenzy seems to have subsided now, but if you want to know what the main driving force of the last wave was, it was meme trading.
There will definitely be new hotspots in the future. Because I believe that central banks worldwide will continue to print money to ensure that people do not take to the streets in unrest amid the economic and employment impact brought about by AI. Until we find a way to fairly distribute the wealth generated by this productivity, owning assets that perform well in the currency debasement is a coping mechanism. When that time comes, no matter what type of asset retail investors favor, they will flock back to the markets, participating in various conferences and gatherings, and that kind of craze will surely return.
The Impact of Currency Overissuance on Bitcoin
Natalie Brunell: Do you think that in the face of new economic challenges, governments around the world will print more money than they did during the pandemic?
Arthur Hayes: It is very likely because it is an exponential process. Governments not only need to print money to address current issues but also to repay previous debts. If you observe the trend of the total U.S. national debt, you will find that it is a typical exponential growth curve.
From this perspective, we are just getting started. Just imagine, if AI is indeed as powerful as people say—although I personally do not think it will be completely so—then everyone will lose their jobs, right? Although this scenario may not happen, but if one day everyone is replaced by robots or automated systems, how terrible would that be? The banking system may collapse completely, and by then, the government will have to print more money to cope with everything.
Of course, I don't think this extreme scenario will actually happen, but it can serve as a thinking model that allows us to imagine the consequences if AI is really as powerful as people say.
Career Development in the Age of AI: Opportunities and Challenges
Natalie Brunell: If you have just graduated from college and want to accumulate wealth as much as possible, what would you choose to do?
Arthur Hayes: Start a podcast. Although computers can do many things, their input still needs to come from our human conversations, text. AI needs new experiences, new human experiences, to perform predictive analysis and serve us. So those who can drive conversations, create fresh unique content, will become the most valuable talent in this post-AI society. No matter what field you are good at, you can give it a try. Whether it's writing, singing, dancing, or any other form of creative content, these are the demands that AI cannot meet but must learn from to complete its work.
Natalie Brunell: Many people are actually concerned right now that jobs in the creative field are being replaced by AI. I've seen some generated videos that look very lifelike, but are actually made by AI. Those videos that look like real people might just be virtual avatars, and sometimes it's really hard to distinguish truth from fiction. Don't you think the future will become increasingly difficult to differentiate between reality and the virtual?
Arthur Hayes: It will indeed become very difficult, which is why people are buying into things like Worldcoin or exploring sovereign identity authentication technologies, such as 'human authentication.' These technologies may become some kind of standard, but I'm not sure yet what that will specifically look like, and this has actually been a topic that people have been researching for many years.
If you think about it, when you input a prompt, like 'generate something that looks like this to me,' that prompt is usually based on a real person, a band, or some existing content. AI will try to mimic it. So, you should strive to be the kind of person that AI would want to mimic in any capacity.
Natalie Brunell: What is your favorite AI tool? Do you use them often in your work?
Arthur Hayes: I recently started using Perplexity's tools, and I find it particularly powerful, it's like an intelligent task orchestration platform. Some of my friends bought a Mac Mini recently, installed Clawbot or other tools themselves, delving deep into the specifics of AI implementation, but I don't have that much time, and I'm not interested in diving into those technical details. Perplexity's tools can handle various tasks in synchronous parallel and even utilize an AI Agent to get the work done. I think there will be a trend in the future where people like me won't need to handhold multiple AI Agents but can directly pay companies like Perplexity to provide streamlined tools. I mainly use it for research and generating charts, and it's really convenient.
Natalie Brunell: Have you seen a recent article by a researcher at Anthropics who quit their job and claimed that human society is heading for destruction? They even decided to move to London to live. Are you concerned about the negative impact of AI, or the dark future predicted by those pessimists?
Arthur Hayes: Perhaps, but I feel life is too short to constantly worry about these things. I don't know if the future will be good or bad. I've read a lot of science fiction novels, which depict both good and bad futures. Whatever happens is inevitable. So, I don't stress too much about it.
Maelstrom Fund: How Does It Impact the Crypto Market?
Natalie Brunell: I'd like to understand more about your work. You are the Chief Investment Officer of Maelstrom Fund, what are your main activities? What is this company's specific business?
Arthur Hayes: I co-founded Maelstrom with my partner Akshat. He previously worked at BitMEX with me, and then we started this company in 2013. Honestly, I am not very good at early-stage investing because I tend to lose patience easily. We don't have limited partners (LP), so we don't have to worry about other people's opinions. We focus on finding profitable opportunities and specialize in technically advanced trading, getting into high-quality projects early on.
Initially, we mainly wrote some small checks, like $50,000 to $250,000, to invest in early-stage projects. Our timing was perfect at the beginning, as it was the best time to invest in some outstanding "junk coin" projects. For example, Etherfi, which initially was an Ethereum staking service provider but later evolved into a neobank, of which we are now advisors. We are also advisors to Pendle and Athena.
Athena was a protocol idea I proposed, later implemented by Guy Young and his team, and is now the third-largest stablecoin protocol.
In the early stages of the fund, our performance was outstanding. Later on, we gradually shifted towards providing advisory services. That's why you often see me speaking on various podcasts or at cryptocurrency conferences, sharing our latest updates and the Token projects we are bullish on. Of course, our advisory service fees are usually paid in Token form because we believe these Tokens will appreciate significantly in the future.
Additionally, we are also involved in the realm of liquidity trading. I hired a former colleague who worked with me at BitMEX and Deutsche Bank, and now we mainly focus on directional trading and volatility trading in the cryptocurrency space. Our strategy is mostly long, with very few short plays.
Recently, we have also expanded our private equity investment business. We have found many excellent companies in the crypto industry, such as those focusing on data availability, API connectivity, and related services. These companies provide support for transactions, often attracting significant fund inflows and boasting high profit margins. However, as these companies are usually founded by non-US individuals, their valuations are often underestimated. Many founders have been deeply involved in the industry for years and may wish to liquidate some of their shares. This is where we come in, providing substantial funding, acquiring these companies, replacing the management team, introducing a new operational team, increasing the price-to-earnings (P/E) ratio, and then taking the company public or selling it to financial institutions looking to acquire quality assets. Currently, we are in the process of fundraising for this fund.
The Potential Threat of Regulation, Privacy, and Quantum Computing Technology
Natalie Brunell: Looking in recent years, we have seen increasing attention on the cryptocurrency industry from regulatory bodies, especially regarding anti-money laundering (AML) and know your customer (KYC) regulations, including crackdowns on privacy tools. Do you think this tension will continue? Particularly with Bitcoin serving as a peer-to-peer exchange medium and protocol, how will the conflict between these two forces evolve, considering people's concerns about institutionalization and corporate control of Bitcoin?
Arthur Hayes: Without a doubt, Bitcoin has become synonymous with this opposition, with many fearing that businesses may introduce some ridiculous KYC and AML mechanisms, thereby eroding Bitcoin's privacy. The concerns are valid, but the actual implementation may be different. I believe the real threat will come from AI tools that can de-anonymize your transactions, which is the true 'game-changer.'
This change may not require any complex new regulations; it just needs to input an address and a specific person into a large language model (LLM) to provide a high-probability match. In fact, this technology is already feasible, although the current accuracy may not be high enough, but it is happening.
This is also why I am very optimistic about Zcash. Zcash is essentially a privacy-centric version of Bitcoin, based on Bitcoin's code but incorporating zero-knowledge proof technology. If you truly need a fully anonymous electronic cash system, Bitcoin may not be the best choice. I don't think Bitcoin's core developers will add such functionality to the protocol, whereas Zcash was designed to address this issue. If you are concerned about the future combination of AI technology with Big Tech data, along with government control of data, then privacy coins like Zcash or Monero may be more suitable for you.
Natalie Brunell: What are your thoughts on the potential threat of quantum computing technology?
Arthur Hayes: I am not too concerned about quantum computing posing a threat to Bitcoin. I have discussed this issue with Johnny Beer from the BitMEX research team multiple times. In fact, there have been Bitcoin Improvement Proposals (BIPs) that have proposed methods to keep Bitcoin secure in a post-quantum computing world.
If you are currently worried about quantum computing, there are actually some ready-made solutions, such as using the latest Bitcoin address types. If you send Bitcoin to these addresses and only use them once, your Bitcoin will not be vulnerable to quantum computing threats.
However, if you are still using old Bitcoin addresses from 2009, these addresses may face some security risks in a future where quantum computing technology is mature because quantum computing could potentially derive private keys from public keys and transaction records. But overall, I don't see this as an imminent issue. The community has been actively researching this issue and has proposed some solutions to help Bitcoin adapt to the post-quantum era.
Overall, I think concerns about quantum computing are more of a FUD (Fear, Uncertainty, and Doubt) issue. Every few years, someone raises the "quantum computing panic" to hype things up, like "I won't buy Bitcoin because quantum computing will break it in the future." But in reality, relevant solutions already exist; they just need time to be implemented. So, I am not particularly worried about this.
Will Institutions Drive a Bitcoin Fork?
Natalie Brunell: Some people predict that Bitcoin may experience an event similar to the block size debate of the past, but this time, the driving force may come from an institutional level. For example, something like a "BlackRock Chain" could emerge, leading to a fork and creating another chain. Do you think this scenario will happen? If it does happen, what do you think the situation will be like?
Arthur Hayes: If BlackRock owned 30% of the hash rate, then perhaps this scenario could be possible. But the reality is that BlackRock is no different from the rest of us; they are just holders of Bitcoin because their primary business is asset management—their responsibility is to accept client assets, custody them, and collect management fees.
However, those who can truly impact the Bitcoin network are entities engaged in mining, running nodes, and other direct activities within the crypto ecosystem, activities that BlackRock does not participate in. Therefore, the so-called 'BlackRock Chain' does not have any practical possibility unless they decide to purchase ASIC miners and engage in Bitcoin mining. If you can paint me a future scenario where this happens, then we can discuss something like 'BlackRock pushing for a Bitcoin hard fork.' Otherwise, such a statement holds no meaning whatsoever.
Has Bitcoin Price Bottomed Out?
Natalie Brunell: Last question: Do you think the price of Bitcoin has bottomed out?
Arthur Hayes: I'm not sure either. I recently wrote an article discussing the escalating tensions between the U.S. and Iran, suggesting that if this conflict continues, the stock market could see significant sell-offs, potentially driving Bitcoin's price further down, possibly even below $60,000. Such a scenario could trigger a cascade of liquidations. So, if I had only $1 to invest right now, I would choose to hold off temporarily rather than buy Bitcoin at this moment.
My view is, the longer this conflict persists, the more likely the Federal Reserve will start printing money to support the U.S. war machine. And when central banks start printing money, that's when I would choose to buy Bitcoin. In fact, we've already heard some signals such as Trump possibly deploying ground troops or indicating that this war could be prolonged, no matter how long it takes. These statements suggest that the longer the war drags on, the more likely the Federal Reserve will resort to printing money to stabilize the situation. Looking back on my life experiences, almost every major conflict in the Middle East has been accompanied by this kind of occurrence.
So, when you hear someone say 'war is good for Bitcoin,' what they really mean is 'war implies money printing, and money printing is good for Bitcoin.' So my advice is to wait for the money printing to kick in, rather than trying to predict the market because you might get it wrong. The news we see is often a narrative from mainstream media, conveying what authoritative institutions want us to hear rather than what might actually happen. So, instead of taking their word for it, it's better to observe what they actually do.
