Will This Debt Crisis Collapse The US Economy? | Arthur Hayes Mashup PT 2

Summary

---

Impact Theory Podcast:

Will This Debt Crisis Collapse The US Economy? | Arthur Hayes Mashup PT 2

Date: August 29, 2024 | Host: Tom Bilyeu | Featured Guest: Arthur Hayes + Crypto Expert/Analyst

---

Episode Overview

In Part 2 of Tom Bilyeu’s conversation with Arthur Hayes, the podcast explores the escalating debt crisis, the growing schism between fiat and digital money, and the social and economic turbulence looming over the US and global economies. Hayes and additional crypto experts dive deep into how crypto—specifically Bitcoin—could act as both hedge and haven in an era when traditional systems are under intense strain. They dissect narratives behind crypto adoption, government responses, the fatal flaws of current systems, and the social psychology driving financial behavior.

---

Key Discussion Points & Insights

1. Austerity, War, or Bitcoin: New Choices in Financial Reset

• Hayes argues that when faced with an unsustainable fiat system, people traditionally had no way to opt out, but now crypto provides an exit route (01:34).
  • “If you, through hard work, build up a fiat nest egg and you recognize that this situation is untenable...it behooves you to get out of those fiat assets. Now we have crypto.” (Crypto Expert, 01:34)
• Austerity’s pain falls hardest on those holding depreciating assets; crypto offers a means to sidestep this devaluation and preserve wealth.

2. Cycles of Empire, Technological Change, and the Crypto Arc

• Tom links cycles of debt and social reset to current events, reinforcing Ray Dalio’s analysis (03:15).
  • “History doesn’t repeat. It rhymes...every cycle will repeat with that [debt jubilee].” (Tom Bilyeu, 03:15)
• The technological revolution has amplified generational divisions: older generations trust fiat, newer generations embrace digital solutions.
  • “Will tomorrow be more digital than today? If yes, why would I ever think that money wouldn’t become digitized?” (Tom Bilyeu, 05:02)

3. Government Reactions to Bitcoin: ETF Route or Outright Bans

• ETFs as government control: The “smart” approach is absorption, not attack.
  • “The smart governments will do the ETF route...that’s the nonviolent way to do it. People think they’ve escaped this financial apocalypse, but not really.” (Crypto Expert, 07:14)
• Outright bans only fuel interest and demand for crypto.
  • “When you ban something...you create the demand for the thing and people will get it anyways.” (Crypto Expert, 08:13)
  • Example: China tightly controls, but doesn’t ban Bitcoin outright.

4. Critique of Defeatism and the Power of Decentralization

• Hayes and the analyst argue against passivity:
  • “‘The elites won’t let it happen?’ Well, fuck that. Buy some bitcoin. Tell your friend. Create a movement, be part of it.” (Crypto Expert, 10:27)
• Tom sympathizes:
  • “The government is extremely powerful. Staring down the barrel of the government... I do not fault the average person for not being willing to do that.” (Tom Bilyeu, 10:43)

5. Bitcoin as the Financial Second Amendment

• “Having bitcoin is a bit like the financial equivalent of the second amendment. I have the right to maintain my own money. I have the right to control it.” (Tom Bilyeu, 12:55)
• Risks include not just government seizure but low-tech attacks ("Hammer knee, give me your key")—crypto requires vigilance (14:01).

6. The Dangers of Centralization: BlackRock, ETFs, and Bitcoin’s Own Survival

• ETFs can create a false sense of decentralization.
  • “If BlackRock owns 20–30% of the float...and just sits on it, then [Bitcoin] goes to zero. That’s beautiful.” (Crypto Expert, 16:33)
  • Bitcoin has to move and be used—unlike gold, which can just be hoarded.

7. Should Bitcoin Be ‘Digital Gold’? A Philosophical Divide

• Bitcoin is more than a static store of value:
  • “Gold is a thing. Bitcoin is a network and an asset. If the network doesn’t have activity, it’s not worth anything.” (Crypto Expert, 28:00)
• The Ethereum comparison: the DAO hack and its rollback defined Ethereum as a decentralized computer, versus Bitcoin’s focus on unchangeable money (21:28–24:50).

8. Saylor and the Bitcoin Corporate Play

• Why Saylor’s “leveraged long” Bitcoin strategy via MicroStrategy is so effective:
  • “He’s borrowing money in a depreciating asset at a low rate...and buys Bitcoin. Short dollar, long Bitcoin. Genius.” (Arthur Hayes and Crypto Expert, 30:33–32:46)

9. Ordinals, NFTs, and Cultural Transaction Fees on Bitcoin

• Ordinals and NFTs bring culture and high-fee transactions to the Bitcoin blockchain, helping maintain miners’ incentives as block rewards decrease (35:16–38:25).
  • “We’ve found one killer transaction-generating method, which is: let’s bring culture to bitcoin.” (Crypto Expert, 35:21)

10. Momentum Trading and Speculation: The Crypto Market Psychology

• In crypto, meme narratives drive price cycles. The trend is your friend “until it ain’t” (39:37).
• “Nothing goes up forever. There are ups and downs...then there will be a correction.” (Crypto Expert, 40:37)

11. Endgame Fears: Hyperinflation, Social Unrest, and Cold Wars

• When the real costs of essentials explode (“You can’t print oil. You can’t print health care.”), the social contract erodes, leading to unrest and possibly conflict—not always in battlefield terms but “world wars in cold places: cyberspace, the Arctic, space.” (Arthur Hayes, 43:41)

12. De-Dollarization: Who Wins and Who Loses?

• De-dollarization hurts US elites, but “could have zero if any impact to the average American” (Arthur Hayes, 44:59).
• For Americans, autarky is possible: plenty of resources, food, and energy (45:51).
• Europe is at greater risk: population decline, lack of food/energy security, susceptibility to external shocks (47:46).
  • “Europe is higher risk because it doesn’t have energy security, doesn’t have food security.” (Arthur Hayes, 47:46)

13. The Crypto Expat Playbook: Financial and Geographical Sovereignty

• Hayes describes crypto as a violence-free, opt-in financial system that uniquely allows complete capital mobility—“I can store my crypto in my head” (50:27).
• First, secure financial freedom via crypto; then choose community/location by values and opportunity (51:49).

14. Educational Deficit: Why Most People Will Stay Trapped

• The current system keeps people financially illiterate, ensuring they stay on the hamster wheel; most don’t know how credit or monetary repression works (53:09–55:55).
  • “Most people are too lazy or too distracted or they work a job and they’re just too tired to open up a book and read. But it’s all there for you to read.” (Arthur Hayes, 53:15)
• Inflation drives everyone, especially the poor, into desperate speculative behavior just to try to keep up (55:55–56:36).

15. Speculation, Gambling, and the Struggle for Wealth Preservation

• The drive to speculation is an instinctive response to falling behind materially in a broken system (56:36–57:59).
• Crypto is not inherently speculative—it depends on one’s approach and risk allocation (60:33–62:21).

16. Why Hayes Believes in Crypto’s Staying Power

• Despite epic scandals and lack of bailouts, the blockchain has never stopped functioning; the community remains vibrant, innovative, and engaged (62:41).
  • “Smartest people I’ve ever met are building this system...The math works, the cryptography works. But most importantly, the people are so impressive and so dedicated and so enthusiastic.” (Arthur Hayes, 64:37)
• Regulation failed to prevent scandals like FTX or even traditional behemoths like Credit Suisse from blowing up (66:59–68:10).

---

Notable Quotes & Memorable Moments

• On Opting Out:
  “Buy some bitcoin. Tell your friend...Shout from the rooftops. Create a movement, be part of it. Try to change things. So I think that’s a very defeatist attitude. And if that’s the attitude everyone wants to have, then you deserve to be a fucking debt serf.”
  — Crypto Expert, 10:27

• On Bitcoin as Activism:
  “Having bitcoin is a bit like the financial equivalent of the second amendment. I have the right to maintain my own money.”
  — Tom Bilyeu, 12:55

• On Crypto’s Unique Resilience:
  “The financial architecture worked. Even though we had one of the biggest losses of wealth and biggest amounts of financial malfeasance ever in the crypto ecosystem...People around the world believe in this system.”
  — Arthur Hayes, 62:41

• On Regulation Illusions:
  “Regulation would have stopped the FTX is patently false. They were highly regulated...Financial regulation, when the incentive structure doesn’t work, is useless.”
  — Arthur Hayes, 66:59

• On Financial Illiteracy:
  “Most people aren’t taught the math. They don’t understand how a bond works. They don’t understand how a bank creates and removes credit from the system...But it’s all there for you to read.”
  — Arthur Hayes, 53:15

• On Social Unrest and New Kinds of War:
  “You can’t print health care, can’t print oil...What’s more important today? Owning territory or your citizens’ data?”
  — Arthur Hayes, 42:34

---

Key Timestamps

• 00:56 – Start of deep content: “Welcome back to part two... austerity or war? Or Bitcoin?”
• 01:34 – Austerity, pain, and the crypto off-ramp
• 07:14 – How governments may co-opt Bitcoin with ETFs instead of bans
• 10:27 – The activist approach: “Buy some bitcoin...Create a movement...”
• 14:01 – Security risks: “Hammer knee, give me your key.”
• 16:33 – The real risk of centralization in Bitcoin
• 21:28 – Why Ethereum became “the decentralized computer,” not money
• 22:34 – The DAO hack and Ethereum’s decisive moment
• 30:33 – MicroStrategy/Saylor’s leveraged Bitcoin play explained
• 35:16 – Ordinals/NFTs and transaction fees on Bitcoin
• 39:37 – Meme culture, momentum, and how to ride a bull market
• 41:02 – How financial collapse transitions to conflict; AI and cyber war
• 44:59 – De-dollarization: Why elites lose but average Americans might not care
• 47:46 – Why Europe is at greater economic risk than the US
• 50:27 – Crypto as violence-free, borderless financial exit
• 53:15 – The inertia of fiat, financial education gap
• 55:55 – How inflation creates a nation of speculators
• 62:41 – The resilience and dynamism of crypto communities
• 66:59 – FTX, regulation, and the persistent risk of malfeasance

---

Recap: Tone & Takeaways

The episode is urgent, candid, and laced with both philosophical rigor and practical advice. Hayes and Tom challenge listeners not to abdicate agency: understand the system, recognize the traps of fiat reliance, and—if convinced—take actionable steps to claim financial sovereignty via crypto. The dialogue is unfiltered (“You deserve to be a fucking debt serf”), yet empathetic to the inertia and anxieties of the average person. Ultimately, the crypto revolution is portrayed as both a technological innovation and a social movement, still in flux, but brimming with possibility.

---

Transcript

[Arthur Hayes]

You didn't start a business just to keep the lights on. You're here to sell more today than yesterday. You're here to win. Lucky for you, Shopify built the best

[Tom Bilyeu]

converting checkout on the planet.

[Crypto Expert / Analyst]

Like the just one tapping ridiculously fast

[Tom Bilyeu]

acting sky high sales stacking champion at checkouts. That's the good stuff right there.

[Crypto Expert / Analyst]

So if your business is in it

[Arthur Hayes]

to win it, win with Shopify.

[Tom Bilyeu]

Start your free trial [e-mail] Winner.

[Commercial Voiceover 1]

What would you do if your online store converted 36% more shoppers? You could take 36% more vacation.

[Crypto Expert / Analyst]

Another pina colada.

[Arthur Hayes]

Yes, please.

[Commercial Voiceover 1]

Open a new retail location with 36% more square feet.

[Crypto Expert / Analyst]

Fantastic.

[Commercial Voiceover 1]

Hire 36% more help.

[Crypto Expert / Analyst]

You're hired and you're hired.

[Commercial Voiceover 1]

Shopify has the world's best converting checkout up to 36% better than other e commerce platforms. What you do with those extra sales is up to you. Switch to Shopify [e-mail] setup and get a $1 trial.

[Tom Bilyeu]

Shopify.com setup welcome back to part two of this riveting conversation with Arthur Hayes on impact theory. In this segment, we're going to explore the future of digital money, dissect the potential of a looming financial crisis, and uncover Arthur's eye opening predictions for the crypto market through 2026. Let's dive right back in. Is it austerity or war? Are those really the two options? Or do you see us being able to really, in this moment, use Bitcoin arc that allows us to avoid either of those catastrophic floods.

[Crypto Expert / Analyst]

Crypto is a way for you to sidestep some of the negative impacts of austerity. And austerity is not uniformly distributed in terms of its pain. Right? The people who have the most pain are those who have the most assets because the cash flows are depreciated. Under Australia, there's no more government printing press that's making these things go up in value. So if you, you know, did the thing that you were told to do, get on the hamster wheel, work your ass off, and you were able to, through hard work, build up a fiat nest egg and you recognize that this situation is untenable in terms of, you know, a very small slice of the population getting very, very wealthy while everyone else is suffering, then it, it behooves you to get out of those fiat assets. Now previously there wasn't really an easy way to do that, but now we have crypto. So now if you have fiat assets that are, you know, you're saving vehicles or even Just a little bit of fiat money that you're able to save. You can now sidestep. You can all, you can vote for austerity to rebuild your, your society into a more equitable, equitable situation, but at the same time preserve the little bit of wealth that you've been able to accumulate in the fiat system by porting it over to crypto. And then, you know, once things have reset, then reevaluating. Okay, well, maybe I am okay with owning a government bond that yields 10%. If the, the economy is growing at 5%, that's a great return for me. I don't need to have this crypto thing. Maybe it's too volatile for me. Maybe I lost a little bit of money trading some particular coin. I just want to own some sort of bond in a government that I

[Arthur Hayes]

believe in and respect.

[Commercial Voiceover 2]

Cool.

[Arthur Hayes]

Now you know, you're getting paid to

[Crypto Expert / Analyst]

take that risk versus now you're not getting paid appropriately to take that risk.

[Tom Bilyeu]

This is a really interesting moment that we live in there. So history doesn't repeat. It rhymes. When you look back, I think Ray Dalio has done such a good job of breaking this down. How the, the debt cycle loops and how going back 500 years, you see the rise and fall of empires, that they roughly last 150ish years, that the sequence of events is such that you have a debt jubilee. I mean, I guess it doesn't start with the debt jubilee, but every cycle will, will repeat with that. And because you said you use that as a way to reset to get a more equitable situation. But the reality is it's only going to be equitable for a while because once you're dealing in a world where people clip coins, which is the OG way of inflating money, or the current way, which is you literally just, you have the Fed buy assets from the government, you're inflating the money supply, you're reducing what you reduce its purchasing power, that it is inevitable if you allow that, that people will get themselves out of trouble. Because if people are in pain, they're going to freak out, they're going to lash out at the government, they're going to say, I want you to protect me. Which it's predictable. So p, you know that people are going to do that. So you print money so that you can get reelected. So as long as people have to get reelected and one of the ways to get reelected is to print money, people are going to do that. And so you end up back in this cycle. The fascinating thing is that it, it only comes down to any one person's individual lifetime. That's all they know and that's all they really care about. And so if you can push this off 150 years, it. You really don't care and it begins to loop. However, we are living through a technological revolution right now that I think is causing a rapid divergence between the generations which caused them to have very different world views. And so you have this, I'll call it a bifurcation, but I really think it's, it's more of a shattering. But just for simplicity's sake, I'll say a bifurcation between people who believe in the traditional system because they know it, they're used to it, it's the devil, you know. And then people that believe in. And the way I think about it is, will tomorrow be more digital than today? If yes, why would I ever think that money wouldn't become digitized? And so it just. For me, as somebody who breaks on the digital side, when I looked at crypto, I was like, oh yeah, that it makes sense to me. That isn't a fake asset or whatever people call it. Magic Internet money, it's all of money is simply a narrative. We all simply decide to agree that, oh, gold has value because it's scarce. The paper money has value because the government says that it does. Crypto has money because there's Bitcoin, there's only 21 million of it, and that's it. And so we all agree that, that that's the thing. And so I will be very interested to see as, as we march towards adopting cryptocurrency, if we really can take that as this off ramp that will avoid us ending up in a hot war. I just, I don't know that governments will allow it to happen. What do you think about that? How stern slash violent do you think the government's response is going to be? Will they control it through ETFs and so same as it ever was, or will they say we're not going to allow this and find a way to put capital controls on it.

[Crypto Expert / Analyst]

The smart governments will do the ETF route, which is allow the traditional tradfi people to give you a crypto derivative like a bitcoin etf. That's the smart way to do it because it's the nonviolent way to do it. And people think that they've escaped this financial apocalypse, but not really. They've only just given their money to blackrock and the time in which they actually want to Use bitcoin for what it's there for, which is decentralized money, moving it around 247 between whoever they feel like they'll be told no. If you want to get out of the etf, you must sell it back for Fiat and then do with your money what you please, right? You don't own bitcoin. People think they do. That's the best way to do it. The worst way to do it is to go out and ban it. Because when you ban something as a government, especially in a digital age where people have information at their, at their fingertips, then they go, oh, well, maybe there's something here. Why is the government telling me I can't do it? Maybe I should read a little bit more about this.

[Tom Bilyeu]

And then they just.

[Crypto Expert / Analyst]

Then they decide, oh, government's telling me I shouldn't do it because it's not in their interest, then I'm going to do it anyways. Because you've banned it, you've given it airtime, you've proven the point that all everyone is that everyone on the crypto ecosystem has been saying for many years, which is the government doesn't have your best interests at heart. That's why you're there banning your economic freedom. And then you create the demand for the thing and people will get it anyways, right? So if you think about, you know, the common narrative of, like, very, you know, authoritarian governments in the west, like, oh, China just does whatever they feel like. No, bitcoin's not even banned in China. China bans a lot of things have not banned bitcoin. There are not. It's hard to trade it onshore in China, but it is not banned.

[Tom Bilyeu]

Ban it.

[Crypto Expert / Analyst]

Because, no, bitcoin is not banned. You can own bitcoin to Chinese person. They've shut down. You can't mine it. You can't mine it. And as a exchange, the large exchanges no longer offer a bitcoin renminbi trading

[Arthur Hayes]

pair, but you can still trade at

[Crypto Expert / Analyst]

OTC and you can still own it because, you know, Chinese government's smart. They know if I ban something, then Chinese people will find it valuable because the government's told me I can't do it. Now, that is why, if, you know, the government and the elites want to stay in sort of this financial position, the ETF is the best thing that they can do because people believe that they've achieved financial freedom when they actually have just handed over fees to the same people who have been fucking them for the past 80 years anyways. So that is the Smart thing to do. But ultimately I think that that attitude is very defeatist. If you do believe that a government is a representative body of the will of the people and you just default to saying that it can never because the elites in charge want it to stay that way, well then nothing will ever change. And that's, you know, that's a lot, that's a big detriment, you know, deriding argument that a lot of people give, whether they're a boomer or somebody who's much younger is, oh, bitcoin's really good. I understand, like decentralized money, sound money, you know, inflation resistant, blah, blah, blah, great. But, oh, but the elites won't let, let it happen. So I'm not going to own Bitcoin because the people in power are threatening. They're not going to let it survive.

[Arthur Hayes]

Well, fuck that.

[Crypto Expert / Analyst]

Buy some bitcoin. Tell your friend to buy some bitcoin. Shut up from the rooftops. Create a movement, be part of it, Try to change things. So I think that's a very defeatist attitude. And if that's the attitude that everyone wants to have, then you deserve to be a fucking debt serve.

[Tom Bilyeu]

What do you really think? Come on, Arthur, say something strong. Come on, man, stop with this wishy washy bullshit. Yeah, that's very on point. I think I maybe have a little more empathy for here. Here's what I really think. I think nuanced ideas are extremely difficult. I think the government is extremely powerful. Staring down the barrel of the government and deciding that you're going to stand up to them, I just do not fault the average person for not being willing to do that. So I have deep empathy for people who either a, don't understand it, don't want to spend their time wrapping their head around it, or if they do believe as, as I quite frankly do that at some point. And honestly, the ETFs maybe give me a little bit of comfort because I'm like, okay, that, that gives them a way. That and other centralized exchanges like Coinbase, give them a way to, to grab it, to, to do a thing with it, right? To feel like they have control. And then people that are sort of, hey, I would at least like to hedge my bets. You know, when you think about the second Amendment, not to get into this debate, but when you think about the idea behind that was, hey, the government may go tyrannical at some point and you may need to be able to defend yourself. That I think people lose sight of that and they think that, oh, a gun Is, you know, for a home invasion or whatever. Sure, that too. Yes. But like the original intention was the government may turn on you and you need to be able to protect yourself. And that America anyway was set up with, with that in mind. Like we're putting all these balances of power because governments tend towards tyranny. And so you need a way to protect. So anyway, that having bitcoin is a bit like the. The financial equivalent of the second amendment. I have the right to maintain my own money. I have the right to control it. I don't have to. I can keep it in a centralized system because good Lord, it is so easy to lose your crypto if you are not very careful clicking on an errant link for getting your seed phrase. I mean, just woof. It does make me tense on that side as well. But at least I know that I have the right. It's interesting and I thank you for letting me think through this stuff in real time. But that is why I find myself so drawn to. This is. Okay, we have a broken system that is an affront to human dignity. Using your words because of the way that it can be inflated. I think that people. I think the memes law says that you should just be able to tell somebody, save your money, and you're going to be fine. I know that we don't necessarily agree on that, but that feels really true to me that that should just be a right that, that no one should be able to take your money and spread it across everybody else. I have a feeling that's going to be one of the more controversial things that I say today. Just trying to predict the comments, but. So you start putting that together and you give me the second amendment of, of financials and now I can take custody of my own money. I don't think it's unseasonable. I think maybe I'm against the. The bitcoin tied on that. I think the government can wrench attack you with cruise. Oh yeah.

[Crypto Expert / Analyst]

The hammer attack is the. The low tech is the hammer attack. Hammer knee. Private key. Okay, so here you go.

[Arthur Hayes]

I've never heard that before.

[Tom Bilyeu]

That's good. That, that memes law right there, that one will spread. Hammer knee. Give me your key. Yeah. Facts. So what do you think about the ETFs? Like, is that a move? You're like, oh man, this is amazing. Or do you think because a lot of people are like, hey, blackrock could end up owning so much of bitcoin that it becomes a problem?

[Crypto Expert / Analyst]

So I think that bitcoin is decentralized, peer to peer. Anyone should be able to own it. And if we've constructed the game theory and the economic incentives in the right way, we should have created a system that should be able to prevent sort of one centralized entity passively destroying the system. We're going to find out if BlackRock owns, I don't know, 20, 30% of the float of Bitcoin. And there's changes that need to be made and you need to have the community buy in. Could their passivity obstruct that process? I don't know. We're going to have to find out about that. But the beautiful thing about Bitcoin, which is different than gold, is that Bitcoin must move to have value. Because the miners who expend energy to improve work to upheat the system and process transactions must have transactions of process so that they earn fees to pay for the electricity and the energy that they're expending versus gold. Gold is just a piece of. It's a thing just be. If the gold sits in a vault for the next 10,000 years, it's still, it's still gold. If Bitcoin, if no one trades a bit, another Bitcoin ever again, it falls to zero. So if we do get a centralizing force in Bitcoin that essentially hoovers up all the supply and doesn't do anything with it, then it goes to zero. That's beautiful. We have the out already. Bitcoin is worthless if you do nothing with it. If we do nothing with the tenants of peer to peer decentralized money, you've essentially just gone around in a circle and done nothing. And so I think that when people start to realize that we must do things for the ecosystem, we must use this currency, we must try to create a farm to table bitcoin powered economy so that the currency moves in a circle around, you know, humans and maybe AIs in the future, then we've done something. We've created the movement that creates the value for Bitcoin. If all we've done is stuffed it in our wallet or stuffed it in our retirement account in on a black

[Arthur Hayes]

rock etf, we've accomplished nothing.

[Crypto Expert / Analyst]

We have not done what Bitcoin is there to do. And therefore we will be rewarded with a zero. And so I think that's absolutely beautiful. And that is, and then we can rebuild the system again. It's just, it's a common delusion that we created this computer game called Bitcoin and now it has economic value. We can do it again and try to make, rectify the mistakes that we made in the first iteration.

[Tom Bilyeu]

So do you think that bitcoin has a fatal flaw?

[Crypto Expert / Analyst]

No, I don't think it has a fatal flaw. I think that it's a resetting system that will respond to, you know, if the, the external environment doesn't create movement, if the currency isn't moving, if it's not being used, then it should be worth nothing.

[Tom Bilyeu]

Interesting. Tell me why that's a good thing.

[Crypto Expert / Analyst]

Because if again, if we go back to the, the rentier, like just a person sitting on a government bond and doing all with their life, not improving the human condition at all, but they get to enjoy the fruits of everyone else's labor by doing nothing. Is that a sustainable situation? Because that is what the fiat currency system is. Accumulate a bunch of assets, sit on your ass, do nothing. And because you're rich you're going to be fine. Or you can accumulate a lot of bitcoin, but you better do something with it. You better invest in companies or spend your bitcoin on services to prove that this is a currency system that should be used or do something to increase the value of this system. Otherwise what you've spent all your effort doing is going to amount to nothing. You don't just get to sit on your ass just because you're rich at the extreme, obviously we're not at that point right now. This is a very, you know, down the line type of thinking taken to the extreme. But I think that bitcoin in its design solves this issue of the rentier situation where you have a bunch of very lazy rich people who are rich because they're rich and they don't do anything else to keep them rich.

[Tom Bilyeu]

Okay, that feels weird to me. So I've heard. I'm assuming when you say rentiers you're talking about what people commonly refer to as rent seekers, which was a concept. I never.

[Commercial Voiceover 2]

No, no.

[Crypto Expert / Analyst]

I mean maybe, maybe it's more of like the, it's like a pre French revolutionary. Like essentially you had rentiers, which was the French government bond and it paid, I don't know, 3 or 4% coupon, whatever it was. Right. And so you had basically had all the nobles, did all they owned all these government bonds that paid all this interest and the government says tax the, out of all the serfs and everyone working on farmland and so then everyone else got to build their nice chateaus and sit on their ass.

[Arthur Hayes]

Right.

[Crypto Expert / Analyst]

That's what I mean by rentier. It's somebody who just earns interest, they do nothing. Great life if you, if you're able to have it but you're not producing any sort of productive value for the economy. And obviously that was a corrosive factor that led to part of the reason that led to the French Revolution. That's what I mean when I say rentier. It's I've got a lot of capital, I just own a security that pays me some interest. But I'm not doing anything else to contribute to society. I'm not making money. Essentially move similar to Bitcoin. If it's all just sits in an etf, it's not moving, it's not doing anything. What have we really created? Okay, just another financial asset that's held in a portfolio. That's not why it was valuable in the first place. It was valuable in the first place because we had created a new way to move value throughout a human economy. So it must move, it must do something to be valuable to prove that it's a peer to peer decentralized monetary system. If it's just sitting in a portfolio, then just own something else. But why, why own Bitcoin? You're not owning it for what it's there to do.

[Commercial Voiceover 1]

With Verbal's last minute deals, you can save over $50 on your spring getaway. So whether it's a mountain escape with friends, a family week at the beach or sightseeing in a new city, there's still time to get great discounts. Book your next day now. Average savings $72. Select homes only.

[Commercial Voiceover 2]

If you work in university maintenance. Grainger considers you an MVP because your playbook ensures your arena is always ready for tip off. And Grainger is your trusted partner offering the products you need all in one place, from H Vac and plumbing supplies to lighting and more. And all delivered with plenty of time left on the clock. So your team always gets the win. Call 1-800-GRAINGER visit grainger.com or just stop by Grainger for the ones who get it done.

[Tom Bilyeu]

So this sounds like a contradiction of the narrative around Bitcoin being digital gold because what you, what I hear you describing is Ethereum.

[Arthur Hayes]

No Ethereum.

[Crypto Expert / Analyst]

So I'll separate Bitcoin as money. It's a monetary system. You're able to move monetary values around. Ethereum is a decentralized computer. Now Ethereum and Bitcoin could have, I think competed on moneyness if not for the 2016 DAO hack situation. So for those of you who don't know what happened, there were, there's a company called Slocket Stephen Tool. And he wanted to basically do a big raise of money for his I an IoT protocol called Slock It. So he said, why don't I create the first decentralized VC firm where everybody could put in Ethereum into this fund and then people would get these governance tokens, the dao, decentralized autonomous organization, the DAO token, and they could vote on projects. Guess what the first project was Slock It. His company. And so the DAO as this innovative way to crowdfund raise, I think at the time, US$150 million worth of ETH. Now unfortunately, the acumen of the engineers, and maybe some people say there was some foul play involved, I don't know, created a situation where somebody was able to execute the smart contract in a way that wasn't anticipated and they were able to siphon off money from the, the Dow treasury. And so you had this situation where the Ethereum network, this is, I don't know what percent of the network this was. It is massive. This is back in 2016, Ethereum had only launched a year, a little bit over a year prior in 2015. So Vitalic and all of the, you know, big stakehold had a problem. If we ascribe to the moneyness that blockchain, what happens on the blockchain, nothing can change. It's immutable. We should never change it because we want to be sound, a sound cryptograph, cryptographic piece of money. That means that the DAO hack should be left alone. And okay, too bad that people lost all their money on this project, which was a big percentage of the network at the time. We're going to be money. Money says you can't ever change. Just like Bitcoin. Immutable, there is no changing. You send Bitcoin to the wrong place.

[Arthur Hayes]

Sorry, that's it.

[Crypto Expert / Analyst]

The community in Vitalik and some of the other people thought, no, we want to be the decentralized computer. And to afford this vision of being a decentralized computer, we need it to be usable. We need to have this network continue. And therefore we're going to advocate for a hard fork that rolls back the network to a time before the DAO hack was created. Fix this issue so that everybody gets to keep their money. Right? And this is what happened. They chose let's be a better decentralized computer and get more users on board and give them a redo versus being the hardest money ever known, which is Bitcoin. And obviously the community voted in favor of this because there was two Currencies created Ethereum under the symbol eth and Ethereum Classic under the symbol etc. Look at the price of the two. Ethereum is. I don't know, what is it now? 4,000? Whatever it is, etc, maybe is a few hundred bucks if that. I don't even know if it still exists. So the community voted. We don't want money.

[Arthur Hayes]

We've got bitcoin. Bitcoin's money.

[Crypto Expert / Analyst]

We want a decentralized computer. Be the best decentralized computer you can ever be, Ethereum. And that's what they've done. I know lots of people in crypto will disagree with me on this, but that is how my mind works on the difference between Bitcoin and Ethereum and predicated on this pivotal event in 2016,

[Tom Bilyeu]

then if I'm understanding you correctly, Bitcoin, you believe anybody holding Bitcoin, if they want to really make this a thing, they're going to have to build on that network and be able to buy a cup of coffee with bitcoin or do something.

[Crypto Expert / Analyst]

Maybe it's not a cup of coffee, maybe it's, I'm going to settle sovereign nations trade flows and pick whatever. It just needs to be used for something. It just can't just sit in an address and do nothing for the next thousands of years. No, obviously you can do that right now because it's only 15 years old. We're talking about a very long tail situation, not something that's going to happen anytime soon. It's more of a philosophical discussion of what you think bitcoin should be doing in the next hundred or two hundred years.

[Tom Bilyeu]

Yeah. You said earlier that we could reset the system and solve the flaws that we built into it. So I'm having a heart because when you describe that, that sounds like a flaw to me. As somebody who really likes the idea of bitcoin as digital gold, I, I have admittedly had in the distant recesses of my mind that question of, well, what happens when the last block reward is given? And that's it. All, all 21 million Bitcoin are now out there. And I know that that's, you know, decades away, but that was sort of in the back of my mind. Now it feels like a flaw to me that you would need, like, hey, I need somebody to do something with gold to make sure that we can keep it as gold. Like, I want gold to just be the thing that we all agree has properties. I don't buy Peter Schiff's argument that the thing that makes gold valuable is its utility. In jewelry and whatever. I think that the reason that people like it for jewelry is that they believe it's a quote unquote, precious metal. And if they didn't believe it was because I can make something look like gold. But if you then believe it isn't actually gold, then you're bumming out. So the only thing that really makes that cool is, is that it's rare and that we all agree. Oh, it's a rare thing that we all agree has utility. Okay, cool. So that's going to be the thing that so many cultures over time have gravitated to and said, this is the thing that stores money better than seashells, as an example, or glass beads. Whatever. It's just super hard to fake in a way that, like, diamonds are easy to fake. At least now gold is very hard to fake. Gold is scarce.

[Crypto Expert / Analyst]

Cool.

[Tom Bilyeu]

We're going to use gold. Okay. Bitcoin, to me, that narrative, like, I'm here for that, but when I think about, oh, hey, tick tock, y' all better find a reason for this to exist. Otherwise, the. The miners, now miners, but in the future, they won't be miners. They. They need to have a way to generate funds to pay for the electricity, as you said, to secure the network. That feels like a ticking time bomb.

[Crypto Expert / Analyst]

Well, it's. It's a very important, subtle, fundamental difference between bitcoin and gold. Gold is a financial asset. It's not a monetary network. Bitcoin is a monetary network plus the financial asset. So what is the monetary network of gold? People walking. So what did I do before? I had. Anyway, how do I transport my gold somewhere else? I got off my ass, I picked up my gold coin, I walked over there and I did something with it. The monetary network is me, a human being, eating, getting calories, doing something. Right. Or I set it in a horse and carriage, or now I have a Brinks truck. Right. That's the monetary network of gold, and the asset is gold. They're two different things. Whereas bitcoin is a network and a monetary asset in the same thing. Bitcoin has value because it was created through this monetary network. If the monetary network doesn't have activity, it's not worth anything. Therefore, just like bitcoin, the monetary network must do something or it has no value. And therefore, the currency, its native currency, has no value either if it doesn't do anything. So that's what people get mixed up when they think about gold versus Bitcoin. Yes, It's a very simple analogy. Digital gold. But when you actually think about what

[Arthur Hayes]

is gold and what is Bitcoin at a very first principles basis.

[Crypto Expert / Analyst]

They're different in a very fundamental and subtle way.

[Tom Bilyeu]

Yep, that, that is clear. Man, it is crazy how no matter how much I learn about all this stuff, I. As the island of my knowledge grows, so grows the shore of my ignorance. It is, it's, it's unbelievable. So is Sailor out of his mind? Is he playing a.

[Crypto Expert / Analyst]

He is a genius.

[Tom Bilyeu]

Okay, tell me more. So if there's, if there's the looming, like we have to find something to do with this. He is betting everything on the fact that we will figure out something. Because that, that man is Lev Ridged.

[Crypto Expert / Analyst]

So guess what? So Sailor is doing very smart trade, which is he's borrowing money in a depreciating asset at a low rate because he has a corporate entity that's able to access this market. So if you're a listed company in the US or elsewhere, you're able to access the corporate bond market and you're able to borrow at a very, very attractive rate. So he's able to borrow US Dollars, we know that US dollars, the quantity of them will increase in the future. What does he take this depreciating asset and does with it?

[Arthur Hayes]

He buys Bitcoin. So he's short dollar long Bitcoin short,

[Crypto Expert / Analyst]

the thing that's going to increase infinitely long, the thing that only can have a certain amount. So from a corporate finance perspective, it's a expected value positive trade because the asset funding currency is going to inflate. The thing he's buying is going to have a finite amount. And so I don't know what he pays on his debt, 2 or 3%. He has a, he has a other, you know, software business on top. So the, the interest costs of his debt is either partially or in full covered by the income he earns from his software business. So he basically has created a, almost a free option, an option with a very, very low carry on the future value of Bitcoin. So what does he do? Prior to the ETF he had two value drivers for his company. Anyone who wanted to buy Bitcoin from a traditional Tradfi basis couldn't because they didn't have a vehicle to do it. But anyone in Tradfi could buy a listed US security, which is what MicroStrategy is. So if his company is just a Bitcoin option play and you want to buy bitcoin, you buy MicroStrategy and you

[Arthur Hayes]

don't give a fuck what he does

[Crypto Expert / Analyst]

because he's the only game in town for this strategy. Okay, now it's a bit different with,

[Arthur Hayes]

with the etf, but the ETF now

[Crypto Expert / Analyst]

powers a second leg of the strategy which is bitcoin number go up.

[Arthur Hayes]

Okay, well, if there's only so much

[Crypto Expert / Analyst]

bitcoin that's freely tradable because a lot

[Arthur Hayes]

of it's held in wallets or lost

[Crypto Expert / Analyst]

or hasn't been buying yet, whatever.

[Arthur Hayes]

And now you have this juggernaut, BlackRock,

[Crypto Expert / Analyst]

Fidelity and all these people who are buying, I don't know how many billions they've bought a bitcoin in the last eight weeks or so. That makes the fiat number of what

[Arthur Hayes]

bitcoin is worth go up.

[Crypto Expert / Analyst]

And he is a, he's a corporation. He cares about his fiat value because that is what he's his reporting currency is now. So before he got the value of I'm going to get inflows into my company because they want to own a bitcoin proxy but can now they have another bitcoin proxy called an etf, I

[Arthur Hayes]

get number go up on the other

[Crypto Expert / Analyst]

side and this option becomes very, very valuable. And so again, genius.

[Commercial Voiceover 2]

Dish has been connecting communities like yours for the last 45 years, providing the TV you love at a price you can trust. Watch live sports news and the latest movies, plus your favorite streaming apps all in one place. Switch to Dish today and lock in the lowest price in satellite TV starting at $89.99 a month month with our two year price guarantee. Call 888-@dish or visit dish.com today. If you work in university maintenance, Grainger considers you an MVP because your playbook ensures your arena is always ready for tip off. And Grainger is your trusted partner, offering the products you need all in one place, from H Vac and plumbing supplies to lighting and more. And all delivered with plenty of time left on the clock. So your team always gets the win. Call 1-800-granger. Visit grainger.com or just stop by Granger for the ones who get it done.

[Tom Bilyeu]

Okay, let's, let's look at it from a slightly different angle for a second. So time horizons matter a lot. So maybe this won't matter at all because he's got enough time to figure that out. The the narrative last cycle on bitcoin was digital gold. The narrative this cycle or the meme. I should say the meme this cycle is never hell. Now hearing what you're saying, that does not make sense to me at all. So it becomes a Keep an eye on whether this actually becomes a functioning network for something other than just storing wealth, that if you see that it's not going anywhere positive, then you better get the hell out while the getting is good. That and that is a far less compelling argument. So the only thing, and because again I like to try to predict the comments to see, to see my own argument from the outside, which is why I do that seeing that argument from the outside, people are going to say that's ridiculous. Of course we will come up with something. Fifteen years in, do you think that there's anything meaningful other than Bitcoin as a, as a awesome narrative, as a, as it being a store of wealth? Is there anything lightning network or otherwise?

[Crypto Expert / Analyst]

So if you're not familiar with ordinals,

[Tom Bilyeu]

they are NFTs on Bitcoin.

[Crypto Expert / Analyst]

NFTs on Bitcoin, but not really we, that we get into the reason why people really, really interested in that. But this, yeah, if the meme is simple. NFTs on Bitcoin. So what are we doing? We're bringing human culture And I think NFTs as a data construct bring human culture to crypto. So we're going to bring human culture to the biggest and most valuable crypto of them all. Bitcoin and ordinals have already proven that they have generated massive amounts of transaction fees for the miners as people are inscribing them and treating them with each other. And this is only going to increase. So I think we have found one killer transaction generating method which is let's bring culture to bitcoin. People like to trade these things. Now you can trade an ordinal on bitcoin versus you know, a punk on Ethereum or whatever. Right. So theory have proven that we have, we have done something. Someone's come up with some innovative ways to use the taproot technology to inscribe these ordinals and create this demand for culture on bitcoin and that's generating massive amounts of transaction fees are going to miners to keep them fed. So again we've, we've done something in the short term but I would push back on this notion of like in markets I operate in sort of like two to three year cycles and so obviously what goes up comes down. It's not that bitcoin's not going to experience another 75, 90% fall from whatever the all time high is this cycle. But right now the narrative is never sell. Do you want to go short against that narrative? Absolutely not. Don't. If you, if you don't believe in the narrative, just don't enter at all. But do not go short because you're going to get blown the up as somebody just found out shorting Micro Strategy stock on some sort of like an arbitrage trade between Micro Strategy and Bitcoin because the implied bitcoin price of Micro Strategy is higher than what the spot price of Bitcoin is. And so people did went long bitcoin short microstrety and the premium is keeping, is gapping and forcing people out of their positions. So Saylor is a meme God. Right now he's got the whole.

[Tom Bilyeu]

I'm one of his memes. I'm, I'm well aware.

[Crypto Expert / Analyst]

Yeah.

[Tom Bilyeu]

How many chairs am I sitting on?

[Arthur Hayes]

Yes. Oh, he's got, he's got the narrative

[Crypto Expert / Analyst]

do not short him. If you don't believe in what he's saying, you think it's complete bullshit. Just don't own the stock, don't short the stock, don't do anything with it, but don't go short.

[Tom Bilyeu]

Very interesting. Yeah. Look, I needless to say am a huge believer in bitcoin. It is a very. I like to know what is true. That's, that is always my guiding force. If ordinals actually solve the problem, we'll see because I think there's now going to be a. I mean maybe just multiple communities will spring up. But right now you've got NFTs, I would assume from a trading volume position is just absolutely orders of magnitude larger than ordinals. I don't know that. So maybe I'm wrong and the problem's already solved. That's my gut instinct. Is that true?

[Crypto Expert / Analyst]

I don't know. I would assume that trading volume, unlike ERC 20 NFTs is definitely higher than ordinals. There's not even major wallets yet that support it. Obviously. I mean I've invested in one but yeah, it's, it's a nascent space. But we've proven that there is demand for block space that isn't. Just let me just move some bitcoin between my Coinbase and Binance account. Right. So I think that that's, that's the thing that I want to see. Not that we've solved the problem of how do we keep the miners incentivized the transaction fees to keep their machines on in 2140 when the, the bitcoin block reward ends. It's okay. We all know this problem is coming. There are different communities spreading up, creating intrinsic demand for block space on the bitcoin blockchain. If we can do with ordinals what will be the next thing that the community comes up with? I don't know. But to say that you're going to not participate in this bull market because of something that's going to happen in 2140, okay, fine, but then, yeah, sit it out. But that's probably, if you're thinking about it from an investment or trading perspective, that's probably not the right way to look at things.

[Tom Bilyeu]

What is the right way? So, yeah, we'll just ask that. What is the right way?

[Crypto Expert / Analyst]

If you're somebody who is very, you know, into markets and you like to manage your money and this is something that you enjoy doing, which obviously this is what I do for a living. Momentum trades. Especially in such a meme culture like crypto where there's no manipulation from outside tradified forces, the trend is your friend until it ain't. We're not at that point yet where it ain't. So you follow the trend. And I think it usually it becomes obvious, obvious to you in sort of absurd moments of why the trend is probably time to fade the trend. Like there are very multiple opportunities for people to get off the train in 2021 and early 2022. Some people did, a lot of people didn't. But you just have to understand what you're doing and understand that nothing goes up forever. Nothing goes up in a straight line. There are ups and downs and at a certain point, then there will be a correction. But we read be ready for it.

[Tom Bilyeu]

That is the first part of the wave. Everything goes up looks like it's going to last forever. But then we get the big explosion. We lead to something like the Great Depression. How does that party end? Just all the money got poured into the new hype thing. Let's say it's AI and what makes the music stop?

[Arthur Hayes]

Well, if we've already bailed, if we've already printed money to do yield curve control and the system is still buckling, whether that's the price of oil is a thousand dollars a barrel now or something like it's going to be some energy component of it that or you know, the cost of end of life care is millions of dollars, right? You can't print health care, can't print oil, right? So these are the things that are going to go up massively at price. And then the system breaks because people are like, holy. Hold on a second. Like, yes, the government bond yield is 2 1/2% in your banking system is solid on a nominal fiat basis, but it cost me $10,000 to fill my My gas tank just being a obtuse here, right. And then there's social unrest because I can't get enough to eat or you've broken the promise of the, the lifestyle that I'm supposed to live being in this country. But I was promised to vote for you and I'm no longer going to be there. And then it's okay. Well, if I don't have it internally, that may go out and get, get it somewhere else, right? Oh, don't worry everybody. We're going to go over there and take their shit and give it to you. So support me as a politician, right? And trade no longer becomes the way in which we acquire the things we need. We resort to force and then that's unfortunately how we lead to conflict.

[Tom Bilyeu]

Okay, so when you look at that, is this a US China conflict? Do you see that going hot?

[Arthur Hayes]

Hopefully not. I mean, maybe it's. I think it's, I forgot I can't pronounce her last name. Pippa M. Something or other. She, she coined the phrase a, a hot war, a world war in cold places, cyberspace, the Arctic Circle, space. Right. There's wars going on right now in these different spheres that are not the same as boots on the ground and the kinetic conflict. What's more important today? Owning territory or owning your citizens data? Right, so there's different things that we consider important in the substrate to our modern life. So if we are in this new AI world, your data is more important than going out and acquiring territory. So it might be that the war is not shoot them up on some border, but it's aggressive hacking between different countries trying to ensure that they have access to certain Data or their AIs are able to operate in certain fashions. Right. So we don't. It could be a different type of war, not exactly the same war that, that we're used to. Maybe that's even more dystopian.

[Crypto Expert / Analyst]

I don't know.

[Arthur Hayes]

I'm hoping that we don't, you know, get into. I'm just going to go take your shit and you know, maybe get to the nuclear situation. But again, whatever it is that countries believe is the, the, the good that they need to provide to their people to stay in power. They're going to try to go out and take it for somebody else. All right?

[Tom Bilyeu]

I'm going to set aside the most dire stuff largely just because I hope it doesn't happen. And two, I don't know, just like the best thing so rarely ever happens. I think the worst thing so rarely ever happens not that it doesn't happen. I am certainly a student of history and am well aware that things do actually go off the rails. But let's take a scenario where we don't end up in a hot war, but we do get that rubber band snap effect. We just printed too much money. Gas tank is way too expensive to fill. We do have the social unrest. Government does lock things down, put in capital controls. We do more silly things like sanctioning countries and so they're terrified of buying our debt and we just end up in a position where other countries are incentivized to begin to break away from the dollar. Do you see a real threat to de dollarization? And if so, how does that impact the average person?

[Arthur Hayes]

So de dollarization negatively impacts the financial elite of America. It could have zero if any impact to the average American. Because I've argued in some essays that the current system of the fiat financial system that works in America doesn't really benefit the average American. It benefits New York and San Francisco and la. Right. Essentially the coast, people who are in finance, people who are in tech. The average America has a place, is a great landmass. It has enough food to feed itself, it has enough oil. US is either number one or number two. Largest oil producer in the world, right? Yeah.

[Tom Bilyeu]

Which I was surprised.

[Arthur Hayes]

It's protected by two oceans and Canada and Mexico you might as well just call part of America.

[Crypto Expert / Analyst]

Right?

[Arthur Hayes]

And if you count the Mexican population and growth in terms of their demographics, America actually can hit the replacement rate of what was it, 2.05 kids per woman. Right. So as a economic unit, America is unique in that it can become an autarky and it basically was until World War I. And so it can go back to that place, but the current crop of people who are in power would lose standing in that sort of situation. Which is why they continue on carrying them out what the value of the dollar is because their wealth is international companies where half the business is abroad, where the workforces in China, Vietnam, wherever. Right. It's not in America. So de dollarization is, you know, pointed at this big thing and America needs to protect the dollar. But for who it doesn't actually benefit. The manufacturing worker, the uaw, you know, union worker or the UPS truck driver. Right. I mean, so it's, it's a question of what the political system is there to benefit. Who is it there to benefit? And so America and the de dollarization it's, you know, banning about as a super bad thing. And yes, it's bad for some People who are tied to the fiat financial system and that's where their wealth is. But if you want to think about it, from the average American person, made in America, it's great. Wages for the bottom 50% rise. They have better purchasing power. Yes, stuff is more expensive, but at least they're able to get it. There's lots of parts of the world and Europe is probably the most fucked, where they don't have population growth, they don't have energy and they don't have enough food. That's where you probably could see a big internal conflict. Again, as the edifice of the euro is crumbles, where these countries are like, don't want to be tied to a bunch of faceless bureaucrats in Brussels who tell them what to do.

[Tom Bilyeu]

Do you see that as a real concern? I didn't realize that Europe was higher risk.

[Arthur Hayes]

Yeah, I think Europe is higher risk because again, it's dying like the rest of the Western world. It doesn't have energy security, it doesn't have food security. I mean, most of the productive region of Germany was powered by Russian gas. Right. The Ukrainian breadbasket helps feed a lot of Europe. Right. North African oil and natural gas helps keep things running in most of most of Europe. And so removing those things, you're fucked up. The Euro's, it's a poor, it's a construct. You know this, I'm quoting, paraphrasing macro guide Felix Zuloff. The Euro was created to keep France strong in Germany weak. And it's, it's attempting to paper over these differences in economics with this structure that just doesn't work. And it'll come to a head when all of a sudden there's just not enough stuff to go around. And Europe's traditional trading partners are like, well, if you're going to be aligned with the US then we're no longer going to sell you stuff on a preferential basis. There's no longer any Russian gas. There's no longer a bunch of West African countries willing to sell you stuff cheaply. We're just going to let you figure it out yourself. And what's the answer? Print more money. But again, with the euro perspective, you have a bunch of countries that think that they, you know, are some sort of democratic, you know, polities and the population might be why we have the hero anymore, but there's obviously an elite that likes the euro and that could come to blows.

[Tom Bilyeu]

Okay, so I've talked to Ray Dalio several times, and one of the things that I'm asking him routinely is because he sees so much disruption coming. What do we do about it? Where do we go? And he keeps drumming this idea that what matters is how people treat each other. And he said, you want to be somewhere where people are treating each other well, there's rule of law that you can trade. What is the move? And is this how crypto enters your thesis? What is the move if the Western world does get dramatically disrupted, either hot wars and cold places or capital controls. So the government is trying to lock things down, yield, curve control, they're just doing all of things to continue to prop up the system. What's the play is you obviously are American, but you do not live in America. Yeah. How do you think about that step? And is cryptocurrency part of that?

[Arthur Hayes]

So the easiest thing right now is to protect your, your financial wealth, Right. For the first time in human history, we have a financial system that is not predicated on government violence, that is crypto. It's an opt in violence, free finance, free coercion system where I can opt into this, this bitcoin blockchain based financial system. And now I have a way to transact with anyone around the world on an honest, transparent, open source basis. And I can escape the fiat system with as much or as little wealth as I deem appropriate, right? So now I have the ability to take my wealth outside of the government system. And unlike gold, nobody knows how much crypto I have. I can store my crypto in my head. I can memorize my private keys and my, my seed phrases and restore any of my wallets. And not that I do this, but you can do it if you, if you're good at that. So you can hold as much wealth that you could in Fort Knox in your head. That's absolutely revolutionary. And so that's how we have the financial freedom if you choose to use it. And so once you've obtained financial freedom, then it's about, as Balaji says, choose your tribe. Whereas a place that has the same ethos as you, you know, has a good food supply, the weather, you like the weather, but most importantly, you like the community of people who are there. And there's no prescriptive of where that is, that's, that's very personal. Maybe it's where you are right now.

[Crypto Expert / Analyst]

And the only thing you need to

[Arthur Hayes]

do is obtain your financial freedom such that if the borders close and whatever, you're cool, you're able to maintain purchasing power and energy terms. But, and, but you're around a community of people that you like and love. So I think, yeah, the community aspect, a very personal one. There's no one right place. The financial aspect is if you have the ability to do so, get your financial freedom for the amount of capital that you wish from the fiat financial system. If you believe, you know, in the thesis of me and others and that the math is going to collide with bad politics, then you now have financial freedom, which gives you the ability to move if you want to or not want to.

[Tom Bilyeu]

So the thing I think a lot about with this is timing. I'm obviously a big believer in crypto, but I really don't want to leave where I'm at. And I'm not only am I in America, which does not strike me as the most crypto friendly place, I'm in California, which is definitely done some legislative things that I have found questionable, but man, I don't want to leave. So is that, is that how they get you? Like that you just wait until it's a little too late? Or did that play into your decision to move out of the U.S. no,

[Arthur Hayes]

I moved out of the U.S. because it's just not a place that, you know, resonates with me personally.

[Crypto Expert / Analyst]

Right.

[Arthur Hayes]

I love being in Asia. I love the people, I love the culture. Yeah. Just, you know, my place, the economic opportunity, all that kind of stuff. Right. For some people, America's great and that's fine. It's, it's a very personal thing. But yes, there's a lot of inertia. Right. We with people and money, they understand how this monetary system works. Bitcoin didn't exist 20 years ago. You're really going to take your hard earned money and you're going to put it in magic Internet money with a bunch of people with like pudgy penguins and cryptopunks is like avatars who are like debating macroeconomic policy on, on Twitter and other social media platforms. You might think these, you know, we're a bunch of clowns over here. Right. And so like, why would I, why would I trust this financial system versus the man or the woman in a navy suit with a Hermes tie and a pair of Louboutins on. Right. So it's all these things that factor into whether or not you trust the financial system or not. Again, very personal. But the unfortunate part is that most people aren't taught the math. They don't understand how a bond works. They don't understand how a bank creates and removes credit from the system. They understand why mathematically this, this cannot continue the way it's it's going and that there will be a reckoning. And history has told us the exact playbook they're going to use. It's not as if they're hiding it from us. There's paper about paper written about exactly how to financially repress a population to make sure money doesn't leave the banking system to use the banking system to purchase the government debt at a level the government can afford, that is below the level of growth in the economy, such that the government profits. This has all been written about. You can read it on the Internet, but most people are too lazy or too distracted or they work a job and they're just too tired to open up a book and read. But it's all there for you to read. And if you read it all, you'll understand very quickly that the situation cannot continue and you have to do something. And that something depends on your financial position. Obviously, I'm in the position to put a lot more of my wealth into crypto and not care too much where the price goes. Maybe you're not. The most insidious part of inflation is that the poorer you are, the harder, the more percentage of your income is spent on energy. Therefore, the more inclined you are to become a degenerate speculator, because the little bit of money you're able to save you need to lever up so so much just to make an impact on the depreciation of your wages versus the cost of food and fuel that you make bad choices. Especially if you're not educated about what these financial markets are, because that's been essentially government policy globally, is to keep people in the dark about how money works. So they just blindly trust the supposed person in power.

[Tom Bilyeu]

Yeah, that's something that I heard you say that really hit me, which is that inflation makes a speculator out of all of us. Speculation is the one thing that really I find super unnerving that I. To me, speculation and gambling are basically the same thing. Like, people are just taking a guess. How is it, though, that people cannot understand the system and yet still feel the force that compels them to be a speculator? Is it that they're looking at their wife and their kids and they're like, I'm only going to get a 2% raise. But I can feel that that's not enough. Like, I don't even know if they. They, like it doesn't seem like they would think through all of that. So what is the instinct that kicks in that makes people speculate?

[Arthur Hayes]

Because I want to. I know I can't earn my way out of this.

[Crypto Expert / Analyst]

I can work as hard as I

[Arthur Hayes]

want, I can put as much overtime, but I'm only going to make so much money per hour, period. But I watch the TV and I see the successful, mostly men driving a fancy car, has a nice clothes, whatever. And six months before he was on the street. Whatever the story is, it's know the Horatio Alger, you know, rags of riches, very little effort. There was this thing I did, it was trading stocks or whatever it is, right? Usually it's financial markets because things move so fast and you can apply leverage. And yes, there are people who have done that, but the majority of people who try that fail because it's very, very difficult to do. And so you're desperate. You're like, I know I need to uplift my economic earning potential, but working my job in my lane, I can't do it. It's just impossible. I see myself losing day after day after day. I see my, my family having a lower standard of living day after day after day. If I could only pick the right stock, if I could only predict where, you know, the yen euro crosses go on 200 times leverage. If I could only hit black five times in the roulette world, if I could only, you know, go to the casino and play crap. If I can only. And then you spiral out of control.

[Tom Bilyeu]

Yeah, it's interesting the idea of creating a financial system that people can, and I'll use my words, that people can bet on to create capital to move capital into the system. So if I'm a company and I'm trying to grow, I could say, hey, who would like a piece of this? I don't even have to offer a dividend. Like dividend stocks. I understand because they actually you're getting profits out of the company. That makes all the sense in the world to me. When I was first, when I was in my 20s, trying to wrap my head around the stock market, I was like, okay, so wait a second, some of them are baseball cards and some of them are dividend paying stocks. That, that was like, that just made sense to me. I was like, okay, well sure, like if this thing which does not pay me a dividend but if I can get somebody to pay more for it, to own it for whatever reason than I can, which is that they think somebody else is going to buy it from them. Now all of a sudden that company has access to capital. I see, well that's good. I have a chance. If I can actually sell it to somebody, then okay, that makes Sense for me, I'm able to make more money. I mean, it's really a genius system. But hiding inside of it is the greater fool theory of, well, wait a second, if the stock isn't paying a dividend, then if no one else is willing to buy it for more, and the number is not always going to go up. I mean, it, it's never always going to go up, but it can go up for some companies for a very long period of time. But it's really ingenious. But yeah, that the, the element of speculation, the element of I have to. The element of I don't know what I'm doing, but I'm going to YOLO in anyway. It all makes me very nervous. So one thing I hear people say a lot is crypto is your exit from that system where. Because it can't be inflated. And this is the thesis with Bitcoin. And again, stop me if, if I go awry. Bitcoin has a finite supply. Going back to one of the things you said very early on is that it's risky stuff, but it's a fixed supply. That idea of it's a fixed supply, there's only 21 million of them, they're not going to be any more made. They can't be more made cryptographically. So, and therefore, if everyone agrees that it has value and I put money in that, then that money should maintain its value because it's not going to get inflated away. But is that really an exit from the system of having to speculate or is it just another bit of speculation?

[Arthur Hayes]

So you can speculate in crypto? Absolutely. There is all different. You can speculate in Bitcoin itself, right. You know, you put a lot of your wealth in it.

[Crypto Expert / Analyst]

It's very volatile.

[Arthur Hayes]

It goes up and down a lot. Right. So when you're moving yourself out of the speculator category, if you're putting up, you know, a certain amount of money into crypto, for example, and you say,

[Crypto Expert / Analyst]

I'm going to assume this goes to zero and I'm not going to care,

[Arthur Hayes]

then you're not speculating, right? You're speculating on a future, but again, your lifestyle is not going to be impacted like the, the mo. The worst part about speculating is I need this to go up because I need to buy my dinner tonight. Right? And so that is when you get into problems. But yes, speculating on more humanity getting into a new system and that system being worth more because there's a bigger community, fine, but just choose the size. It's all about sizing. No one knows the future. We're speculating every second of every day, every step we take, right? We're speculating on things. We have informed historical experience to say that this thing is less risky than the other, but none of us know what the future holds. We're always speculating. The question is the size and the risk. Right? Don't put your whole net worth in into crypto, where if the price goes down a little bit, you can't eat. That's not smart. Seems to put your money in the s and P500 or some other stock indices and go long too much. Where if it goes down 1%, you can't eat again. It's all about creating a system that works for you and where your financial position is in life. And if you do want to go into the super leverage speckling aspect, make sure it's a pot of money that you could afford to lose.

[Tom Bilyeu]

What's your thesis on crypto? Why do you think that it's going to be here for the long run? It's been around for 12 years, 13 years, something like that. Obviously it's done well, but that's a pretty short period of time. What, what is the thing that gives you confidence that it's going to keep mattering?

[Arthur Hayes]

So it's a financial system that's gone from zero, right. You know, first Genesis block in 2009 to a system that has weathered multiple crises. Right. In the most recent, we had one of the largest exchanges in the world, much of the largest lenders, some of the largest hedge funds, massive amounts of fraud. All this happened in the span of six months. People lost hundreds of billions of dollars of value. Yet blocks kept being produced every 10 minutes for Bitcoin, 10 seconds for Ethereum, and whatever the blockchains are for a lot of other currencies, the decentralized finance or defi movement, people were still trading on decentralized exchanges. People were still borrowing and selling, borrowing and lending different currencies. On some of these lending platforms, the financial architecture worked. Even though we had one of the biggest losses of wealth and biggest amounts of financial malfeasance ever in the crypto ecosystem. And I mean, if you want to compare the amount of money that, you know, Sam Bankman Fried and his crew allegedly stole from their customers, it would rank. It's one of the largest thefts, financial frauds in human history. Right. All this happened. There was no bailout, there was no central bank that said we need to preserve the system. And therefore, if assuming they could print A bunch of Bitcoin or Ethereum or whatever and make sure these entities are made whole so that certain people don't lose any money. None of that happened. People lost a lot of money. But the architecture of the system worked. The community was still there, people are still shipping code. I was just at token 24:9 in Singapore. The energy 11,000 tickets sold, sold out. Basically almost took over the whole of Marina Bay Sands Convention center for this conference. People around the world believe in this system. There's some of the smartest people in the world who I've ever met who are building this system. You know, you take a look at what's. Who are the smart people in the the scleric financial fiat system. Bunch of fucking muppets, right? They're there because they've always been there. Not because they're special, not because they're inspiring. So they're not building anything new, they're trying to keep the old thing relevant it. And so that's why I believe this is going to have staying power because the math works, the crypto, the cryptography works. But most importantly the people are so impressive and so dedicated and so enthusiastic about what they're building. And I've worked at a bank too.

[Crypto Expert / Analyst]

There was none of that energy working

[Arthur Hayes]

on working in the traditional financial management sector. We're there punching a clock, earning a paycheck and trying to take as much risk as possible so we make a

[Crypto Expert / Analyst]

little bit of money so we can get the fuck out of there.

[Tom Bilyeu]

Okay, but there is a question to be asked which is there's regulation for a reason and that the average person, I mean look at ftx, the very thing that we're talking about. It's very impressive to me. And again I want to say I, I am a big believer in crypto for a different reason than you, which is interesting but, but at the same time I want to face head on the things that strike me as worrisome and this may be a feature and not a bug and we may all just have to wrap our heads around it but there the amount of regulation that's in the tradfi world is pretty extreme. Now I will admit the first time I realized that just because I had over a million dollars that I was suddenly a God. What's a qualified investor is not the term but that I was now accredited, I was an accredited investor and I was like but wait, I don't know anything more about investing money now. I know how to make money, I don't know how to invest money. And so I was very shocked by that. Just seemed stupid that you couldn't pass some sort of test and be able to do your thing. But at the same time there are people get their wallets drained constantly in crypto. The amount of malfeasance just in FTX is just absolute bananas. And either crypto tends to attract those people or the current lack of regulation just creates the, the incentive structure where that's what's going to happen.

[Arthur Hayes]

One, one thing to jump in there is say FTX was regulated in, I don't know, however many jurisdictions around the world. They had licenses all around the world, right? So the, the, the notion that regulation would have stopped the FTX is patently false. They were highly regulated. Not highly, not as regulated as a bank wouldn't say. But they did have regulators around the world that had given them licenses and they were supposed to do things in a certain way. Right. If you want to take the other example, like let's take a look at Credit Suisse and they didn't steal anybody's money, right? But Credit Suisse was a global, systemically important bank G sip. Right. And yet the most highly regulated of regulated industries in the world, banking. The most highly regulated of regulated banks, Credit Suisse in Switzerland up and blew up and require the Swiss taxpayers to bail them out for umpteen billions of dollars. Right? So financial regulation when the incentive structure doesn't work is useless. It doesn't solve anything. It makes you feel good at night, that's fine, you can get your money back on a nominal basis. But what happened? They printed more money and made us all pull poor in the result. So I would say that financial regulation,

[Crypto Expert / Analyst]

yes, it's nice that a bank needs

[Arthur Hayes]

to be run in a certain way, but it doesn't prevent bad people from doing bad things. It just makes the, if someone's going to run a scam, it usually makes it bigger.

[Commercial Voiceover 1]

When you manage procurement for multiple facilities, every order matters. But when it's for a hospital system, they matter even more. Grainger gets it and knows there's no time for managing multiple support and no room for shipping delays. That's why Grainger offers millions of products in fast, dependable delivery so you can keep your facility stocked, safe and running smoothly. Call 1-800-GRAINGER Click grainger.com or just stop by Grainger for the ones who get it done.