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- [00:00]
Laura Shin
Heads up everyone.
- [00:01]
Podcast Announcer
We've got exciting news Bits and Bips Our Macro Meets Crypto show is officially spinning off into its own podcast feed, YouTube channel and X account. If you've been enjoying the deep dives into interest rates, monetary policy and how they intersect with the crypto markets, make sure to follow Bits and Bits wherever you get your podcasts on YouTube and on X. You'll find the links to YouTube X and other podcast platforms in the Show Notes. We'll be posting here for a few more weeks, but starting in September, Bits and Bits will launch on its own feed. For now, we will publish longer clips from the show on those accounts. Remember, go to the Show Notes now and subscribe to Bits and Bips. That's Bits plus sign Bips spelled B I P S on YouTube X and.
- [00:47]
Laura Shin
Wherever you get your podcasts, money is being printed.
- [00:50]
Arthur Hayes
It will be printed.
- [00:51]
Powell told you it's going to be printed at the last press conference. He says tariffs are transitory. I know bitcoin has done pretty, pretty.
- [00:59]
Poorly alongside the NASDAQ and the S and P and a lot of other.
- [01:02]
Global stock indices, but I think that's just, you know, investors not really appreciating.
- [01:07]
That this is a fiat liquidity bonanza.
- [01:10]
That'S about to happen.
- [01:11]
I think Bitcoin will decouple from these.
- [01:14]
Stock indices and trade alongside gold and.
- [01:17]
Really reflate higher as the money supply globally goes higher.
- [01:25]
Podcast Announcer
Hi everyone.
- [01:25]
Laura Shin
Welcome to Unchained, your no hype resource for all things crypto. I'm your host Laura Shin.
- [01:30]
Podcast Announcer
We are now featuring quotes from listeners on this show. Today we have one from Ella Mia on X.
- [01:35]
Laura Shin
Responding to my interview with Dragonfly partner omar Khonji about Circle's IPO filing, Elimia writes quote $5 billion valuation and regulation risks. This will be an interesting ride. If you'd like your comment featured write a review of the podcast overall or leave a comment on our video, YouTube or X. This is the April 8, 2025 episode of Unchained.
- [01:58]
Podcast Announcer
Big News Unchained just launched a brand new newsletter, Bits and Bips.
- [02:03]
Laura Shin
Just like this podcast, it's all about.
- [02:05]
Podcast Announcer
How crypto and macro collide one basis point at a time. Get expert analysis, market insights and the biggest stories shaping both worlds straight to your inbox. Subscribe now for free at bitsandbips.be hive.com that's bitsandbips.beehive.com find the link in the Show Notes in many countries, governments freeze accounts, surveil transactions and seize assets not just from activists, but from everyday people. That's why the Human Rights foundation created the Financial Freedom Report. Sign up to receive it weekly@financialfreedomreport.org crypto moves fast. It's why Bitwise launched the weekly CIO memo, a jargon free summary of what's moving crypto markets written by one of the best in the business, CIO, Matt Hogan. Get up to speed in five minutes or less. Check it out at bitwiseinvestments.com CIO Memo Carefully consider the extreme risks associated with crypto before investing.
- [03:05]
Laura Shin
Today's guest is Arthur Hayes, CIO of Maelstrom. Welcome, Arthur.
- [03:10]
Arthur Hayes
Hi.
- [03:11]
Laura Shin
We're recording on Thursday, April 3rd, the day after Trump announced his Liberation Day tariffs. These ended up being 10% as a baseline on all imports. And then certain countries that the White House considers bad actors have higher rates. So for instance, duties on Japan are 24%, on the EU 20%. China will have a tariff of 54%. Canada and Mexico will likely have something around 25%. I have seen such a wide range of assessments on this on my timeline. There's the pro tariff side pointing to the fact that now the Yield on the 10 year treasury is down to just a bit over 4%. On Inauguration Day they were at like about 4.6%. The critics are saying this is wrecking the economy. They're not even the calculations aren't even based on like existing actual tariffs, which is trade imbalances. Like people are laughing at how they've calculated this. Others are saying manufacturing is just not really going to come back here to the US on the timeline that Trump would want. And it's also even not like feasible necessarily for a lot of items. And I saw one other interesting take, which was that Trump's tariffs do not take into account the digital goods that are being imported and exported. I was wondering for your take, what do you think are tariffs good, bad overall, and why do you think that? And then who do you think will be the winners and losers in this tariff war?
- [04:36]
Arthur Hayes
So I first try to remove any sort of moralistic judgment on any sort of economic policy and just adapt and try to make money. I think when you get this, is it good or is it bad?
- [04:47]
For whom? It's all relative.
- [04:49]
So instead of getting all worked up about it, just try to figure out what's going on and adjust your portfolio accordingly.
- [04:56]
So I think it's quite simple. Trump in 2016 and Trump in 2024 made the same pretty much promise, which was in his worldview. The United States is getting ripped off by the rest of the world because there's this massive current account deficit, mostly.
- [05:14]
In tradable goods that the United States is running and they're opening up their.
- [05:18]
Markets and allowing people to dump their cheap goods.
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He believes that it's his job to reverse that chart.
- [05:26]
I posted a chart in my recent.
- [05:28]
Essay, the BBC, and it has the current account balance, which is a good.
- [05:31]
Proxy for tradable goods balance, and the.
- [05:34]
Reciprocal of that, which is the financial account.
- [05:37]
I'll get to that in a minute. Trump really wants to get this chart to go from I think it's minus.
- [05:44]
A few trillion dollars, whatever it is.
- [05:45]
Per year, to zero or credibly show the American voting public that he is making good on his campaign promise. And this chart is zooming back towards zero. Then what he has just done is exactly what he should do in terms of how he would go about rectifying this imbalance, taking the trade deficit, saying, okay, I forgot the exact formula.
- [06:08]
Divide by some number, I gave you a discount.
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And there's this massive number.
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Obviously China has one of the biggest.
- [06:15]
Because of course, China runs the largest.
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Export surplus globally and has done pretty much since they joined the WTO in 2001.
- [06:23]
So that's the goal. If you're going to try to reverse these imbalances, this is exactly what you should do. However, on the other side, for all the dollars that people in the world, China, Germany, Japan earn, because they want to keep their currencies undervalued, they don't take those dollars, convert them back to yuan, for example, and then do stuff internally. They take those dollars and they buy things in the United States financial markets, notably U.S. treasuries and U.S. stocks. And so the foreigners who have earned all these earnings selling things to America, take those earnings and finance the US Government and finance American tech and stock exceptionalism, which is why the US Markets.
- [07:01]
Have outperformed massively the rest of the.
- [07:04]
World over the past 20 or 30 years. And the treasury yield, even at 4 something percent, is marginally lower than it was about 30 years ago, even though the total stock of debt is up over 7x. So this is the trade he's trying to reverse these things, the good things he's telling the American people, I'm going to bring you back really good jobs, especially for people who don't have a university degree. However, given that the United States government is financed externally and it's foreigners who are levitating the stock market, keeping yields low, the converse of a shrinking current account balance is a shrinking financial account balance. And The Chinese, the Japanese, the Germans, everyone else around the world will not be buying stocks and Treasuries because they don't have the earnings from the dollars from importing things into exporting things to the United States. So again, I think it's quite simple.
- [07:53]
It makes a lot of sense what he did. Whether or not you think it's good or bad is kind of irrelevant. So that's sort of my take on.
- [08:00]
Liberation Day, if you want to call it that.
- [08:03]
Laura Shin
Well, you know, I'm curious about the way you kind of sidestep the question because you're clearly so knowledgeable about, you know, macro and just generally like, you know, how all these things works. And I am surprised that you don't necessarily have an opinion on at least, let's just speak for the U.S. we're both Americans. I know you don't live here anymore, but as an American, like, do you, like, if you were president, do you think that what he's his goal here is a good goal?
- [08:30]
Arthur Hayes
It depends on who you want to get elected by.
- [08:32]
So Trump's voter base, and I'm using averages and maybe you can push back on if you see some different statistics.
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The statistic that I saw was that approximately 50 ish, or a little bit.
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More than 50% of people who made.
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Over $100,000 in exit polls on average, voted for Kamala Harris.
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So we can make a bold statement.
- [08:51]
Rich people voted for the Democrats and poor people voted for Trump.
- [08:57]
Listener/Interjector
Right.
- [08:59]
Arthur Hayes
So what is the big delineation between rich and poor in the United States? Obviously, university degree. What type of things do you do with a university degree? Knowledge work. You know, you work with your mind. You're in tech, you're in financial services, you're an accountant, you're a lawyer, or you know, those type of things. What do you do without a college degree? You do some sort of manual type labor or you used to, right? You worked in a factory, you made cars, those sorts of things.
- [09:23]
Listener/Interjector
Right.
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Arthur Hayes
So what types of jobs have done very well over the last 30, 40 years? And what type of jobs are done very poorly? Those with college degrees, those who hold financial assets have done very well over the last globalization.
- [09:35]
Listener/Interjector
Right?
- [09:35]
Arthur Hayes
You bring in a billion workers who work really, really cheap in China, you depress wages in the United States. Corporations say, oh, well, I have an expensive American worker or a cheap Chinese one. I move my factory to China, my profit margin goes up, and then I do a stock buyback and give all my money back to the shareholders.
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Listener/Interjector
Right?
- [09:52]
Arthur Hayes
And so then people with stocks have.
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Done very, very well.
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People who have, don't own stocks, who don't have a university degree, who used to work in a factory, have not done very. Over the last 40 years. So the Democrats, I'm making very blatant generalizations here. Campaign on, hey, rich, educated person, progressive, whatever, I'm your person, elect me.
- [10:14]
Listener/Interjector
Right?
- [10:14]
Arthur Hayes
And so Bill Clinton was a Democrat. He's the one who let China into the WTO and essentially terror free access to America. In 2001, Donald Trump said, oh, there's this massive part of America that's left behind. I'm going to campaign for them. I'm going to bring back manufacturing jobs, the good job, the job that lets you have a family, blah, blah, blah, middle class lifestyle, all that sort of jazz.
- [10:36]
Listener/Interjector
Right?
- [10:36]
Arthur Hayes
So you have these two opposing worldviews again and making very big generalizations and averages here. And so that makes sense of what Trump's policy is. Okay, if that's the person who voted for him and carried him to the White House in 2026, 2016, in 2024, this policy is what they need. If you're a Democrat who may, who gets large campaign donations and essentially is wealthier people who voted for you, who own stocks, who work in sort of a corporate environment, a white collar job, then the status quo works for you. And so really it's just a question of which side wins and which side is more effusive in their demands to change or keep the status quo. And so that's sort of how. That's the lens that I look at it.
- [11:22]
There's no such thing as bad or.
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Good for whom, right? So I try to move this. Oh, it's bad, good or bad for America. America is a big place, you know, 400 million people. There's different, different views, whether on other end of the spectrum, on each end of the spectrum.
- [11:37]
Laura Shin
Yeah, that's true, that's true. And I know that generally when it comes to crypto, the main thing that you look at is the money supply. And you said prior to Liberation Day that you didn't, that high tariffs would cause Federal Reserve chair Jay Powell to pull back on quantitative easing.
- [11:56]
Arthur Hayes
Correct.
- [11:57]
Laura Shin
Generally, Trump and Powell have had kind of a rocky relationship. So I wondered what you thought now that it's happened and then what the knock on effect would be for crypto.
- [12:08]
Arthur Hayes
So in a recent essay that I published, called the BBC, I essentially talked.
- [12:12]
A lot about fiscal dominance and I gave a funny little satirical interplay between Besson and Powell.
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But essentially the point was, and the.
- [12:20]
Laura Shin
Graphic was hilarious, Too.
- [12:25]
Arthur Hayes
The point is, as the Federal Reserve chairman, yes, supposedly you're this, you know, steward of the American dollar, keep inflation.
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Low, unemployment low, those sorts of things. But in reality you're another arm of the government and the government needs to.
- [12:37]
Get funded at an affordable price. And therefore you will do what is needed as the federal served chairman to make sure that happens. And I pointed out a very seminal speech by former Fed chairman Arthur Burns from 1979 that he gave in Yugoslavia called the Anguish of Central Banking. And if you read that speech and you think about the issues that people.
- [12:57]
Are concerned about today within America and.
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The world economy, you'd say, wow, that looks kind of like the same thing. And this point essentially was that the politicians and the government and the populace have adopted this stance that the government can solve all your problems. The only way government solves problems is spending money. And therefore you embed an inflationary impulse into the bedrock of democratic society like America. And therefore, as a Federal Reserve chairman, while you might believe that you should be squelching inflation or tightening the monetary conditions sufficiently to eradicate inflation, what you really need to do is make sure that the people get the policies that they voted for, which is inflation. Essentially if you want the government to have all these sorts of programs and back in the 70s it was new deal era, grand society type things. Today it's woke, inclusion, dei, all those sorts of stuff, right? Same thing, different nomenclature. And so Arthur Burns is saying, yes, I was a Fed chairperson, at any point I could have stopped inflation, but I couldn't because my job really was to make sure that the government was funded. Now Powell is in the same sort of situation here, right? What he should be doing is tightening monetary supply. The US economy is growing very well. Stocks are, I mean stocks are down 10%, 15%, whatever, but they're at all time highs, record wealth for those who own financial assets. Unemployment at 4 something percent, record all time lows. Why is he reducing the pace of quantitative, quantitative tightening? Why is did he cut rates in September and December of last year?
- [14:27]
He didn't need to.
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The US economy is perfectly fine. Real GDP growth is growing above trends. But he did it because there's a $36 trillion pile of debt that's growing exponentially. The interest cost and the debt is growing exponentially. And the main inelastic buyers, China, Japan, Germany, these exporters that Trump has basically said, take your things and go home or build your factory in America, therefore you don't earn any more dollars, therefore you can't buy any more treasuries then if they're not buying, then the Fed or the banks have to buy. And so Powell, he said his piece, he tried to be Paul Volcker or the modern day equivalent, but in reality he's just another government hack, needs to print the money. And he basically said that at his last press conference. I'm reducing qt. Why reducing qt? Economy is fine. I might do QE for Treasuries, let the mortgage backed securities run off, take the proceeds by Treasuries. And then he stated that when asked, my base case is trans tariffs. Inflationary impact is transitory. The fact that he even used that word is hilarious. He got so torched on the last.
- [15:28]
Time he used that in 2022 when inflation spiked in a transitory manner to 40 year highs.
- [15:33]
However, that just tells you that his bias is easing. His bias is let's provide money to the treasury market so that Besson and Trump, whoever is in charge, can do.
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The policy that they want to do.
- [15:46]
And I know people think that Trump is trying to sort of do austerity, but his plan is from a 7% deficit to a 3% deficit. His plan is not to go to a surplus. His plan is not to, on a net basis, retirement treasury debt. He's going to inflate it away by growing nominal GDP growth faster than the rate at the deficit. Yes. However, this is not a Argentinian style yavi or mile. I'm going to have GDP crash by 4 or 5% because I'm removing this credit from the system. So I think again, money is being printed.
- [16:21]
It will be printed.
- [16:22]
Powell told you that it's going to be printed at the last press conference. He says tariffs are transitory. I know bitcoin has done pretty poorly alongside the NASDAQ and the S and.
- [16:32]
P and a lot of other global.
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Stock indices, but I think that's just investors not really appreciating that this is.
- [16:40]
A fiat liquidity bonanza that's about to happen. I think bitcoin will decouple from these.
- [16:45]
Stock indices and trade alongside gold and.
- [16:49]
Really reflate higher as the money supply globally goes higher.
- [16:54]
Laura Shin
Yeah. So I did also see in that same newsletter you said if I had to place a bet on whether I thought Bitcoin would hit 76,500 or 110,000 first, I would bet on the latter. So how are you coming up with these numbers? And I know you wrote that before Liberation Day, so do you still hold that opinion?
- [17:12]
Arthur Hayes
Yes, I still hold that opinion.
- [17:13]
So 76,500. That's the low that we reached in March, the local low after we broke.
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Through 70,000 in November of last year, 110,000. That's the new all time high that we reached on January 20, right as.
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Trump was being inaugurated.
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And so I think that we take out that next all time high. And bitcoin continues to do very, very well.
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The stock market, who knows, right?
- [17:36]
I'm not, I don't really do stocks. It's hard company earnings evaluations and all that kind of shit.
- [17:42]
Listener/Interjector
Right.
- [17:42]
Arthur Hayes
All I focus on is global liquidity.
- [17:44]
I know that Bitcoin performs very, very.
- [17:46]
Well in a deflationary bust, which is what could happen in this situation.
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And that the monetary authorities in the United States and the rest of the world will provide financial accommodation to make.
- [17:57]
Sure the governments get funded.
- [18:01]
Laura Shin
So I saw that on polymarket. Well, actually this was yesterday when I wrote this question. But at that time polymarket traders were saying that they saw a 49% chance of a recession in the US in 2025. And I wondered what you thought of that. And if we do end up in a recession, what do you think would be the likely cause or causes?
- [18:21]
Arthur Hayes
I mean, it could be bunch of government workers are fired, there's a knock on effect of spending, maybe Elon's Doge catch a bunch of waste or fraud or government programs. Maybe this terror thing causes a lot.
- [18:35]
Of companies to retrench. I don't know. I don't really think because all I care about is global liquidity.
- [18:40]
A recession in my mind is just another way for Powell and his cohorts.
- [18:45]
People at other central banks that basically.
- [18:47]
Stand up on the podium and say, oh, recession, therefore I must print money. So great. If everyone thinks there's going to be.
- [18:52]
A recession regardless of whether it happens or not, it's just another excuse for.
- [18:56]
A central banker to get up on the podium and say, oh, the economy is weak, therefore I must print money. Because that is the Keynesian economic theory that I subscribe to.
- [19:04]
Laura Shin
But do you think it is likely or what odds would you give it?
- [19:08]
Arthur Hayes
I don't know. I have no fucking idea. Does it matter?
- [19:15]
Laura Shin
Okay, well, actually, so circling back to the reason that Trump wants to do the tariff or is doing the tariffs, do you think he actually can bring manufacturing back to the US Possibly.
- [19:27]
Arthur Hayes
I don't think it's going to happen on a timeline that's electorally feasible, which is why I believe that he has to go hard and fast basically by now, and things have to look better going into the end of the year. Because you know, obviously he doesn't have to get reelected. But those who support him all have.
- [19:45]
Political careers that they want to continue after 2028 or 2026.
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And therefore the Republicans need to see some green shoots. I said it was going to get.
- [19:56]
China to build manufacturing. We punished China. And guess what? You know, Alibaba is building a big fucking factory in Ohio.
- [20:03]
Listener/Interjector
Right.
- [20:03]
Arthur Hayes
And he's going to point here and there.
- [20:05]
And yes, I'm sure an aggregate, maybe.
- [20:07]
The little tick up is a little, just a little dot on the chart, but in the media he's going to.
- [20:11]
Play it up and he's going to.
- [20:12]
Point to all these different companies who've, who've contractedly basically said they're going to build something.
- [20:18]
It won't be built in the next.
- [20:19]
12 months or even the next 24, 48 months. But he just is going to point to yes, I had a press conference.
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With so and so major global CEO.
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And they said they're building a factory here and she said she's building a factory there.
- [20:32]
Listener/Interjector
Right.
- [20:32]
Arthur Hayes
And that's what he's going to want to show the American public as to this is why there is this pain in the stock market in the first half of the year.
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This is why it's going to get better going forward.
- [20:43]
And this is why you should vote for XYZ person in this congressional or senatorial district.
- [20:49]
Laura Shin
Yeah, I mean for sure the timeline thing is a big question, but I'm sure you saw he has been floating the notion that he might try to go for a third term.
- [20:59]
Arthur Hayes
So I don't believe that.
- [21:02]
Laura Shin
Yeah, I would like to not believe that. So hopefully, hopefully that won't happen. Let's actually switch back to bitcoin. I know you're not a fan of the strategic bitcoin reserve. Why not?
- [21:14]
Arthur Hayes
So I think anytime a government holds.
- [21:16]
Something, they can sell it. So everyone always freaks out about XYZ.
- [21:19]
Government holds so much bitcoin. Are they going to sell? Are they not going to sell? Are they going to market order, dump it?
- [21:24]
Are they going to do, you know.
- [21:25]
How are they going to do, do these things? So if people support governments globally amassing these stockpiles of bitcoin, when the politics change, and the politics always change, it's a can't really predict these things. Then from euphoria we're going to switch to fear of what's going to happen.
- [21:42]
When are they going to dump these things.
- [21:43]
So if we know this is going.
- [21:45]
To happen, why are we advocating for this policy?
- [21:48]
And then I think the second thing is, it's not that I don't think, I don't like it. It's more, I think people are unrealistic. What people think of their minds is, oh, the government's going to issue some bonds, print some money, and then they're going to go and they're going to buy crypto and put it on their balance sheet. Because most of the major governments in the world are deficit countries or the largest ones in the United States that people are always looking at. It's a deficit country. They have to print something to buy bitcoin. It's not like they have a bunch of savings that they're going to buy bitcoin. But even still, even if you have a bunch of savings, there's lots of people in your country that are probably poor or there's some societal problems that you could be fixing. And what you're saying is, no, no, no, we're not going to do that.
- [22:30]
We're going to buy some bitcoin and some crypto.
- [22:31]
Now, of course I love bitcoin, I love crypto, but I don't see the political optics of that being very palatable to a lot of people. So, you know, this bunch of crypto bros going to get rich because you bought, bought their bags and you've got the poor person over here suffering. And that money could have gone to some sort of enhanced government program. I just don't think that's very smart politics.
- [22:53]
And at the end of the day, I think people are being a bit.
- [22:55]
Delusional as to what's going to happen. Yes, maybe if the government had already seized bitcoin, like the United States has 200,000 Bitcoin that they seize from other.
- [23:02]
People and they say they're not going.
- [23:04]
To sell it while Trump is in office or the Republicans or whatever. Fine, I get that. But notice what Trump said in a budget neutral fashion. So he isn't even going to print money and basically buy bitcoin. So I'm not sure what people are.
- [23:20]
Really getting all excited about. I think people need to think a.
- [23:23]
Little bit more about if you're a.
- [23:24]
Politician, was this what you really would.
- [23:26]
Do if you had the money, printer or if you had a pile of savings to do something with?
- [23:32]
Laura Shin
Yeah. And at least this first iteration, they're not acquiring, they're just taking forfeited bitcoin, but they are looking for budget neutral ways to acquire more. In your recent newsletter, the Genie. So, you know, as you just said, you don't necessarily support the US Government proactively acquiring Bitcoin. But you kind of proposed something interesting about using Bitcoin to pay down U.S. debt. Can you walk through that idea?
- [24:01]
Arthur Hayes
So I think at the end of.
- [24:02]
The day, apart from that one chart of rectifying global trade imbalances, Trump and.
- [24:07]
Besson and his cabinet need to reduce the value of the dollar globally. They need to value massively, and I think they will at some point. And you can do it versus gold, or I think you can do it versus Bitcoin. You could do it versus both. But at the end of the day, I think if they're going to be.
- [24:23]
Revamping the global trade system, then the.
- [24:26]
US treasury is not going to be the reserve asset anymore. It's going to be gold. I would love to be Bitcoin, but most likely it'll be gold. And at that point, you essentially need.
- [24:34]
To devalue the stock of Treasuries versus.
- [24:37]
The new neutral reserve asset.
- [24:39]
And so I propose a scheme by.
- [24:41]
Which you could essentially bid up the.
- [24:44]
Price of Bitcoin and dollars by saying.
- [24:46]
I'm going to issue fiat bonds and buy Bitcoin for people at very, very.
- [24:51]
High prices and devalue the stock of treasury debt and sort of create a.
- [24:54]
Sort of a new global trading architecture centered around imbalances being settled in Bitcoin.
- [25:02]
Laura Shin
Yeah, I find that interesting. So let's now talk about some recent events that I know are very much in your wheelhouse. There was a big bre. Aha. Over the jelly attack on hyperliquid and how hyperliquid handled that since you launched the original perpetuals exchange. I was wondering what your opinion was on how hyperliquid overrode the Oracle. And even the fact that it's like the Oracle is managed by them, that they gave a favorable price to themselves so that they ended up closing out the position at a profit. And also, well, the reason they did that was because it was going to be their own market maker that would lose money. What's your opinion on everything that transpired there?
- [25:46]
Arthur Hayes
So, obviously, I think people need to recognize that decentralization is a pipe dream in a lot of these projects. And I think we were very well situated as to where hyperliquid stands on that. I'm not really deep into their tech or not, but it looks like a duck quacks like a duck is probably.
- [26:03]
A duck kind of thing.
- [26:04]
Laura Shin
Yeah, apparently they made the decision in two minutes. And I saw some supporters saying that. Oh, but there was like a real quote unquote vote and saying they just acted quickly and everyone was like, yeah, it's because it's centralized. But anyway.
- [26:18]
Arthur Hayes
So I think obviously at Bitmex we dealt with a lot of the same issues on you have a high leverage.
- [26:24]
Product, you have an illiquid contract and.
- [26:26]
You have this big pool of money that's there to essentially protect people when traders go bankrupt.
- [26:32]
And obviously people are going to start.
- [26:34]
To try to game that system. So I just think that the developers and those in charge of hyperliquid probably.
- [26:42]
Just need to read the exchange docs of every other major sex that just copied the Bitmex model and probably will.
- [26:49]
This will never happen again because we face all the same issues of how do you dramatically reduce leverage as people get larger positions? How do you liquidate people in an aggressive fashion so that the liquidation fund doesn't lose any money? I think they probably need to review their margin policies a bit more carefully and then, you know, these smacks of centralization in a supposedly decentralized project won't really come come to bear. But again, this is nothing new.
- [27:20]
If you look at some of the.
- [27:21]
Things that happened back in the day with Bitmex and some of the other major sexes, we've dealt with all the same issues.
- [27:27]
It's there's nothing under the sun that's new here.
- [27:29]
It's just that certain people haven't really internalized those lessons or they weren't trading back in the day when some of this stuff was was going down.
- [27:37]
Laura Shin
And you don't think it's a big problem how centralized they appear to be?
- [27:43]
Arthur Hayes
I guess that's really up to those people. If you really believed in that, and if that's your guiding star of I need to invest in a decentralized platform and therefore I no longer want to use hype, then fine. But I don't think most people care at the end of the day. Decentralized, centralized. If the price is good, if it's fast, if the fees are good, they're.
- [27:59]
Going to trade there.
- [28:00]
Whether or not how it's validated or how it's run is kind of irrelevant as long as they get it and out and they get the piano they thought they were going to get.
- [28:08]
Laura Shin
Yeah, yeah, that's true. All right, so in a moment we're going to talk about a twist in that saga. But first, a quick word from the sponsors to make this show possible.
- [28:15]
Podcast Announcer
If you love the conversations we have here on Bits and Bips, you're going to love our brand new Bits and BIPS newsletter. Our team will break down the key macro trends impacting crypto, the biggest market moves, and expert insights you won't find anywhere else, whether it's the Fed inflation or major Dow proposals. If it affects crypto, we've got you covered. Best part? It's completely free. Stay ahead of the market and subscribe now at bitsandbips.be HYVE.com that's bitsandbips.be HYve.com find the link in the show Notes Is your money really yours? In many countries, governments freeze accounts, surveil transactions and seize assets not just from activists, but from everyday people like you and me. That's why the Financial Freedom Report exists. This weekly newsletter from the Human Rights foundation exposes how authoritarian regimes use money as a weapon and how you can fight back. Every Thursday, uncover the latest on financial censorship, asset confiscation, runaway inflation and the rise of state controlled money. Plus real solutions like Bitcoin. I personally subscribe to the Financial Freedom.
- [29:26]
Laura Shin
Report and it is one of the.
- [29:27]
Podcast Announcer
Most high signal emails I get each week. Subscribe now for free@financialfreedomreport.org hi, I'm Matt.
- [29:35]
Matt Hogan
Hogan, CIO of Crypto Asset Manager Bitwise. Look, crypto can be confusing. There's so much noise and the space changes so quickly. That's why every week I write a five minute memo on the biggest stories impacting crypto. In plain English, why is Bitcoin up or down? What are people missing? Where should investors look next? Get the lowdown Every week, sign up to get the weekly CIO memo delivered straight to your inbox. Go to bitwiseinvestments.com Ciomemo that's bitwiseinvestments.com Ciememo.
- [30:10]
Laura Shin
Carefully consider the extreme risks associated with crypto before investing. We have another listener comment responding to my conversation with omar Khanji about Circle's IPO on YouTube. Yahani Buenock writes, doesn't matter if they get the IPO or not, as long as Circle doesn't prove that its reserves exist, then USDC may just be as worthless as Play Money. It can just depeg anytime. Again. If you want to hear your comment featured on the show, please write a review or leave a comment on an episode on YouTube or X back to my conversation with Arthur so there was a further controversy about Hyper Liquid, which was the fact that Binance and Okex quickly listed Jelly Perpetual's futures, which made it easier for traders to participate in the short squeeze. And I wondered what you thought about Binance and OKEx's move there for Those.
- [31:02]
Arthur Hayes
Of you who understand some of the history between the founders of the firms, I thought it was quite hilarious that they were actually cooperating on something. For a start, I'll leave it there.
- [31:11]
But it's interesting that you have this sort of decentralized versus centralized situation. And at a fundamental level, I think the decentralized model in the long term.
- [31:25]
Maybe not today, is probably a superior model in terms of running some of these markets.
- [31:30]
And you can see why.
- [31:32]
Ok, and Binance would be very threatened by Hyperlokin and the quick growth that they've notched up in the last year. I think there's something like 10 or 20% of their volumes and they've done that within 12 or 18 months, whatever.
- [31:44]
Whatever the figure is.
- [31:46]
And so obviously they're cooperating to essentially try to make it very obvious that Hyper Lipgrid might not be as decentralized as they advertise on the tin. And maybe they think people care.
- [32:00]
We'll see about that. Or not.
- [32:02]
But at the end of the day, I think it's up to the users. Do they like the trading experience on Hyper Liquid versus some of these other platforms?
- [32:09]
If they still like hyper liquid trading things and they're like, oh great, the protocol protected me. However they did it, whether it was centralized or decentralized in terms of that decision making, who knows, who cares?
- [32:22]
And I'm going to keep trading there.
- [32:23]
Because yeah, the jelly thing fucked up, they fixed the issue and trading resumed and everyone was okay.
- [32:31]
So I think it's interesting to see.
- [32:34]
Who'S threatened and who's not. And these actions by the largest sexes against this new upstart Dex is very instructive in that respect. But from the client perspective, they're like, great, I don't care, right? I made whole, I could keep trading. Fees are great, Hyper Liquid great. You stood up, you got attacked by the big gorillas in the room and you stood up for yourself. So I think there's definitely a narrative here of a David versus Goliath.
- [33:00]
Human nature loves to support the underdog. And so while maybe okay, and Binance thought they were doing something smart by.
- [33:08]
Hey, look it, they're really centralized.
- [33:11]
At the end of the day the.
- [33:12]
Clients might be, well, you guys are trying to gang up and fuck over the upstart.
- [33:16]
Maybe I'm going to go over trade the upstart and I want to buy some hype tokens because I really want.
- [33:22]
To support this underdog underground movement, non VC backed. All the sort of narratives that really.
- [33:30]
Propelled the hype token From I think $3 when it launched to up to 30 and now it's down to 12 or 13 or whatever. But I think this could really be.
- [33:38]
Positive for the price in the long term as you've really put some more attention on what's going on in what.
- [33:45]
Is pretty much a sleepy corner of the market.
- [33:48]
Laura Shin
I don't know if you saw it, just because your comments there sort of echo some things that Kevin Zhou of Galois Capital said. I don't know if you saw his tweet thread.
- [33:57]
Arthur Hayes
No.
- [33:58]
Laura Shin
Okay, so he was talking about this decision by Binance and OKEx and he said, quote, every decision sets precedent for the Future. Binance and OKEx listing perps in hyper liquids face does help their short term incumbency status, but it also sends the message to other sex and Dex competitors of what to expect if they take on bad liquidations. And he said he felt that challenger exchanges would basically improve their risk management, thus making themselves stronger in competition for the incumbents. And then he said that he felt this would create a chilling effect on cross exchange coordination attempts, such as if they're trying to create clearing houses. He also added that this sends the message to the validators that Hyperliquid would protect the value in the hyper liquidity provider and thus could create over investment in hyper liquid. So. Or sorry, in hyper liquid. Oh my God, there's so many hyper liquids in hyper liquidity provider. So then he said if HLP investors know they capture full upside and will get bailed out on big downsides, more capital will come into the value and drive down yields. And so there's like multiple different effects that he saw and I wondered if any of those were interesting for you to talk about.
- [35:22]
Arthur Hayes
Yeah, I mean, I think at the.
- [35:23]
End of the day maybe okay. And Binance should have picked a bigger contract to try to fuck them on and launch a fatal blow. Because I think he's right, right. Jelly contract. I think the loss is something like 10 million or $20 million that they rated right. For an exchange that trades billion dollars a day in notional. It really isn't that big of a deal in the grand scheme of things. Hyperliquid obviously survived. They were able to rectify the issue. They acted in a way, whether you think it's decentralized or not. And they solved it and boom, they're off to the races and now they're never going to make that same mistake again, which they shouldn't have made in the first place. If they just read the docs on Binance and Okay. Because we've all solved this problem before already. But I think they should have picked a different contract if their goal was let's really put them to the ground now. They've just made them stronger. They've put a highlight on the issue.
- [36:22]
They've put the moral hazard upside into people's minds. And the same moral hazard as of when people got bailed out on the Bybit hack.
- [36:30]
Listener/Interjector
Right?
- [36:30]
Arthur Hayes
The Bybit lost 1 1/2 billion dollars of ETH. Ben reached into his pocket, paid everybody.
- [36:35]
Everyone's like great counterparty risk that doesn't exist. They're just so fucking rich they're just going to bail us out every fucking time.
- [36:42]
Listener/Interjector
Right?
- [36:42]
Arthur Hayes
Let me keep trading there.
- [36:44]
Same thing.
- [36:45]
I can invest in HLP because I know that the validators are going to make sure that heads I win, tails I lose.
- [36:54]
Great trade.
- [36:55]
I know I should invest in Bitcoin because tariffs are happening. Because I know if shit really fucks up, Jerome Powell is going to get on that podium and he's going to make sure he prints that money. It's all the same trade.
- [37:06]
Laura Shin
Yeah, yeah. I think the last thing about this that I saw people criticizing was I guess there had been something previously where like North Korea had been able to use hyper liquid and people were really upset that at that time they were claiming they're decentralized and then over a potential $15 million loss in their market maker, suddenly they like sprung into action within two minutes. I don't know if you have thoughts on like this kind of dilemma of especially because North Korea is considered not only just a big threat in and of itself, but then that is the kind of thing that gets the US government to also want to take action in a way that.
- [37:45]
Arthur Hayes
Yeah, I mean it's one of those.
- [37:47]
It'S the dilemma of decentralization.
- [37:49]
Listener/Interjector
Right.
- [37:51]
Arthur Hayes
Do I only want the good things, not the bad things? Whatever I believe good at MAD is am I immune against nation state actors both on the, you know, them using my platform or the, the ones that don't like that nation state coming after me. Like it's all the same sort of philosophical debate. And I think as an investor or a trader you have to sort of weigh all those risks and make a decision. At the end of the day there's no really right or wrong answer on this. I think we're still debating this in terms of how centralized is pick your L1 or pick your L2 and the sequencer.
- [38:24]
Like it's all the same sort of conversation, all the same sort of risk profile.
- [38:29]
And then you, as an individual investor, have to sort of weigh all those things and then come up with what.
- [38:34]
You actually care about.
- [38:36]
Laura Shin
Yeah, yeah. And those teams probably should as well. And sometimes they're. The lines that they draw are sort of like, not always super consistent, but anyway, well, so speaking of, you know, violations that get the government to take notice, you actually experienced recently a kind of reversal when it comes to government opinion. On March 28, President Trump granted pardons to you and your co founders at Bitmex, as well as another former employee. And this was in response to some agreements. In 2022, you all pleaded to violations of the bank Secrecy act at, you know, Bitmex, which was the company founded for failing to maintain anti money laundering and New York customer programs. And so obviously, President Trump has been making a number of pardons, including to Ross Ulbricht, the founder of Silk Road, which is a very different type of bitcoin related venture. But the crypto community obviously took note of this and they were very curious to know how the pardon came about.
- [39:41]
Arthur Hayes
I mean, I guess it's a very. Well, I have a sample size of 1 in terms of how these things work.
- [39:48]
We have some advisors, they wrote a petition on our behalf of why we.
- [39:52]
Think we deserve to pardon and all those sorts of things.
- [39:56]
We submitted it to the propol channels at the White House.
- [39:58]
They evaluated it, and we're very thankful that the Trump administration thought that our case deserved a presidential pardon and the company as well. And so, yeah, it's as bland, as simple as that. But obviously it's luck of the draw.
- [40:14]
Listener/Interjector
Right.
- [40:14]
Arthur Hayes
It's one particular person in, you know.
- [40:16]
The people around him making these decisions as to who they believe deserve this commendation within sort of the United States legal structure.
- [40:24]
Laura Shin
And does that entail any kind of Don. Sorry. Yeah. Donation?
- [40:29]
Arthur Hayes
No.
- [40:31]
Laura Shin
Oh, okay. Interesting. I also saw that David Hoffman of Bankless tweeted a question at you when you tweeted about this because, you know, you already paid a $10 million fine, you already served six months of home confinement, followed by two years of prob. He asked you what changes for you logistically since you basically already kind of paid the fine and did the time. So what does the pardon actually change?
- [41:00]
Arthur Hayes
Honestly, I'm waiting for an answer for my lawyers. I mean, it's a feel good factor.
- [41:03]
And all that kind of things, but.
- [41:04]
Like, actually what it means in the specific United States legal theories on how this works, I'd have to say I don't know when I'm finding out.
- [41:13]
Laura Shin
Okay, well, one other thing. Is we saw back in January, Maelstrom tweeted that you and at least one other person, Maelstrom went to Mar a Lago. And the Maelstrom account said, quote, in the future we'll share more about our experience, our learnings, what we hope from DC in the coming years. I think you might have shared some of it in that newsletter, the Genie. I don't know. I couldn't tell because it came out after, but I don't know, It's. I wasn't sure from the way it was written if that's what was being referenced there. But could you talk a little bit about that visit?
- [41:46]
Arthur Hayes
Yeah, sure.
- [41:46]
It was a very interesting experience.
- [41:49]
Obviously, southern Florida is a beautiful place. Mar a Lago is a very beautiful country club resort kind of thing. And we were invited by the. It was a Vietnam summit, Friends of Asia. And somebody reached us, hey, we'd like to have someone come and talk about crypto and how you think that the United States should approach.
- [42:09]
Approach crypto policy. There'll be a few, you know, congresspeople.
- [42:14]
Possibly some senators, maybe Trump. Trump did not show up to this particular event. So I went and I gave a short speech on sort of my ideological bet on how regulation should be pursued if the goal is sort of maximum crypto adoption and, you know, you want to have people building in the space. And essentially I gave crib notes to an essay I wrote, I don't know, six or nine months ago. I forgot the name of the title. And it was basically saying that for crypto regulation, my advocacy is for something akin to how the Internet companies were regulated back in the, early in the late 90s, which was, hey, hands off.
- [42:52]
You guys can pretty much do what you want.
- [42:54]
We're here for innovation. We're not going to prescribe different rules, obviously, don't defraud anyone or doing those type of things, but we're not going to make some massive bill of legislation that requires lots of lawyers to parse. And so that was sort of my pitch to the room. And I've continued with that pitch. In terms of when people say, what.
- [43:16]
Do you think about regulation?
- [43:16]
Like, well, I think there should be pretty much none of it, and allow people to innovate and obviously punish people who steal people's money and do those kinds of things. Right? So I think if some country enacts.
- [43:28]
That sorts of policy, you're going to.
- [43:29]
Have a lot of crypto people moving to that particular jurisdiction because they feel that they can innovate and create the.
- [43:35]
Next generation of financial products and, you.
- [43:39]
Know, make a really cool thing. So that's sort of the same speech that I gave to the crowd in.
- [43:44]
Laura Shin
Mar A Lago and is that it sounds sort of like then you would be on board with SAC Commissioner Hester Peirce's, like, token safe harbor idea.
- [43:54]
Arthur Hayes
I have no, I, I don't even know what that means because I haven't read the bill, so I can't. I can't really. I can't really comment on that.
- [44:01]
Laura Shin
Okay. Yeah. It's just where entrepreneurs could experiment. They could attempt to build something. They wouldn't necessarily have to jump through any regulatory hoops. But then within some certain time frame, I think, and granted this is, like, from years ago, I actually, am. I not super familiar with whatever the current iteration is, but they would need to decentralize and there would be some metrics by which that would be measured within some timeframe. So, speaking of Trump world, the Trump family has gone all in on crypto. President Trump and Melania have their own meme coins. The Trump family now has majority stake in World Liberty Financial. World Liberty Financial is also launching its USD1 stablecoin. The Trump family is getting into bitcoin mining with American bitcoin. And I was curious what you thought of all this activity from the President and the President's family, especially given potential issues around conflicts of interest or things that could, I guess, be considered something more akin to a bribe in the government.
- [45:08]
Arthur Hayes
So I guess from my very limited knowledge that I'm not deep in the political weeds on what the Trumps are or aren't doing, from my understanding, the only thing directly that Trump himself, the president, did, was the meme coin, and obviously the first lady to the Melania meme coin. And I wrote a whole essay about how I believe political meme coins are a great thing in terms of bringing transparency to campaign financing. Obviously, I think we're very early in that journey. Maybe we'll see some more political meme coins in the 2026 midterm elections.
- [45:41]
But in general, I think it's a.
- [45:43]
Great thing that Trump has launched his meme coin. Yes, it went down 95% from the high and all that kind of stuff. But at the end of the day.
- [45:49]
What it, it allows for is validation that, hey, if I'm an upstart politician and I'm facing some dominant incumbent who's got all this money from all these vested interests, corporate vets interests, individual people can help fund my campaign by buying.
- [46:06]
And holding my meme coin, and I.
- [46:08]
Get real time price information on what.
- [46:11]
The people think about my policies.
- [46:13]
So it's a much better barometer of public opinion because when people's money's on.
- [46:17]
The line, then they vote with their wall the way they think they actually are going to vote, similar to how the poly market was a good predictor of the outcome because people put money on the line.
- [46:26]
You're not going to lie on a polymarker, you're not going to play the.
- [46:29]
Game if that's the case. But you will lie to a pollster in terms of what you actually believe politically or who you intend to vote for.
- [46:37]
So I think the political meme coin.
- [46:40]
As an asset class is a great thing. And I think we're going to see more of these things probably in the next two to four years. If we have some more elections, it'll probably start in the US Maybe some other European democracies experiment with this new way to fund and attract engagement. So I think that's great. On what Trump's family members are doing in crypto, great. I mean, they join the party with the rest of the millions of people across the world who are mining bitcoin, buying shitcoins, trying to build defi apps, all for it.
- [47:17]
Laura Shin
All right, well, let's talk about some other defi ventures that are making their own moves. Athena, which you, you know, that's your own brainchild and you are also an advisor and investor, correct? It's building its own L1. People, you know, are. I don't know, I saw a lot of opinions saying that this was not good for Ethereum. Can you give us some insight into how it is that that idea came about and what you think the impact will be on Ethereum?
- [47:49]
Arthur Hayes
So I just did a podcast with Guy and he went very deep on the Converge chain that they're building. So essentially what he's saying is, hey.
- [47:58]
We'Ve got this.
- [48:01]
Price neutral way to generate yield in dollars, but that relies on the crypto ecosystem to generate this yield.
- [48:10]
You have a lot of tradified institutions who want a low volatility, high yield relative to Treasuries or some sort of government bond strategy.
- [48:22]
They don't necessarily want to trade crypto. They think it's too risky, counterparty risk, all that kind of stuff.
- [48:28]
But they sell. They could capture sort of the crypto.
- [48:32]
Activity in these elevated yields, which is sort of the basis yield, or this is the yield that you're capturing when you're buying staked USDE from Athena.
- [48:44]
And so they're saying, okay, well how do we bring these two things together. So how about we create our own L1 and we give these traffic institutions.
- [48:53]
Some of the permissioning that they need to allow them to invest on an on chain asset with KYC whitelisting, all.
- [49:01]
That kind of stuff, right? So let's build a purpose built thing.
- [49:04]
That fits the use case of what we're trying to do.
- [49:06]
And so that's what they're building.
- [49:07]
And so their goal is, hey, I'm.
- [49:09]
XYZ large hedge fund or pension fund or asset manager and instead of earning four and a half or whatever the.
- [49:17]
Fed funds rate is right now on a T bill, I can earn 8, 10, 15, 20% based on this synthetic dollar from Athena. And I can buy it in a.
- [49:31]
Way that my regulators and auditors are comfortable with on this new chain that.
- [49:36]
Fits all my specifications. And so that's what he's hoping to do.
- [49:39]
Guy, the founder is take those hundreds of billions of dollars, bring them into.
- [49:45]
The crypto ecosystem via this chain and via this delta neutral state synthetic dollar products and meet them where they are. Instead of saying hey, this is decentralized crypto, you need to trade on XYZ different chain and just fucking deal with it.
- [50:00]
In terms of how that works, that's his goal. As I understand it, whether or not it's good for Ethereum.
- [50:09]
If people believe that sort of app chain based L1s.
- [50:13]
Or L2s, whatever you want to call.
- [50:14]
This, are bad for Ethereum, then I think that ship's already sailed so many of these things already. If that's what you believe, then I hope you don't own Eth.
- [50:24]
Laura Shin
And wait, when you say that you're talking about the kind of like are L2s parasitic to eth? Question.
- [50:31]
Arthur Hayes
Yeah, all that kind of thing. Or like if I have an ecosystem.
- [50:35]
With a bunch of users, I'm not.
- [50:37]
Going to use the dominant L1, I'm just going to create my own app gene specific thing with my specific use.
- [50:46]
Case kind of thing.
- [50:47]
And therefore I don't need to use Eth or Solana or whatever mitre L1.
- [50:53]
Laura Shin
And I mean yeah, so that is happening more but that creates fragmentation. Do you feel like it? It just is the future that we're going to have this whole fragmented ecosystem.
- [51:04]
Arthur Hayes
Or I mean I think it depends on how much security that do you need.
- [51:08]
Listener/Interjector
Right.
- [51:08]
Arthur Hayes
If I'm a pretty much centralized thing. So Athena is not, not decentralized. Right.
- [51:13]
It parks a bunch of collateral on.
- [51:15]
Centralized exchanges and third party custodians and then offers you a yield that they actively manage. So they have protocols on how they.
- [51:23]
Determine where capital goes and those sorts of things. But it never said it was decentralized.
- [51:30]
And it isn't decentralized. And so when you build your own app chain, I don't think security is.
- [51:36]
The biggest concern or sort of censorship.
- [51:41]
Resistance and all those sorts of things because you were centralized to begin with, you never went out there saying you weren't.
- [51:47]
However, if you're some application that requires.
- [51:50]
Decentralization, that requires hardness against nation state actors or very bad individuals at the.
- [51:57]
Fundamental protocol level, then something like Ethereum.
- [52:00]
Makes a lot of sense.
- [52:01]
It's the most secure L1 out there.
- [52:03]
Based on the value that is at stake take in the POS system. So again, it depends on what you.
- [52:10]
Need from the blockchain.
- [52:11]
Will we have lots of fragmented app chains?
- [52:13]
Probably, but there will be that one or two applications that require the security and the decentralization that ethereum or other.
- [52:22]
L1s attempt to bring to the table. And you're going to have to pay for that and the users are going to have to pay for that, but it's okay because what you're providing to the users is something is that's what they want. So I think think that is probably the future. We have both things. It just depends on what you need.
- [52:38]
Laura Shin
Okay. Yeah. Honestly, this Converge thing, the way you described it, it honestly reminds me of R3. Do you remember that?
- [52:46]
Arthur Hayes
Yeah, I remember them.
- [52:47]
Laura Shin
Yeah. Okay, so I know that R3 had.
- [52:49]
Arthur Hayes
No product so I'm not gonna like ding guy here and ding my advice advisee saying he's like R because Arthur's a piece of shit and you know, there's a reason why he doesn't exist anymore.
- [53:00]
Laura Shin
Yeah, yeah, yeah. I didn't mean that they were like liter. What I meant was the concept was a little bit similar, obviously. Rthing was super different because it was supposed to be like all these different banks and financial institutions come together and then have this chain and converge. Obviously it's more crypto native. It's not anything like that. And you're right, yes, of course they have a real product, but it is just interesting. It's sort of like a separate playground. So I guess to me, yeah, it does raise that question of I thought the future was going to be defi connecting to tradfi and now it feels like the way that this is shaping out, it might be more a little bit separate. I guess there will be connections, but still slightly separate areas of play. Well, so while we are talking about Ethereum, there's Just been so much hand wringing generally in the Ethereum world. And I know you described Maelstrom as holding mostly bitcoin and eth. I know you've had salty takes on Solana at the same time that you also were trading the meme coins and stuff. But right now it does still feel like there's kind of this, I don't know, competition between Solana and Eth and it's sort of a question of how it's going to play out. And I just wanted to check in again. I feel like I've asked you this question multiple times, but I know it might shift. So, yeah, what's your outlook for both of those chains right now?
- [54:26]
Arthur Hayes
So I guess the best way to.
- [54:28]
Think about it is if you have a fresh unit of fiat of capital, what do you do with it? Do you buy Solana or do you buy Eth right now, given all the things that are happening? And so I would say ETH from.
- [54:39]
A risk reward perspective is better because it's as hated.
- [54:44]
As you say, whenever you have a turn in the cycle, you want to own the most hated thing because that's going to perform the best. And you don't want to own the most loved thing from the previous cycle because that's going to perform the worst.
- [54:55]
That's not to say that Solana is.
- [54:56]
Not going to go up a lot, but relative to something else, is it going to perform as well?
- [55:01]
And so I think ETH has sort.
- [55:03]
Of the market fundamentals to do very well in this next leg up because people hate it so much.
- [55:11]
And so if it starts rising a.
- [55:13]
Lot in price, then you start getting.
- [55:14]
On the oh no, Eth's back, right? And everyone forgets all the things that.
- [55:18]
The reason why they hated Ethan in the previous cycle and then they jump on the bad wagon.
- [55:23]
And I think from Solana's perspective, Solana.
- [55:26]
Did very well on sort of the meme coin super cycle, or whatever you want to call it over the last 1824 months. But I think that yes, there will.
- [55:36]
Be some meme coins that do well.
- [55:38]
If my predictions on fiat liquidity come true. And so we get a bitcoin rally.
- [55:42]
To 100 or 250,000 or whatever, right?
- [55:44]
There will be some meme coins that do very well.
- [55:47]
But are we going to go back to where we were 12 months ago.
- [55:51]
Where everybody and their mother was just like slinging meme coins, trying to find the $1 million market cap that goes to $100 million market cap and just handing hundreds of millions of Dollars in fees to pump fund. I don't think we're going back there. And so I think all that activity that was on Solana based on meme coin trading won't be there. And so the narrative of oh, meme.
- [56:10]
Coin trading is amazing.
- [56:11]
It's the anti VC way to participate.
- [56:14]
In crypto is on Solana.
- [56:16]
Therefore I need to own solana as the L1 that hosts all that activity. I think that narrative goes away in.
- [56:21]
A similar way that NFTs did very well in 2021. ETH is the home of digital art.
- [56:27]
Listener/Interjector
Right.
- [56:27]
Arthur Hayes
That was the narrative back in the day. That's why I need to own ETH.
- [56:29]
There's so much activity in NFTs, so I need to own ETH.
- [56:33]
Listener/Interjector
Right.
- [56:34]
Arthur Hayes
And NFT volumes still haven't recovered to where they were in 2021, even though we're much higher in terms of a global crypto market cap today.
- [56:41]
That's not to say NFTs are dead, it's just certain things did well. Most things went to 0 or near 0. Similar with mean coins, there will be some things that survive, most of them will not. And the fervor around trading these things is going to shift to something else. Now if again, if that is located on Solana, then great, then I can, you know, Solana can do very, very well. But if that fervor is not located on Solana, then what is the thing that's driving these transaction volumes on a marginal basis that's different from where it was previously?
- [57:09]
That's the question and obviously I don't.
- [57:12]
Know the answer to that. We'll see how the future plays out. But I think that's a big impediment for Solana retaking. What is it, a 280 or 300, whatever that number was at the all time high earlier this year.
- [57:24]
Laura Shin
So I don't know if you have thoughts on this and you can decline if you don't, but everybody's also talking about Ethereum's tokenomics, how to fix them, how to fix this issue with the L2s. If you were in a position to kind of push Ethereum in a better direction from a price action perspective, and I don't mean short term, but just more of a tokenomic perspective, what would you do?
- [57:52]
Arthur Hayes
I, to be honest, I have not studied in depth enough the tokenomics to be able to give you an answer to that question.
- [57:58]
Laura Shin
Okay, okay. So we have news that just came out that Circle plans to do an IPO very soon. And the valuation being floated is like $5 billion. There's a number of kind of interesting tailwinds and headwinds that it's facing in different ways because, you know, stablecoins are at this inflection point like Tether's, you know, gigantic. There's the stablecoin legislation coming and then there's all the macro stuff that we talked about earlier. So I wondered if you had thoughts on how you thought that IPO might perform or just generally Circle's prospects in the future.
- [58:38]
Arthur Hayes
So I've been on record saying I think the Circle IPO is dogshit. That doesn't mean it's not going to go up list. But would I buy it? Absolutely not.
- [58:46]
So first of all, I think Tether is great because it offers essentially dollar.
- [58:52]
Rails, dollar banking to the entire world. That's not America.
- [58:56]
Listener/Interjector
Right.
- [58:56]
Arthur Hayes
Americans have dollars, they have a banking system.
- [59:00]
It kind of works. They've got Venmo. If they don't want to use the banks and Cash app and Zelle and all these sorts of things. Right?
- [59:06]
So you want to send a digital.
- [59:06]
Dollar around America, you can do it. It's pretty easy.
- [59:10]
If you want to send a digital dollar in China and Argentina and Southeast Asia, that's difficult. Which is where Tether comes in.
- [59:18]
Listener/Interjector
Right.
- [59:19]
Arthur Hayes
But if you think about the client bases of Circle versus Tether, Tether is.
- [59:24]
A global X America thing, Tether is.
- [59:27]
A United States thing.
- [59:28]
And so I think that from a.
- [59:30]
Fundamental basis, the client base that's going to use Circle already has a lot of alternatives and they're going to have even more.
- [59:37]
Now that you have maybe one of these stablecoin bills comes in, you have.
- [59:40]
Competition from the large money center commercial banks who want to offer their own digital dollar stablecoins, you have all this competition.
- [59:47]
And at the end of the day.
- [59:49]
The only thing that Circle makes money on is net interest margin, right? They have a bunch of dollars, they buy some treasury bills, they have a spread. Now they already don't make the full nim because they have to hand it all off to Coinbase because Coinbase is essentially the distribution partner. So Jeremy Allaire is Brian Armstrong's bitch. And the question is, how long will.
- [60:09]
It take for Coinbase?
- [60:10]
How low will the price of Circle go? And then Coinbase just buys them. I think that is your exit liquidity for this trade.
- [60:18]
If you want to trade this ipo, it's okay. When does Coinbase buy Circle?
- [60:21]
Because without Coinbase, Circle is a zero. And so they're completely dependent on the.
- [60:25]
Distribution arm of Coinbase to survive because.
- [60:28]
That'S where most of their net interest from income goes to, is to Coinbase.
- [60:32]
And then Coinbase distributes it, however they distribute it. So I don't like buying bitches, so why would I buy Circle's ipo?
- [60:40]
If you want to own the top dog, just buy Coinbase.
- [60:44]
Because at the end of the day.
- [60:45]
They permission Circle's existence.
- [60:48]
So that's what I think of that particular ipo.
- [60:53]
Laura Shin
Yeah, I saw a lot of takes saying not too dissimilar things. So obviously at Maelstrom, you're investing in all different kinds of projects. I believe you do pretty small amounts, like 50k to 100k.
- [61:08]
Arthur Hayes
Correct.
- [61:08]
Laura Shin
How do you assess potential investments and what types of projects are you interested in now?
- [61:13]
Arthur Hayes
So from my level as a cio.
- [61:15]
I don't really look into the weeds on most projects. The guy who runs the book, Akshat Vaidya, he's a man with a plan. I just signed the checks. But. But my direction is more on very stringent limits on the price that we pay. So if we can make a lot of bets, but we pay very low prices, then it's very hard for us to lose money on an aggregate basis, even if we don't do so well in picking things. So that's probably the number one discipline that I enforce on his team is, okay, we don't pay more than X. We don't sort of get sucked into the, oh my God, this is the hottest project ever.
- [61:51]
Xyz, major other crypto VC is doing it.
- [61:55]
We need to do it too. We don't get involved in that bullshit.
- [61:57]
Great.
- [61:57]
You know, mostly because there's no LPs other than myself. So I don't need to have a marketing of. I'm always in the biggest deal like, you know, pick your name brand VC fund to justify to clients why you charge them 2 and 20 or 3 and 50, whatever they charge, charge their clients. I'm not, you know, charging fees based on. On access. I just want to make more money for myself and for the employees. So we're very, very stringent on the.
- [62:22]
Price that we pay for things and the cycle. So I'm advising on where do I.
- [62:28]
Think we are in the cycle.
- [62:29]
So obviously earlier in this year I was a much more bearish.
- [62:32]
I thought we were going to top out. So the optimism over what's going to happen in the US markets was overdone and so we were trimming and selling down lots of positions. I still think when I check in with Akshayan, I'm like, okay, well how's pricing going for early stage deals? He's like, it's just too expensive for the level of the stage of development of a lot of these projects. People are demanding massive initial, fully diluted.
- [62:55]
Valuations for basically just a pitch deck.
- [62:58]
And yes, there are the occasional one.
- [63:01]
Or two deals where they're going to.
- [63:03]
Grow into that valuation and do very, very well.
- [63:05]
But for the most case, you're just.
- [63:07]
Locking in a loss at the end of the day.
- [63:09]
And so we're actually not that active right now in the early stage games.
- [63:14]
We're more just evaluating other, some beaten.
- [63:17]
Down, high quality projects and maybe we.
- [63:20]
Also have a relationship with them. Either we've invested with them or maybe.
- [63:22]
Advise them or the team's been looking at them for a while or we.
- [63:26]
Should be deploying a lot of our liquid capital because we've raised a lot.
- [63:29]
Of cash from doing well in the 2023-2024 cycle.
- [63:33]
And obviously the game is to continue to increase the value of that. So we should be looking for those types of projects.
- [63:40]
So that's where we're more focused on.
- [63:42]
Liquid, where we can deploy larger amounts of capital into things that we believe are beaten down in this sort of altcoin decimation that's happened over the last probably like six to nine, nine months.
- [63:56]
Laura Shin
Okay, so last quick question. I feel like every time I talk to you, we talk at the end about price projections. I know we already talked about bitcoin, but that was kind of like a short term thing. And I saw another tweet that you had recently. You said if we hit 110k then it's Yahtzee time and we ain't looking back until 250k. That was Bitcoin. And then the other tweet that I saw was eth to $5 before sol to $300. So can you explain? Oh, oh, 5k. Sorry. Right.
- [64:29]
Arthur Hayes
Yeah.
- [64:29]
Laura Shin
So what? Yeah, that doesn't make any sense. $5. So what? Yeah. What goes into your thinking on all three?
- [64:36]
Arthur Hayes
So again, it's this.
- [64:37]
I wanna, if I'm gonna on a risk reward basis in a new cycle trend, I want to own the most.
- [64:43]
Hated thing and not the most loved thing of the previous cycle. So what's the most heinous L1? It's ETH. So I think ETH could be the.
- [64:50]
Dark horse that does very, very well.
- [64:52]
And could retake its previous all time high of 5,000 back in 2021 before Solana goes up, I don't know, 2 or 3x to retake its previous all time high of 3 months ago of 300. That's sort of of the trade that I would be making if I have fresh capital now, I'm not deploying any fresh capital into eth. I guess I'll hold a bag of it. So it's not really a apples to apples comparison, but that's sort of how I'm thinking about the market. Right.
- [65:19]
You've got a unit of fiat.
- [65:21]
Your goal is to maximize that unit of fiat by owning the thing that goes up the most. That is the goal.
- [65:28]
Laura Shin
But for Bitcoin, from 110 to 250, that's more than double. So how are you making that projection?
- [65:35]
Arthur Hayes
So again, I think when we're into.
- [65:38]
The third and fourth quarter, we're going.
- [65:40]
To have the United States, China, Japan and the EU all printing money, all providing financial accommodation because they need to safeguard the value of their government bonds, they need to make good on the promises to their electorate. And you have this reorganization of the global finance and trade ecosystem initiated by Trump. But now everyone else has to react.
- [66:05]
And what the reaction is, I'm going.
- [66:07]
To print money and make it okay for you. Don't worry. That's what the political answer is to Trump's tariffs, I believe. And therefore, by the end of the year, we're going to be swimming in fiat liquidity and Bitcoin at 250,000. We might even be higher if we get the sort of gusher of liquidity out of the major trading blocks that I expect.
- [66:27]
Laura Shin
Huh. All right, Arthur. Well, it's always a pleasure. Where can people learn more about you and Maelstrom?
- [66:34]
Arthur Hayes
So on X, cryptohays on substack, we have the Crypto Haze blog and yeah, that's where I am. And Maelstrom Fund or Maelstrom Fund on X as well.
- [66:46]
Laura Shin
Perfect. Well, it's been a pleasure having you on Unchained.
- [66:49]
Arthur Hayes
Thank you.
- [66:51]
Laura Shin
Thanks so much for joining us today. To learn more about Arthur and Maelstrom, check out the show notes for the support episode. Unchained is produced by me, Laura Shinn, with help from Matt Pilchard, Juana Vanvic, Megan Gavis, Pam Ajumdar and Marco Curria.
- [67:03]
Listener/Interjector
Thanks for listening.