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- [00:03]
A
The violence, all this stuff, it only gets worse. The value of energy, of money, has been so perverted and debased by politicians and governments. Part of that's the fault of the people themselves.
- [00:14]
B
Like, the question with this kind of thing is always like, where are they going to get the money from? Do you think this is just countries around the world are going to have to print money to do this?
- [00:21]
A
Yes. Because I don't think people want to pay more taxes. It's one thing to say, here's a problem, let's tax you more for it. And they're like, well, what the fuck? I've been paying billions and trillions of dollars of taxes over the last decades. Now you're saying I got to pay more taxes because you made all these investment decisions that didn't do anything for our national security or for our security of food and fertilizer and commodities. Fuck that. You're out of power. Give me the next guy who says, I'm not going to pay any taxes. Trust the process. The money will be printed. The things might get up or down, but at the end of the day, until you see politicians campaigning on austerity, don't worry about money not being printed.
- [01:00]
B
Arthur Hayes, it is good to have you back on the show, man. We, the last time we recorded was in Miami while Pete was still at the wheel, but it's been a while. How have you been?
- [01:10]
A
Excellent, you know, well, markets go up, markets go down. I'm still here surviving.
- [01:14]
B
Markets go up, markets go down. But I read your piece recently and you said that the bull market started when the US Bombed Iran. So do you think the bottom is in now and we're back in a bull market for Bitcoin?
- [01:27]
A
Yes, I do. And I think that there is an AI fear for deflation. And I still think that that particular scenario is playing out. Workers are getting fired. People are adjusting to what it means when you have the highest earning workers on average. At least in an advanced economy like the United states, the bottom 10, 20% of them are going to lose their jobs in a lot of these tech companies and sort of businesses that are optimizing for a cost structure that doesn't need these type of knowledge workers. I think that's continuing to happen and that's going to be a drag on the credit. But the war has catalyzed governments around the world, especially, you know, United States and China, that they need to spend more on defense, which now includes AI because AI has been roped into national security. And both in both countries and countries need to rebuild their, rebuild redundancies in their supply chains for commodities and electricity and all these sorts of things. And that's, you know, starting in the United States. China has been doing this self sufficiency drive, you know, in earnest since 2018 when Trump started the first trade war with China. And the rest of the world is waking up to the fact that they need to invest in their own defense, in their own supply chains because you can't have, you know, you can't have your fertilizer, your oil, all these things coming through this one particular choke point in the Persian Gulf. It's not like the Persian Gulf has changed in any way, shape or form since we have been civilized humans for however many hundreds of thousands of years. There's always been a Persian Gulf choke point. It's just people have ignored it because it was convenient to do so and was cheaper. But now there's no other option. Regardless of what you believe in terms of the right or wrongness of this particular war. If you're sitting in Philippines and you no longer have energy because you didn't feel like diversifying your supply chain, well, you know, you might be, you know, losing your seat at the table as in terms of a politician because you didn't make these choices. And so countries are going to start investing in this stuff and that's highly inflationary.
- [03:29]
B
Why do you think that the world has like overlooked that single choke point? Because is this really to do with the American hegemony? So like if you're Europe, and I mean Europe don't rely on gas or oil through that straight, but like Asia do, is it because they know that like the US Are going to be keeping things in line and keeping things going and now that trust has broken down. That's why we're seeing the problems with that choke point.
- [03:50]
A
Yeah, I mean, if you put yourself in the politician shoes, you could say, okay, well I can believe in the system that's been in place since the end of World War II, where essentially the United States guarantees free navigation for most countries around the world and you can move your stuff and it doesn't cost you anything extra. And that doesn't really cost you anything extra in terms of budget outlays. Or you can invest in building your own refineries or invest in maybe building the capacity to accept crude oil or different commodities from other parts of the world, or have trading ties with random countries in South America so that you can get your commodities from somewhere else that doesn't flow through the choke point and that costs you extra money. And now you got to find this money. Either you tax your people more, you inflate, or whatever you have to do to get that money and make those choices. Those are hard political choices to make, saying, hey, we need to spend more money, given that there's this cheaper option right here and we can just use suppliers in the Gulf and we assume that everything is going to work out okay. And I think that's the shattering of that assumption. Regardless of whether or not in two weeks time Trump and the IRGC come to some sort of deal and the Strait is reopened or not, it doesn't matter if you are a politician and you have fixed experiences, last eight or nine weeks of disruption, you can't go back to that same illusion. And that's the point where people have to rethink about how their supply chains work for all these different commodities.
- [05:20]
B
So in some ways, is it a little bit like when the US Froze Russian treasuries in like, even if they unfroze them, they still, like that has now set a precedent and we know that that can happen again. So instead of having to rely on this, we're going to countries, build out nuclear energy or refineries or whatever it is and start spending in their own country rather than just relying on these things that have existed since World War II.
- [05:41]
A
Exactly. The assumption has been shattered. And we can go back to similar sort of volumes through the Strait, but you can't now. You have the ability, the political capital say, hey, look, look what happened over the last nine months. We had to go work from home, we had to curtail flights, and wouldn't it be better if we had our own sort of more redundant supply chain? We should have multiple suppliers of these things or we should build out our domestic refining capabilities so that our citizens aren't stranded on this island in the middle of nowhere. Like Australia had to do with going to Singapore to beg for jet fuel and other refined products because China said, you know, we were going to keep all of our stuff for ourselves. So I think that political discussion can happen and there's a willingness to suffer the inflation, at least from a political standpoint, to rebuild your supply chain so that you aren't held hostage by a decision between, you know, Trump and the irgc.
- [06:36]
B
But like, the question with this kind of thing is always like, where are they going to get the money from? Do you think this is just countries around the world are going to have to print money to do this?
- [06:44]
A
Yes, because I don't think people want to pay more Taxes at the end of the day, right, it's one thing to say, here's a problem, let's tax you more for it. People are, well, I've been paying all these taxes regardless of what the tax rate is around the world and where'd it go? I don't know, maybe the politicians stole it. Maybe they did Green New Deal or some other nonsense and they're like, well, what the fuck? I've been paying billions and trillions of dollars of taxes over the last decades and now you're saying I got to pay more taxes because you made all these investment decisions that, you know, didn't do anything for our national security or for our security of food and fertilizer and commodities. Fuck that, you're out of power. Give me the next guy who says I'm not going to pay any taxes. And so I think that people are not for that type of tax, the overt tax. Then they'll just do the COVID tax, the inflationary tax, the printing the money, the, you know, the banking system printing the money or the central banks printing the money.
- [07:35]
B
It's funny, like, even as a bitcoiner, I like, I understand the sort of insidious nature of inflation. But in Australia recently they've brought in or they're bringing in a new capital gains tax and I'm like, I would much rather just deal with the inflation rather than pay a, you know, a huge capital gains tax whenever I sell an asset. Like in some ways it's the least painful option, even though I know it's still bad. Does that make sense?
- [07:58]
A
Yeah, I mean, I guess that's because you own an asset which you believe is going to perform well in this, is in this scenario. I think most people, you know, they're not crypto investors, they barely own any stocks, they probably don't even own their own residence. And you know, yeah, an extra tax is like, fuck, I can't afford, you know, a pound of beef at the supermarket. Right. It's, it's kind of that way. So, well, okay, fine, I'll just deal with the inflation thing that's going to happen in the back end. Or they get so, you know, apathetic, they don't even notice.
- [08:24]
B
Is there any like, which are the countries that will come out of this? Well, is it basically just the energy rich countries that are going to be strong on the other side of this?
- [08:33]
A
Yeah, I mean countries that are self sufficient in terms of capital and resources will do well. And that's a very short list. Not even the United States is going to do? Well, yes, Americans are not going to starve because of whatever happens in the Strait of Hormuz, but that doesn't mean that inflation is going to continue just decimating the social fabric of America. And any inequality that this is going to sponsor is going to continue to decimate the social fabric of America. There's going to be lots of American losers, if you will, but again, they're not going to be starving like Bangladeshis.
- [09:06]
B
So you think that that sort of K shaped economy is only going to get worse?
- [09:10]
A
Yeah, I think that is a feature of this particular, you know, if you want to call it late stage capitalism or whatever, whatever you want to call it, that's, that's not going anywhere. You're not seeing it. I think that's going to be a catalyzing feature for opposition to Donald Trump and the Team Red Republicans. Whether or not the Team Blue Democrats are going to succeed in that message, we're going to see. But if you take a look at Trump's polling numbers and what is he getting killed on? It's affordability, it's inflation, same thing that Biden got killed on. This is what ends the run of the Republicans. So Trump's going to have to come up with an answer for this, otherwise, you know, his team is going to get absolutely decimated in the upcoming midterm elections.
- [09:51]
B
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- [12:52]
A
I mean, if you listen to anything I write or on stage, I'm always saying it's always about liquidity. We put a different wrap around it. We have to put a narrative on it, me and every other commentator out there, because people don't really understand how banks and fashion reserve systems work. But at the end of the day it's all about liquidity. And the politicians have to call out something different every time too because they don't want people understanding that when they talk about all these esoteric programs or these acronyms, they're really saying if we're going to print some more money and spend it on something and there's going to be more losers and winners in this scenario, but please don't understand that that means inflation, that means something other than that.
- [13:33]
B
So I know that you do talk about liquidity all the time. Do you think bitcoin does need liquidity to go up? Because in the 2025 Bull Run, the Fed was drawing down its balance sheet almost the entire time. But bitcoin still performed pretty well. It obviously didn't do as well as sort of tech stocks and gold, but it still did well.
- [13:50]
A
Well I think that's a hangover from the two and a half trillion that was injected in the economy from the decline of the reverse repo program in the U.S. so yeah, so Powell had rates at what, five and a half short end or whatever from 2022 to when they started cutting rates. But at the same time, due to the way that the U.S. treasury was issuing short term debt more so than long term debt, that actually drew two and a half trillion dollars of liquidity into the financial markets. And that's why you had a rally in stocks, bitcoin, real estate, everything was going up, even though you had short end rates at the highest they've been since the 1980s.
- [14:24]
B
Okay, can you explain that to me? Because I don't know if I fully understand is that because the short term debt is more sort of money like in the economy than long duration debt.
- [14:33]
A
So basically due to the COVID stimulus program you had these. However many trillions of dollars were printed and a lot of people basically shoved that into the banking system and money market funds. They said, okay, I've got all this money, I don't need it to spend anything. Let me just earn the five and a half percent in a money market fund which is higher than what I get at a commercial bank, at least in the United States. And so the money market funds had all this money and what they can do is they can park that money at the Federal Reserve and they can earn a rate which is pretty much commensurate with the Fed funds effective rate. There's a bit of nuance around that, but essentially the Fed guarantees if you give us Money into this facility, we give you a rate and they have to do this to be able to pin or manipulate short term rates at the level that they want them to to be at. So the money market funds have $2.5 trillion and invested with the Fed. And this is very good for money market funds. They get a rate, everyone's happy, right? So at the Same time in 2022, end of 2022, the Fed's raising rates and again there's another affordability issue. But the US Economy needs assets to go up. Rich people need capital gains taxes to pay taxes. Rich people pay most of the taxes in the United States and all the politicians and so Biden and Yellen at the time came up with a scheme where okay, we need to juice the markets, we can't reduce rates, we can't do quantitative easing because everybody's hip to that. That's inflationary. Well, you've got this inert money, $2.5 trillion sitting on the Fed balance sheet. How do we get that off the Fed balance sheet and into the global US dollar money markets? Okay, well I know that these money market funds will keep the money at the Fed because the rate that the Fed pays them is higher than the rate that the US treasury is offering on treasury bill. So a bill is anything less than one year in maturity. So if I increase the supply of something, the price goes down, yield goes up. So Yellen said, okay, instead of issuing more long term debt, 10 year bonds, something like that, I'm going to issue a fuck ton of short term treasury bills. And if the bills rate goes above this reverse repo program rate, then a money market fund who is profit maximizing will say, okay, I'm going to take my money off the Fed and going to put it in the US Treasury. Now your credit profile of default doesn't change still, the US Government's still paying you money. It's a different arm of the US Government, but the US Government's still paying you money. But when I put money into a Treasury bill now that gets rehypothecated through the financial system and that's added liquidity to the overall system. And so you had essentially as the US treasury issued more and more treasury bills Starting in late 2022, you had the money market funds pulling money out of the Federal Reserve reverse Freeport program. You can chart this on Bloomberg or any other. You can go on the FRED system. It's a open source data system. You can see this phenomenon and you're going to see this program go from Two and a half trillion dollars till the start of, you know, 2025 down to zero. And you can chart Bitcoin, gold stocks, real estate, everything goes up because you injected two and a half trillion dollars of stimulus into the global markets, even with rates at the levels that they were at. And so that was the way in which, you know, the 2022 bottom to 2025 high was powered was this particular phenomenon.
- [18:06]
B
And I remember, I know that Bersent was making a big deal about how Yellen had been issuing everything at the short end. And then he came in and kind of just did the same thing. Is that just because there's no sort of demand for long term debt.
- [18:21]
A
Yes, the nobody wants to own 10 year treasury bonds. Like obviously Besson was correct in what he was saying, hey, short term rates are low by histor. Yellen, you're an idiot. Why didn't you issue a bunch of 10 year, 20 year, 30 year bonds? Right? But the problem is the liquidity at that long end is there is no liquidity. So all the while the Fed is supposedly doing quantitative tightening, which they were, the balance sheet was falling. The Fed never sold anything longer than a 10 year bond. In fact, they actually bought this debt. So at the same time the Fed balance sheet overall is decreasing. The Fed knows that the long end of the US treasury market's so fucked up that they need to do quantitative easing on the back end of the curve. And obviously Yellen and her staffers are not idiots. They knew this too. They knew I can't increase the issuance at the long end, although I'm gonna lose control of that. So the only answer is short term bills. That's what everybody wants. Everybody wants a cash like instrument guaranteed by the government. And so I'm gonna issue debt there. And I know I have a lot of takers for that particular tenor of debt. And so that's what she did. And when Besson gets in the seat and, and he's got the same directive from above, hey, I need lower cost of debt because I have my set of programs that I want to fund doesn't necessarily mean the same ones that the Democrats want to fund. But again, the Republicans print money just as much as the Democrats do. Trump has the same message to the Treasury Secretary, make my shit as affordable as possible. So he has to do the same policies as Yellen. And this goes into my, you know, discussion about Kevin Warsh. Everyone's like, oh, he's a hawk. Yeah, he's a hawk. When he doesn't have to Be a hawk when he's just spouting off his mouth, put him in the seat, put him in Powell seat with all the constraints that that comes from and the directive from above which is make sure the treasury market's functioning, make sure that I can fund these wars and this industrialization effort. Okay, what are you going to do, Warsh? He's going to do the same thing Powell did, whether it's just hold rates, print money. He is not going to, you know, sell bonds and materially reduce the Fed's balance, the size of the Fed's balance sheet, because he can't. He's got all these institutional constraints on, upon him as he sits in this chair. And so it doesn't matter the political party what they said before when they get in the seat and they see the state of the finances and the directive from above hasn't changed. It's I've got to fund this stuff, the actions are the same.
- [20:43]
B
But I mean, he is in such a tricky spot now coming in because like he's obviously got a ton of pressure from Trump and the administration to cut rates. But with this war going on, like I, I don't see how he can. Do you think he will?
- [20:55]
A
Maybe. I think what they're going to try to do is hold rates as long as they can. They're not going to increase them, they're not going to decrease them. And you see if by luck of the draw they can get through this without the 10 years spiking to like five and a half, six percent. We'll see. I think the thing to watch is the volatility index, the move index. As my friends in the bond market say, the nominal level of rates is not the point, it's how fast you move up or down. So it's a volatility increases that is super bad for the treasury market. And that's what's going to elicit a policy response.
- [21:29]
B
So is the 10 year the one that we need to be paying attention to? Because I know the 30 year now is well above 5%. In the UK it's like nearly 6%. I think in the US it's over 5% and they're like the highest levels. I think in the UK it's the highest level since the late 90s in the US since just before the financial crisis. That's signaling that. Well, is that signaling there's something wrong here?
- [21:49]
A
I mean, I think the reason why we look at the 10 year is because so many other financial products are priced off of that. Your mortgage at Least in the United States, your mortgage is priced off a 10 year bond, car loans, asset backed securities, corporate loans. It's the most liquid part of the curve. And so therefore all type of corporate and consumer debt is priced off of that level. So as that level increases then that transmits down to the everyday person and the type of things that they care about in terms of credit. And, and so that's why it's super important in terms of, to maintain control of that particular part of the curve. I don't think particularly besant cares if the 30 year trade's at 10%. If the 10 year stays behaved at four and a half or whatever it is right now.
- [22:31]
B
Do you think there's in the near future, like say in the next four or five years, do you think we'll see yield curve control in a big western nation?
- [22:39]
A
I think we'll see yield curve control. I don't think it'll be called yield curve control. There'll be something more opaque and we'll see what they call it. But in effect it will be yield curve controlled.
- [22:52]
B
But the kind of question is all roads lead back to the money printer really is where we're going with this.
- [22:57]
A
Yes, until the population economies says okay, I'm going to accept a leader who's going to come in and tell me that I have to make sacrifices in my standard of living, whether that's higher taxes or less government services for things that happened even probably before I was born. And I have no personal, I didn't make any decision to spend on these things, but somebody before me spent all this money on stuff, doesn't matter what it was and now I have to suffer and I have to pay for it. We're humans. That just isn't going to happen. That is not a winning political strategy. Yes, Argentina and Mile are kind of doing this, but Argentina has been fucked for the last hundred years and the population finally said okay, we're going to try something different. That's not the case in the United States and a lot of advanced western European economies.
- [23:45]
B
Yeah, getting like the majority of a population to vote in a party that are saying like we're going to do real austerity. It's just, it's not going to happen. Which is kind of like what does happen then? Do we just have continued societal decline? Is that like I want to go
- [23:59]
A
through this which you feel right now, this angst, this, you know, the violence, all this stuff, it only gets worse because people, we all know the underlying cause, but nobody wants to admit what it is and fix it. They're just going to say, oh, it's whatever other issue they want to blame why you're upset about, but it's really because the value of energy, of money, has been so perverted and debased by politicians and governments. Part of that's the fault of the people themselves, that this is why you feel like you're going nowhere in your life and you choose religion. Or I hate the immigrants or. Or I hate people with a different accent than me, or I hate the AI or I hate all these other things. But the real thing, which is why you're angry, and that's what all these different political parties are getting you to focus on something else other than it's really about inflation and your value as a human and what you produce, as evidenced by what the price of money is.
- [24:57]
B
Yeah, it's always like, just easier to blame a scapegoat than gets the root cause of the problem, because the root cause of the problem isn't always easy to understand. Like, when I got into Bitcoin, that's the first time I really understood the problem with money. And, like, that was by chance. You know, like 10 years ago I looked at this weird Internet money and then ended up here. It's like, not everyone's necessarily going to go down that rabbit hole.
- [25:16]
A
Yeah, that's unfortunate. But again, that's. I guess that's just the state of society.
- [25:20]
B
Yeah. Do you think we sometimes overstate the importance of like, or the resilience of the market? Like, you know, when oil traded like above 100, got to 1, 2, $530, whatever it got to, people were sort of calling for this being, like, catastrophic for the economy. Things were going to start breaking and things were kind of okay. Like, do you think we. The market is more resilient than we give it credit for?
- [25:40]
A
Yes, in many places. In most places. Right. If you think about, you know, oil at $200. Right. The United States is going to be fine. Things will be a little bit more expensive. Europeans, for the most part, are going to be fine. Right. They could backtrack and go back and buy oil from Russia. They could. People. The Euros are the second largest used currency in the world. They can print a bunch of money and buy stuff. Right. I've seen most of the people listening to this podcast. You are going to be fine. Things might be more expensive. You might be upset about that. But it's not going to be like in the Philippines and Bangladesh and parts of Africa where people are literally going to starve to death because there's just not enough to go around at that price. And their countries cannot print money. They have no sovereign savings, right? Nobody trusts them that they're going to buy their bond because they're going to pay them back later with tax revenue. Those people are going to starve. This isn't, you know, this is an academic discussion for us about inflation and scarcity and hardship. But for a lot of people around the world, they're going to starve to death. But nobody. BBC doesn't cover the starving people in Burkini Faso more so than maybe a blip on, you know, the morning news. Nobody cares, right? It's just not. There's only so much suffering the population can take before you go back to your, your TikTok and start scrolling your favorite cat video. So it's, it's that issue that's going to happen, and that's unfortunate, but that's just human nature.
- [26:59]
B
How long do you think we have until it gets that dire?
- [27:02]
A
I mean, if you're listening to some of the commodity exports, you know, we're at the tipping point of that in certain countries, right? If you, I live in mostly Southeast Asia and you're hearing, you know, work from home in places like the Philippines and, and Thailand, you, if you look at India, right, the rupiah, the rupee, Indian rupee is about to take out 100, like all time low for the Indian currency. So in a sense you have a perfect storm of things hitting a lot of these economies, right? A lot of these economies are back office processing centers for advanced economies. It's the call center people. It's this intermittent labor that's doing tasks that are cheaper to have a human do than automate. And if you have an AI that can do that better, and you say, okay, well, you no longer have access to cheap commodities because you are just on the receiving end of whatever is able to get out of the strait. But you know, Europeans, Americans, Japanese, Koreans, they've just bought everything that they can on the spot market to make sure their population is insulated, then you no longer have a job and you no longer have commodities. And so that's just a recipe for maximum social unrest in those type of places. And so if this persists much longer and the deficit of production, you know, we go over that cliff, whatever that is, you know, pick your favorite commodity analyst. Some people say it's in June, July, August, somewhere around there, you know, you're going to have heads on a spike. Politicians are going to die in a lot of these places. There's going to be mass social protests in places like that because they have no job and they have no food.
- [28:35]
B
Damn. I mean, that's so bleak. And you started this at the very start of this interview talking about AI job losses. And whenever I have talked about that, I'm always thinking about the places I live. I spend a lot of time in America, I live in Australia, I'm from the uk. I'm not necessarily thinking of the global south that much when I'm talking about that. But you're right, they're going to be displaced because the only person I've ever hired from the Philippines was, I had an assistant for a while and I got rid of that assistant because AI is now doing that job essentially. And there's going to be so many people in that bracket. If you take it back to the US or any Western nation, how disruptive do you think AI will be in the short term, say the next five years? Do you think we're going to see huge job losses?
- [29:15]
A
I call 20, 30%. But again, I think it's going to be concentrated on the knowledge workers, the white collar professionals. And so while if you think about it, at least in the United States, for example, and probably parts of Europe, you had massive dislocation of blue collar workers starting in the 1990s until the present day and only probably until recently did they have a voice in Donald Trump, maybe a little bit Biden, pick your right of center politician in Europe and Australia talking about the concerns of these blue collar workers who, you know, lost their jobs due to the chanification of global markets and the labor force. But the white collar workers have the organs of power, they have the media. Nobody cares about blue collar workers in the advanced economy. It's all about what are rich white collar workers doing, whether from culture, whether from spending habits. And this is what the news cycle is really about. And so this issue is going to be amplified to levels that, that we were unaccustomed to. When you think about what happened from in the last past four years as China entered the global economy, it sort of depressed wages for a lot of this work. So I think it's going to seem like it's a lot larger than it is just because these are the folks who the New York Times writes about and cares about. But at the end of the day, I think it's, you know, we're talking probably 10 to 20%, I think is the amount of knowledge workers, at least in this particular wave, that are going to lose their jobs due to AI, I think that's the easiest, lowest hanging fruit for a lot of companies. If you take look at the job loss, it's usually in the 10 to 30% range of workforce. When you talk about a tech company announcing AI rationalization and say, okay, we're going to let go of a certain
- [31:02]
B
amount of workers, but I mean, even on like if you compare it to that blue collar layoff because of China, like that was bleak, like that was essentially like, I think Luke Gromer calls it the economy of despair. Because all these people who lost their jobs in the rust belt in the us like then comes like the opioid epidemic, which I think those two things are certainly related to a degree. And it's like tons of people die. And if that goes to the coasts, it's kind of scary.
- [31:27]
A
But I think that the coasts at least the political system is very responsive to the folks on the coast. They are the technocrats that are in the government agencies, that are in the NGOs that are in the policy think takes that give the architecture for policy and the excuse for what you're going to do as a politician. I didn't come up with this idea. The XYZ NGOs staffed by all the Ivy League people, they came up with this idea and I just implemented it. Right. And so I think these people have a voice in the government. They always have. And we're going to see something like UBI or government handouts or progressive taxation on AI companies, like whatever the solution is, I think because these are the folks losing their jobs and they're the ones that the politicians have cared about in the past, they're going to get something out of the system that your factory worker did not when they lost their job due to China.
- [32:18]
B
Yeah. This is something I've been thinking a lot about because like if you say roughly, like you know, 10, 20%, whatever it is, it can sound, you know, in the grand scheme of things it can sound like a relatively small number. But these people don't own their homes outright, they don't own their cars outright, they have credit card debt. And like that's a big enough percentage to kind of bring the system to its knees. And what does a government do in response to that? And like, I don't think UBI is a good idea, but I think it's the only thing that will that can happen to sort of save the financial system if we do lose 10% of workers across the country.
- [32:50]
A
Yeah. And I think if you want to think about what this is going to look like. Start to listen to some of the. I can't pronounce her name correctly, aoc, She's a woman congressperson from New York. I think she's going to be the Democratic nominee for the president in 2028. Listen to some of her rhetoric. And I disagree with almost everything of it, but it sounds good. She talks about the billionaire class not earning what they made. I think she's going to get onto this AI affordability narrative. You know, there's bipartisan efforts in a lot of the United States to say we don't want any more data centers.
- [33:22]
B
Yeah.
- [33:23]
A
And so if you think about the types of folks that buy into her rhetoric, it's highly educated people on the coast. These are the folks most at risk of losing their jobs, at least in this wave, due to AI. And I think she's going to be the personification of that. And the Democratic Party, those who are successful in their bid to become the leaders of that party going forward, are going to lean into this affordability due to AI. AI, this. We want to return the economy to humans, to, you know, human labor, whatever that means, in sort of a white collar perspective. And people like her are going to get a lot of, you know, formerly wealthy urban workers are going to latch onto that message. It'd be very, very powerful. And again, they have the organs of the media of all these, this apparatus of NGOs and whatnot. And I think that's going to be a counter movement to sort of the Trump business person. We're going to optimize everything. Don't worry about it. There's going to be this utopia in the next five, 10 years and we're all going to have this abundance. Maybe, maybe not, who knows? But that's going to be the counter message to that. And that message is going to get aped in other advanced Western economies around the world. Oh, okay. There's another way to counter the far right or the tech bros and the AI bros taking everyone's jobs. Let's lean into this type of message that AOC and folks like her are putting out there. And so as with people are aping Trump in a lot of Western economies, I think people are going to ape AOC and the counter message to that situation.
- [35:01]
B
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- [38:11]
A
Yeah. I mean, I think there's always something terrifying going on in our society. So yeah, maybe it's.
- [38:18]
B
Yeah, that's true. But if I guess everything we've spoke about there, on the macro side, while it kind of seems flippant to say it's going to be good for bitcoin, it's probably going to be good for bitcoin. Do you think this next bull market is going to be unlike others?
- [38:32]
A
No, it's the same. It's the same ingredients. There's money printing, why we are printing money, you can debate the cause, but at the end of the day, globally, not just advanced Western economies, everyone's going to try to print money. One of my favorite derivative traders, and I'm on the LP in his fund, David Dredge, calls it the Hunger Games. Everybody's got the same problem. I've got to print this money to placate some particular part of my population. But there's only so much capital, investable capital to go around. There's only one United States that can issue bond and they're going to cram it down everyone's throat and you've got to kind of find your crack to issue your debt. So it's the Hunger Games of debt issuance, but at the end of the day, the aggregate amount of fiat will be higher than it is today. And that is what powers a fixed supply asset like bitcoin.
- [39:23]
B
I had David on the podcast a few months ago. He's awesome. But the funny thing about the last sort of bitcoin bull market was it wasn't the hottest trade in the world. And previous cycles I think it has been. But this one was so dominated by initially AI stocks and I guess throughout AI stocks, but then also gold. Do you think bitcoin can reclaim that sort of hottest trade?
- [39:44]
A
I Mean, I think AI stocks was some of the supply suppliers and maybe not Nvidia and TSMC because they're such a. They're most massive entities. Right. Nvidia is bigger than most countries in the world in terms of its market cap. But I do think, you know, there's going to be the sandisk of the world that went up 50x in a year. Right. There's going to be another critical choke point identified in this flowchain of AI economy. And these stocks are going to do really, really well. And so, yes, if you are a stock picker in sort of the AI supply chain, I think that you will vastly outperform Bitcoin. But again, it's not very easy. I've dabbled at it in my stock portfolio, which is a fraction of the size of my crypto portfolio. But at the end, if you're talking about a big asset with a very simple narrative, is there more fiat tomorrow than today? Therefore, I go up that. I think that is Bitcoin. That is the beta. If anything, you should be performing better than Bitcoin. Whether it's an AI stock or real estate, whatever, your performance benchmark has to be Bitcoin because it's liquidity addition that's driving the majority of your returns. And so if you can't beat bitcoin, then you shouldn't be investing in that.
- [41:02]
B
Because even in bitcoin last cycle it was like the treasury companies got the hype. It wasn't necessarily buying spot bitcoin and holding itself customers.
- [41:09]
A
True. But look at DACA, it's done now. 99.99%. Like most of these treasury companies are terrible investments. Yeah.
- [41:15]
B
I mean, NACA is brutal. That chart is not nice to look at. Poor David Bailey. He's that poor.
- [41:24]
A
He certainly is that poor.
- [41:27]
B
All right, unfortunate David Bailey then. But so, like, going forward, what do you think the next bull market will look like for bitcoin? Because like 126k top. Will we reclaim that quickly, do you think? How high do you think it can go?
- [41:41]
A
So right now I think it's. We're almost at the policy panic. And this is like the event that we all have been waiting for. You know, what does a policy panic look like? A policy panic looks like the bank term funding program in 2023 when two, three banks failed in two weeks. Right. And overnight Yellen and Powell essentially nationalized the entire US banking system. Right.
- [42:05]
B
This is what you call bilateral or whatever it was.
- [42:08]
A
Yeah. A policy panic looks like April 10, 2025, when Trump and Bessant sort of backed off the tariffs, the maximalist tariffs, almost immediately declared the 90 day ceasefire with China and all that sort of stuff. And then stocks and things ripped. And so right now we have this Iran war situation, this back and forth between Trump and the irgc. And I hope you don't trade tweets because you'd be up, ways down, sideways, you wouldn't know which way you're going if you, so if you, if you're basing your trading activity off of what either side said on a minute by minute basis. But the thing to watch is right now that 10 years at, I don't know, 4, 67, 4.68%, the move index has rallied from like, you know, 60s and I think now it's like 85, 86. I haven't looked at my Bloomberg charts this morning, but we're in that trajectory. Volatility is increasing, the nominal level of debt is increasing. This scare of a sovereign debt meltdown in the United States and Great Britain and Japan and a lot of places is ever present and growing. And so if we get the move index 130 over the next days or weeks, we're ripe for a policy panic. Now before that, we're probably gonna get some dislocation in the market, right? We'll see Nvidia's results and if they're not good and the market doesn't like them, it could be like bad news bears for a lot of AI stocks for a while until the liquidity printer really gets going again. But at the end of the day, this is the recipe for a policy panic. What does that mean? I don't know. You know, there's a lot of tools at the disposal of Trump. Trump could literally just pull those ships out and say, I'm done. Iran war, we won, goodbye, sell it off. Right? I'm going to focus on affordability and whatnot, you know, in the, in the election. And Iran don't even, doesn't even register anymore, right? There's all sorts of things they can do. But if we want to have that explosive bull market in Bitcoin and other other crypto assets, we need a policy panic. And I think we're almost there. But that doesn't mean that Bitcoin goes up. It could go from 75 to 70,000 if the 10 year starts ripping towards 5% in a volatile fashion. But this is the recipe. We're almost at that point where you get this massive panic due to bond market fundamentals and volatility and you get a Massive policy response in the United States and other places around the world and then that's it, they're done. They've got the excuse to do what they've always wanted to do and now it's just a massive printing exercise for a year or two. And that's what carries Bitcoin through 126,000 to whatever level it's going to get to on the upside before we come to our senses again and it goes down.
- [44:53]
B
How many more of these sort of panics do you think Fiat can take? Because from 2007 to Covid, the amount of money printing is like, like 2007 is not even on the chart. That was probably like a week of printing during COVID or something stupid like that. Like how many more of these can it take? Like, when will we get to the last Fiat cycle? Or do you think again, this is more sustainable than people give it credit for?
- [45:12]
A
I mean, I think fraction reserve banking has been around for hundreds of years. Like the bank of England was the first, the first episode of quantitative easing to save the. Was it the. I forgot which company. It was one of the ones that was doing slavery and drug dealing in the, in the Near East.
- [45:28]
B
It wasn't like the East India Company or something, was it?
- [45:30]
A
Yes, yeah, exactly. They were about to fail. I think it was like something like 18 something for whatever it was. And the bank of England conducted the first episode of quantitative easing to save what was, you know, the biggest and hottest stock at the time. Everybody, middle class English person owned the stock and you know, there are some issues, some impropriety, and the stock crashed and bank of England had to come in and print money and prop it up. Right. First instance of quantitative easing. We've been doing this for hundreds of years. We can do it for more, we can do it for longer. The only thing that really stops this train is AI, because if you have an ejectic economy, which is completely different in terms of its structure of how knowledge is produced and consumed, then the whole edifice of fraction reserve banking doesn't need to be there anymore. And I think that's what sort of brings in a change in the monetary system. What that change means, I don't know. But it's not going to be like it has been for the past two or three hundred years. I think that is the thing that stops fraction reserve banking and gets us to a different system. That saying it's better or worse is different.
- [46:32]
B
When we do get to that sort of agentic economy, do you think that the AI agents will choose Bitcoin as money or do you think, Because, I mean they're not going to have a Chase bank account. Do you think stablecoins will win that race? Or Bitcoin or something else?
- [46:44]
A
So, I mean, I have a theory on this and I think the AI agents want. the end of the day, what do AI agents eat? They eat raw compute. They don't eat tokens. Tokens is just a layer above that. That and yes, Bitcoin. Bitcoin represents electricity at the end of the day. That's what the derivative of bitcoin is on a kilowatt hour and what work that can do. And AI cares about, you know, floating port operations per second, per period of latency, that is their currency. So I think that yes, Bitcoin is probably the best approximation of that right now. There will be a AI commodity token that represents floating point operations per second closer than a token does. And that is what is going to be the currency of the AI economy. We don't have that yet. But I think that if I think about it in a theoretical perspective, I think that is what is coming for the AI economy. And then we'll price everything else off of that. AI still might use Bitcoin because maybe they need to interface with a human and the human wants. Bitcoin doesn't want this other currency. But I think there is a space for that type of currency. It will be cryptographic in nature, it will be on a public blockchain, not be a US dollar. Stablecoin, in my opinion.
- [47:59]
B
Yeah, I mean on the crypto side, because I, I like, I'm, I just pay attention to bitcoin, but I know that you, you sort of trade all the stuff. The, the kind of narrative in bitcoiner circles is that the, the crypto trade kind of died in the last cycle in the sense that like, because AI took so much hype and don't get me wrong, it definitely took hype away from bitcoin as well. But it looked like from the outside that sort of. The crypto world got a little crushed with that. And they weren't, you know, again, like you weren't really getting the meme stock, pumps, all that sort of stuff. Like, do you look at that the crypto ecosystem as being slightly dead?
- [48:31]
A
No, because I think Hyper Liquid was the best performing shitcoin of the last cycle of a particular size. Right. And I think the hyperliquid team did what they needed to do. And the most important thing they did was they built a successful product. A lot of people build successful products. The problem with most crypto projects, I say this to a lot of the companies that I advise, is you do not give any of the the economic value created at the protocol level back to the token holders. And in fact you create a situation where you have a bunch of early investors who for no fault of their own in their own profit maximization and their own fiduciary duties, must dump to their tokens into the market and depress the price. And so when you list your tge, that's the maximum price your token's ever going to receive because not only do you not give any value back to the token holder, you have a bunch of investors who have to sell because they need DPI for their investors. They're LPs. And so this is why tokens are down. Only hyperliquid said, okay, well we're not going to have a massive VCO overhang. Yes, we have a big team overhang, but you know, Jeff and the team do need to get paid for the value they've created. But we're going to take 97% of the revenues and going to buy back our own token and we're very profitable. Protocol as we know, trading fees from exchanges, it's the perfect killer app for crypto. So that's why it's done so well. But for various reasons, most teams choose not to copy that model. Whether it's they need to, you know, get an investment from a large VC fund. And this is just not the way in which a large VC fund wants you to operate. I've gotten that pushback from a lot of project. Well, you know, we have such and such brand name vc and I said yeah, we should just unlock all our tokens or whatever. And they no, no, no, we can't do that. Oh, I'm like, okay, well then good luck, your coke is going to zero. Oh no, we can't give money back to the, to the token holders because of, you know, whatever reason. Okay, great, I understand, don't care. I'm not, if I'm not getting any money, I'm not going to own your token down only. Right. And so, but hyper liquid, completely different situation and that's why it's performed so well. And so I think after this experiment, we've been running with different ways of capital formation in the crypto capital market since really 2017. In the ICO bull, we as shitcoin investors have gotten a lot more mature and a lot more demanding. You can't just put a white paper on the Internet and get our money. You can't just have a bunch of, you know, you, yeah, you raised $100 million pre seed round and you got all the coolest and baddest investors in the game on a cap table. That no longer is enough. I actually want to get some value as a token holder and that's why Hyper Liquid's done so well and that's why the majority of these shitcoins have not done well, because they didn't do that. They were their value and their, you know, Pumponomics is based on old ways of doing things. And we as crypto investors have matured and finally we care about cash flows coming to us as token holders, however that happens.
- [51:24]
B
Was Bitmex the first? Like, did you create the perpetual future?
- [51:29]
A
Yes.
- [51:31]
B
So is it pretty cool to see like this stuff happening now and even like strategy doing their perpetual preferreds and like, is it cool to see the thing that you created becoming like serious financial tools?
- [51:43]
A
I think it's great. I'm super proud. I think everyone at BitMEX who worked on this thing back in 2016 should be proud of the movement that we created, that we have centralized exchanges who are in bed with the regulators running scared because a team of 11 people are able to out compete them and build a better product.
- [52:02]
B
And that's also the bullish side of AI is that we're going to see small teams completely disrupt huge industry. And that's the cool side of AI. I think it's an incredibly powerful tool. I think there's going to be loads of social disruption that comes from it. But on the other side of it, the creativity and the new things we're going to have in the world is awesome. We'll see a billion dollar, one person company at some point.
- [52:25]
A
Yeah. And I think it's really cool that obviously it served a purpose, but we have a lot of extremely intelligent people doing bullshit work. Work. And I think work, at least in my context is my accountants, my lawyers, all these types of service professionals that charge you a lot of money, that do fuck all work and have this whole edifice of a system that is incomprehensible by design. So you have to pay them $2,000 an hour. We should liberate them from these debt, these shitty jobs and bring that intelligence back to doing something useful for humanity. Rather than parsing a tax code or some legal structure, we could have an AI do all these things and we kept all this other human intelligence and creativity to do other things. And I think that is the techno optimist side of things. And yes, unfortunately, when you lose your job, that's not what you think about when you were making a few million dollars as a parasitic lawyer and now that's no longer needed. But I think from a general stance of the advancement of humanity as a species, we're liberating very smart people from I think net destructive employment.
- [53:31]
B
Yeah, it's kind of like an existential crisis for a decent chunk of the population who think, you know, you go to college, you get the degree, you become a lawyer, that's a job for life. Like, even if you lose a job at one firm, there's always going to be other opportunities and then it's like maybe they're all gone. Like, it's going to be so interesting to see how people like that react to it. Because again, like, are you going to get a 40 year old accountant or a 40 year old lawyer who's like in middle management at their firm retraining to do like, like AI tech work? Like I, I don't think so. Like, I don't know what those people do.
- [53:59]
A
They agitate politically and they get a handout. That's what they do. Again, I'm not saying that's the wrong thing to do. Right? If, if we're creating all this abundance at a civilizational level, surely it shouldn't be that everyone who got displaced is now living as a pauper on the street. Right? Essentially it's all our data, our interactions as humans across the world that created these AIs. Now Google and Facebook might say, yo, but you sign that terms of service saying that all that data is mine. But if we repudiate that and say fuck that contract like you're, you guys have made, you know, so much money based on humanity as a construct, therefore we demand a chunk of that. And I think that is the, that's the message if you want to run for political office in an advanced western economy, that is the message that humans created. Google, there is no LLM without human data inputs. Whether that's public source data, whether that's theft of data, whether that's walled gardens, that's humans. That's humans with each other creating this data that has given these companies the ability to create these godlike intelligences and therefore we demand our recompense for that. I think that is the winning political message from now going forward.
- [55:13]
B
Yeah, I totally agree. And just from a personal perspective, there's no way that I think the 40 year old lawyer who can't retrain, losing his job is any reason to slow down on this. Fuck them. It's going to be an Adapt or die type situation, I think. Arthur, this has been fucking awesome. Is there anything, especially on the macro side, that we've not talked about, that you've been thinking about a lot?
- [55:32]
A
No, I think it's people just trust the process. The money will be printed, the things might get up or down, but at the end of the day, until you see politicians campaigning on austerity, don't worry about money not being printed, but use a safe amount of leverage. If you use leverage, because it's going to get chopped up. Happy? But at the end of the day, the trend is up.
- [55:56]
B
Yeah. We're not all Arthur Hayes. I think most people are best at buying bitcoin, holding it dcaing, that's what I do. But bitcoin is the trade. Like buy bitcoin and avoid all this chaos. I guess that's the message.
- [56:08]
A
Yeah, exactly.
- [56:09]
B
Love it. Well, thank you so much, man. I appreciate you getting up early to do this. Hopefully we can do it again at some point. We'll have to try and do it in person again next time.
- [56:16]
A
Yes. Thank you.
- [56:18]
B
Awesome. Thank you, man.
- [56:19]
A
Mate,