Compilation | Wu Talks about Blockchain
In this interview, Arthur Hayes, Chief Investment Officer of Maelstrom and former CEO of BitMEX, shares his thoughts on the cryptocurrency space, touching on South Korea’s influence, possible regulatory changes brought about by the Trump administration, and the evolving dynamics of global financial markets. Hayes emphasizes South Korea’s significance as an important cryptocurrency market, supported by its active trading culture and technological acceptance. He also discusses investment strategies, memecoins, and macroeconomic trends that may shape the cryptocurrency space, predicting that the bull run will continue driven by global inflationary policies. Although skeptical of the U.S. government’s direct adoption of Bitcoin reserves, Hayes believes that the transition to digital assets is inevitable.
Original link:
https://x.com/CryptoHayes/status/1863537733718999350
Hikaru: Arthur, how are you doing?
Arthur: Very good.
Hikaru: Great, it's a pleasure to have you on this interview. We're going to be discussing three things today: first, your background; second, the potential impact of a Trump presidency on cryptocurrencies; and finally, your current views on the market, especially the Korean market. I'm looking forward to it! So to start, could you please briefly introduce yourself and Maelstrom? I'm curious, what motivates you to keep working hard and pursuing what you love?
Arthur: I studied at the Wharton School of the University of Pennsylvania in the United States, and came to Asia in 2008, working at Deutsche Bank and Citibank, and gradually developed a strong interest in the financial services industry. After working there for five years, I stumbled upon the Bitcoin white paper and started to dabble in cryptocurrency trading because I was fired from my position as an ETF trader. After that, I founded BitMEX with two other co-founders in 2014. After stepping down as CEO in October 2020, I realized that I liked trading but not running a company, so I decided to start my own family office, which is the origin of Maelstrom. We are an early token fund that invests entirely with my own funds. Our goal is to outperform Bitcoin and Ethereum by investing in potential projects.
Hikaru: Great! You mentioned BitMEX, which is very famous for pioneering derivatives and perpetual contracts in the cryptocurrency space. As one of the founders of BitMEX, how did you transition from BitMEX to your current position as CIO of Maelstrom? What are the differences between the two? Which do you prefer?
Arthur: Managing a small company, from my perspective, meaning a team of less than ten people, is really fun. The early days of BitMEX were very enjoyable. As perpetual contracts became popular in 2018, we quickly grew into a larger company with about 250 employees. But as CEO, my day-to-day work mainly involved HR, legal, and compliance issues, which were not my original intentions for entering the cryptocurrency field. Fortunately, I no longer do these things and am only involved as a board member. At Maelstrom, I can focus on trading, investing, and ideation, and work with a small team of about six people. This is what I am really passionate about — financial markets, cryptocurrencies, and understanding new projects and driving the development of decentralization.
Analysis on Crypto Regulation and Macroeconomic Trends in the Trump Era
Hikaru: Great, I think that's why all of us in the crypto industry are so passionate. So now let's talk about the topic that everyone is very excited about, which is the incoming Trump administration. It is predicted that they may implement more friendly crypto regulations, such as appointing a new SEC chairman (goodbye Gensler) and even approving more altcoin spot ETFs, such as the rumored Solana and Ripple. So, I would like to ask, in view of this situation, what changes do you think will happen in the US cryptocurrency market and even the global financial market in the next four years?
Arthur: I think we are gradually getting to a stage where people who hold government bonds will realize that it is a bad investment because all the major governments in the world have to print money and drive inflation to try to inflate down their huge government debts.
This is not just a US problem. All major countries, including the EU, Japan, and China, are facing the same dilemma. No politician, elected or unelected, can accept austerity policies. Obviously, we saw Mille in Argentina, who claimed that he would cut the government budget and achieve a balanced budget, and was elected because of this.
However, when he tried to do that, the Argentine economy did very badly. I remember industrial output was down about 20%, which is a very dramatic number. Because when you remove all the credit from the system and reduce government services, people lose their jobs because there is no money being pumped into the system. I don't think any politician, elected or unelected, would want to run an economy like Argentina's. So they choose to inflate down the debt, and that's exactly what Trump is going to do.
One major policy that people don't notice is that he has to print money. He needs to grow GDP through inflation enough to support the government's balance sheet. I know a lot of people are focused on crypto regulation and where it might go, but I think it's very speculative to predict crypto-friendly regulation in the U.S. There are a lot of wealthy people who hold a lot of crypto assets and whose businesses could benefit from regulation. They would play the same game that the big banks do, such as donating to the winning party, entering the government and creating regulatory policies that are in their favor and that may not be in the interests of cryptocurrency holders as a whole.
Maybe we will have a new SEC Chairman, but this person may choose to go after all businesses except Coinbase, we can't be sure. So I think it's reasonable to say that expectations are high that crypto regulation in the US will drive adoption. But expectations are usually higher than reality in the market. The fact is that Trump is a politician and the US Congress will be re-elected in two years. So he has at most 18 months to act. On top of that, he also needs to fulfill campaign promises, not just in the crypto space. So I think it will be a case of "buy the expectations, sell the facts", and any policies he introduces may be positive in the long run, but will make the market feel less than ideal in the short run.
So if you're jumping into crypto simply because you think Trump will implement aggressive crypto regulation, you're probably going to be disappointed. However, I don't think the crypto market will fall because ultimately the real sticking point is Scott Bestant at the Treasury Department and the amount of money he needs to print in order to achieve Trump's economic goals.
Discussion on the feasibility of US Bitcoin reserves
Hikaru：Okay, that's a very realistic view. It's a bit like many token projects will release a beautiful white paper with a grand vision, but the end result is just an MVP (minimum viable product). This is indeed an important fact for people to understand. I completely understand that there are many possible directions that the United States and the Trump administration may take in terms of crypto regulation. But one particular topic is about the US National Bitcoin Reserve. Assuming that the US government does launch a Bitcoin Reserve plan, a strategy to programmatically limit the total supply, how do you think this will affect the US government and the broader financial markets? What actions might other governments take?
Arthur: First of all, I don't think a Bitcoin reserve will actually happen. But I think the path they are trying to take to get there is highly instructive and generally positive for risk assets. If you read Senator Lummis' draft bill on a Bitcoin reserve, the most important part is how she plans to fund this reserve. She proposes two ways that the U.S. government could buy Bitcoin and build a national strategic reserve.
The first way is that the Fed returns the interest income it earns on Treasury bonds and mortgage-backed securities to the Treasury. This amounts to billions of dollars a year. So she suggested using these payment funds to buy Bitcoin. However, this amount is small, especially since the Fed is shrinking its Treasury bond portfolio and is also losing money in other parts of its books. So I don't think it will contribute much to buying Bitcoin.
More importantly, she suggested revaluing the value of gold on the U.S. government's balance sheet. The U.S. government currently holds about 80,100 metric tons of gold, which is still priced at $42.22 per ounce, the level set by Franklin Delano Roosevelt in 1933 by weakening the dollar. If gold is revalued to its current value of about $26,000 per ounce, this would bring the Treasury a paper profit of about $700 billion. The Treasury could then use these funds to implement government projects or to purchase Bitcoin in its strategic reserves.
But if I were a politician, I could revalue gold and create these "virtual" funds and use them to do projects in my district, support other programs like the Green New Deal or oil drilling, instead of buying Bitcoin. Although I believe that the US government will devalue the dollar relative to gold, I don't think these funds will be used to buy Bitcoin, but for other government projects. Trump does not need to go through Congress or cut spending, just let the Treasury Department reset the price of gold to, say, $5,000, $10,000 or $20,000 per ounce. The funds automatically created in this way can be used for various political expenditures.
So I think part of what's instructive about the Bitcoin strategic reserve is that it's a process of rationalizing how to revalue gold and free up some of the Treasury's paper profits and spend them.
Maelstrom's investment strategy: Focus on value and timing
Hikaru: Very interesting. It can be seen that this strategy may be slightly different from the ideas of mass consumers, but it will eventually have a positive impact on the price of Bitcoin. Let's wait and see.
Next, I want to talk about another topic. I believe many people are very interested in your investment and trading strategies, so I would like to ask you. What are the main criteria you focus on for trading or even long-term investment in digital assets?
Arthur: First of all, I asked Akshat Vaidya, who is responsible for investment, to outperform the return rate of Bitcoin and Ethereum. At Maelstrom, I hired a lot of people, and I could invest my money directly in Bitcoin and Ethereum to see what happens. So, if you want to actively invest in other projects, you must be able to outperform the performance of these two cryptocurrencies.
We try to take advantage of cycles. I have a macro liquidity perspective, and that feeds into Akshat's investment considerations. For example, during the bear market in 2022 and 2023, we were very active and got a lot of very valuable deals. Obviously, as more money flowed into the crypto space, prices went up and deal valuations became very expensive. So we slowed down our investment. We pay a lot of attention to the price when we enter a project, because price is what you pay, and value is what you get.
We can’t predict the future, but we know that if we can enter a token project at a very reasonable fully diluted valuation, even if the project ends up performing poorly, as long as the token is launched, we will still be profitable. But if we pay too high a valuation in a bull market because we are afraid of missing out, even if the project is successful, we may not make money by the time the token is launched. So we pay great attention to the investment price. The next step is to see if the project fits a vertical field we are interested in. But I always emphasize that the first criterion for investment is that the price must be cheap. Because if the price is low, we have more room to make mistakes in the technical prospects, the market fit of the team, or the time frame.
Hikaru：Very clear. This strategy of "high fully diluted valuation but no circulating tokens" is obviously not feasible in this cycle. So it is really important to make sure you enter the market at a reasonable price and not overpay in a bull market.
Arthur: Yes, we all get easily excited and end up losing money.
Hikaru: Even with a lot of experience, it's easy to act too fast because of fear of missing out. So next I'd like to talk about Korea, which is our local market. I noticed that Maelstrom recently launched an official blog, and you publish a lot of content in Korean. I would like to ask, what prompted you to decide to enter the Korean market? Where did your interest in Korea come from?
Arthur: I first noticed the Korean market around 2017 during the ICO boom. At the time, tokens on Korean exchanges were trading 20%, 30%, or even 50% higher than elsewhere, with Bithumb being the dominant player. Back when I was a derivatives trader at a bank, about 10 to 15 years ago, Korea’s KOSPI options were the most liquid options market in the world, even though Seoul had a population of only 20 to 30 million at its peak. Korea’s per capita trading activity was probably the highest in the world.
Now, Koreans have turned from speculative stock options trading to cryptocurrencies. They have a high level of Internet penetration, a well-educated population, and a relatively rigid upward channel from the middle class to the upper class in Korean society. Some large companies and families control most of the resources, and it is difficult to move up just by being smart or educated. Therefore, cryptocurrencies provide a new opportunity for these highly qualified people who are dissatisfied with social mobility. As a result, South Korea has become the market with the highest per capita crypto trading volume in the world.
When I was at BitMEX, I noticed that the trading volume from Korean users was very strong. So, in the current investment landscape, we want to be closely connected to the regions where users are active. Although there are technological innovations all over the world, the real users are mostly concentrated in Northeast Asia and Central Asia. If you want to understand where there is large-scale cryptocurrency trading, you have to pay attention to these regions. Therefore, we decided to start with Korea and set up a local language blog, and have professionals in the industry translate my English content to make it easy for ordinary Korean crypto investors to read and understand. This is why we want to enter this market, because from a pure cryptocurrency trading perspective, it is probably the most important market in the world.
South Korean Crypto Regulation and Potential Institutional Involvement
Hikaru: I totally agree. If you look at Upbit, for example, it ranks at the top of the global spot centralized exchange trading volume rankings, second only to Coinbase and Binance. This really shows how popular the Korean market is. And the "Kimchi premium" is also real. Earlier this year, when we were experiencing a mini bull run, Bitcoin's price premium on these exchanges was as high as 20%. In addition, Koreans are very enthusiastic about tokens such as Dogecoin and Ripple. So, I think the market is very hot and will continue to grow with the introduction of more cryptocurrency regulations, which will bring clearer rules for exchanges and consumers. I would like to ask, what do you think about the future of the Korean digital asset market? How will the market landscape change with the introduction of more regulations?
Arthur: If I remember correctly, South Korea is currently voting on a tax bill. I heard that this bill mainly deals with capital gains tax and cryptocurrency-related tax issues. It sounds like this bill may be delayed because South Korea has a high percentage of cryptocurrency traders and apparently they don’t want to pay high taxes on these transactions. If tax policy is ultimately implemented, it will need to be done in a way that does not significantly inhibit trading volumes. So, I'm looking forward to seeing what the politicians decide today (around November 26th).
In addition, I think an important question is whether Korean institutions will participate in cryptocurrency trading. At present, I understand that only personal accounts can be opened on Korean exchanges, and corporate accounts have not yet been opened. If these institutions are able to participate in the future, such as taking advantage of the high liquidity and activity of the market to provide services to millions of Koreans who hold cryptocurrencies, this will bring huge demand. In addition, if South Korea allows foreigners to open accounts in their own names, it will attract more external liquidity into the Korean market, which will help balance the price premium of some tokens due to excessive popularity.
Because of the large base of cryptocurrency supporters in South Korea, politicians who might try to restrict cryptocurrencies in the interests of traditional finance seem to be worried about losing votes from the young, active crypto community. Therefore, I think this is a very instructive case study of what happens when a young, active, and increasingly wealthy group of cryptocurrency holders begins to wield their political influence. This situation may become a microcosm for other parts of the world. Younger generations and crypto asset holders will try to use political power to push for regulations that serve their own interests, rather than just regulations that serve traditional asset classes that have existed since before they were born.
Insights on Memecoin and its speculative nature
Hikaru: You mentioned a very interesting dynamic, especially with South Korea going through the Terra Luna crash. Many lawmakers realize that digital assets are the future, but the key is how to carefully take these steps. Education is very important, and making sure that something like the Terra Luna crash doesn't happen again is equally important. So they are very careful in how they move forward, laying the foundation not just for the next few months, but for the decades to come. That's a really good point. Now I want to switch gears to something interesting: What is your favorite meme coin?
Arthur: What is my favorite meme coin? Of course, I will only talk about the ones I own. I like GOAT, which is a meme coin created by the Truth Terminal AI agent. I think it is one of the first meme coins created by an AI Large Language Model (LLM) agent, and there will definitely be different variations on various themes in the future, but generally speaking, the groundbreaking themes will retain value. Therefore, I think GOAT will probably maintain a market cap of between $1 billion and $5 billion for quite some time, instead of going to zero as quickly as many other meme coins.
In addition, I am interested in some projects in the field of decentralized science (DeSci), such as Worm, which I find interesting and funny. Other than that, I don't pay much attention to meme coins. I often hear various discussions about meme coins, and in the chat within Maelstrom, young analysts are always sharing the dynamics of various meme coins. I will occasionally see if there is anything interesting and then buy some randomly. It's a fun game and I like it very much. Of course, I don't invest too much money, it's purely speculation and gambling. But I think it is very enlightening because you can understand human emotions from it and how this emotion is reflected in trading charts.
Hikaru: Indeed, no matter what the result is, one thing we can all agree on is that we really enjoyed the process.
Arthur: Yeah, in this universe, we're supposed to enjoy life and hopefully make some money in the process.
Summary of Bitcoin’s role in the current bull run
Hikaru: Of course, I also made new friends in the process. The social capital of the memecoin community is very strong, and this is not going to disappear in the short term.
Arthur: Exactly. Social media allows us to share viral memes across the internet, so why not try to make money by predicting the next hot trend?
Hikaru: I totally agree. Well, Arthur, thank you very much for sharing. I believe this is very meaningful to cryptocurrency investors around the world, especially as Bitcoin approaches $100,000. However, I have one last question: Do you have any message you would like to pass on to our Korean community and global audience?
Arthur: I think you should keep buying cryptocurrencies. We are still in a bull market. I know some people think Bitcoin may stagnate after reaching $100,000, but the bottom line is that every major economy and government has committed to inflating their debts instead of addressing the structural problems of their economic and political systems.
That being the case, we should hold the best performing asset since the 2008 global financial crisis, which is Bitcoin. Of course, the rest of cryptocurrencies will follow. So don't be discouraged by Trump's crypto policies not meeting expectations. He will print money, China will print money, the ECB will print money, Japan will print money, South Korea will print money, everyone will print money. So, I think we are still in the early stages of an explosive bull market.
Hikaru: I totally agree. I think many governments and financial markets are just solving short-term problems with one stopgap solution after another, but in the end we all know that it won't last. Bitcoin is the only long-term solution that can really solve the problem fundamentally. Well, thank you very much, Arthur. We look forward to having you on the show again. Good luck with the bull run, and let's see how it turns out!
Arthur: Thank you for the invitation.
Hikaru: Thank you, Arthur.
