Compiled & edited by TechFlow
Guest: Arthur Hayes, Co-founder and former CEO of BitMEX
Moderator: Nic Puckrin, CEO of Coin Bureau
Podcast source: Coin Bureau
Air Date: August 7, 2024
Summary of key points
In this podcast, Nic Puckrin once again invited Arthur Hayes, a senior expert in the field of cryptocurrency, to discuss the current market dynamics and future investment opportunities. As the co-founder and former CEO of BitMEX, Arthur has profound and unique insights into the crypto market. In the show, he analyzed the impact of the fluctuations of the yen on the market and the role of the US Treasury in the political environment.
During the show, Arthur discussed in detail the impact of the unwinding of the yen carry trade on cryptocurrencies and predicted the price trends of Bitcoin and Ethereum. He also discussed how the upcoming US elections may affect financial markets, emphasizing the importance of political factors in economic decision-making. In addition, Arthur also shared his views on Aptos and Solana, analyzing their potential in the field of Web 3.0.
At the end of the show, Arthur made predictions for the future market and explored the development prospects of Bitcoin L2 (second layer solution). He called on investors in the crypto industry to be more politically active to ensure that their interests are reflected in policy making.
What's happening now
Nic Puckrin raised the current market turmoil, particularly the volatility of the yen, the unwinding of carry trades, and recession fears, and reminded the audience to consult a financial advisor when discussing investments.
Arthur stressed that the trend of the yen is the most important factor in the current market and mentioned that he had written a paper on the Japanese economy.
Japanese Economy and Monetary Policy
Arthur explained the impact of the U.S. Treasury's quarterly refinancing announcement on market liquidity. He pointed out that due to tax revenue, the Treasury reduced the issuance of short-term Treasury bonds in the second quarter, which led to a decline in market liquidity, which in turn affected the performance of cryptocurrencies. He believes that as the Treasury re-issues Treasury bonds in the second half of the year, market liquidity will gradually improve.
Unwinding of the Yen Carry Trade
Arthur analyzed the mechanism of the yen carry trade in detail, pointing out that the Bank of Japan (BOJ) supports this huge carry trade by creating yen. The scale of this trade has reached 25 trillion US dollars, making it one of the most important trades in the world. With the depreciation of the yen and the emergence of inflation, the Japanese people began to be more dissatisfied with the government, and the BOJ was forced to take measures to gradually normalize monetary policy.
Future Outlook
Arthur believes that the unwinding of the yen carry trade is a structural process that is expected to continue. He is cautious about the BOJ's future policies and believes that they will not easily return to negative interest rates. He also mentioned that US Treasury Secretary Yellen and Federal Reserve Chairman Powell may help the BOJ transition smoothly and mitigate the impact on the market by printing money.
Is the Ministry of Finance involved in politics?
The political nature of the Ministry of Finance
When discussing the role of the Treasury Department, Nic mentioned the influence of Treasury Secretary Yellen and her role in the upcoming US elections.
Arthur said the Treasury Department has always been a political entity, but the current political climate makes its market operations more apparent ahead of key election dates. He is confident that Yellen will do everything possible to support Vice President Harris' re-election chances.
Monetary Policy and Elections
Arthur believes that the Treasury and the Federal Reserve may use the already approved liquidity swap program to provide dollars to the Bank of Japan (BOJ) to help maintain market stability. He described a possible operation in which the Treasury would buy back U.S. Treasury bonds and stocks at a price that would not affect the market, and then provide dollars to banks and companies to encourage them not to sell these assets in the market.
Future Outlook
Arthur pointed out that this operation can gradually appreciate the yen without actually unwinding the carry trade, while continuing to drive the rise of the US market, thus creating favorable conditions for the Democratic Party to win the election. He believes that this strategy may keep the market stable and bring benefits to the political world.
Cryptocurrency and Japanese Yen Carry Trade
The relationship between the yen carry trade and cryptocurrencies
Arthur confirmed that some funds and cryptocurrency investors do invest in cryptocurrencies by borrowing Japanese yen, which is a common practice. He pointed out that many traditional hedge funds seek the lowest cost of funds, and if risk management allows, they will borrow Japanese yen and use these funds to buy crypto assets such as Bitcoin.
Cryptocurrency as an investment asset
Arthur mentioned that with the inflow of yen loans, the liquidity of funds in the cryptocurrency ecosystem has increased. He also pointed out that the price of Bitcoin denominated in yen has risen a few days ago, which shows that this trading strategy is effective. If the Bank of Japan continues to maintain zero interest rates, then borrowing yen and investing in Bitcoin will be a very attractive deal.
Market liquidity and risk management
Arthur further explained that when there is a large-scale de-risking across the entire financial ecosystem, investors tend to sell more liquid assets, such as cryptocurrencies, rather than those with lower liquidity (such as commercial real estate). He emphasized that the liquidity of cryptocurrencies makes it the preferred asset for investors during market turmoil.
Ethereum’s liquidity problem
Nic mentioned the recent Ethereum redemptions and asked if this was related to the unwinding of the yen carry trade.
Arthur believes that this may indeed be related to some large traders exiting the market, especially in the current market environment, many investors may choose to reduce their risk exposure, leading to changes in liquidity.
Altcoins, Bitcoin, and Elections
Crypto Market Seasonality and Bitcoin’s Performance
Speaking about the “bull run” in the crypto market, Nic raised the question of whether Bitcoin will return to its all-time highs by the end of the year.
Arthur believes that it all depends on the market conditions. He said that if the US stock market falls by more than 20%, it will attract great attention from the authorities, especially Treasury Secretary Yellen, because it may affect the upcoming election.
The stock market's influence on voters
Arthur pointed out that wealthy baby boomers play an important role in elections. If they suffer significant losses in their stock investments, it could affect their voting behavior. He stressed that if a financial crisis occurs during the election, voters may become dissatisfied with the current government and even choose not to vote, which is a potential risk for the Democratic Party.
Government Revenue and Capital Gains Taxes
Arthur also mentioned that the US government relies heavily on capital gains taxes to support its fiscal revenue, especially in states like California, where the performance of technology stocks directly affects the state's fiscal situation. Therefore, if the stock market falls and capital gains tax revenue decreases, the government's fiscal deficit will widen, which will force the authorities to take action to stabilize the market.
Future market response
Arthur predicts that if the S&P and Nasdaq fall 20% by Friday and the market is volatile over the weekend, then some action may be taken over the weekend. If the market crisis subsides in the short term and the situation does not change much, then it may be necessary to wait one to two months until the market regains confidence in the fall. As the election approaches, the government may take more active measures to ensure that wealthy voters are satisfied with the market and thus influence the election results.
The relationship between cryptocurrency and politics
The Politicization of Cryptocurrency
Nic mentioned that cryptocurrencies are becoming more and more important in the US political environment and have even become a key factor in voter turnout. He cited an article by Arthur that mentioned a scene he saw at a party in Ibiza, comparing how politicians are courting crypto votes to girls trying to attract attention at a party.
Political candidates’ interactions with the crypto industry
Arthur believes that if the market has too high expectations for a candidate's victory, this may bring risks. He mentioned that Trump's performance in the debate was very good, which increased his chances of winning voters. But with Biden replaced by Harris, Trump's chances of winning may decline, which may affect the confidence of the crypto market.
Strategy for the crypto industry
Arthur pointed out that although both the Democratic and Republican parties will eventually take measures to support their voters, the crypto industry should be more proactive in asking political candidates to take action, rather than expecting them to fulfill their promises after the election. He suggested that voters in the crypto industry should ask candidates to take specific measures before the election day to gain their support, rather than hoping that they will do something after the candidates are elected.
Views on the future
Arthur stressed that voters in the crypto industry need to clearly express their needs and use this to influence candidates' policies in elections. In this way, the crypto industry can gain a greater voice in politics and ensure that their interests are reflected in policy making.
Cryptocurrencies and narratives that should be bullish
Optimistic about Ordinals project
Arthur mentioned his recently launched "Airheads" project and was very optimistic about Ordinals. He believed that as the Bitcoin market recovers, Bitcoin holders will become richer and will seek some digital assets that can embody cultural values. He emphasized that ordinals, as digital artifacts native to Bitcoin, are essentially different from traditional NFTs, which makes them uniquely attractive in the market.
Current market opportunities
Arthur noted that the current low market sentiment is an excellent time to build a unique art collection. He encouraged investors to find original works of art that resonate with them and use this opportunity to demonstrate the potential of ordinal technology.
Focus on exchange tokens
When talking about tradable altcoins, Arthur mentioned some undervalued protocols that are able to provide real returns to traders. He did not name specific projects, but stressed the importance of looking for protocols that can provide stablecoins or other cryptocurrencies. He mentioned that the valuations of many projects do not reflect their actual value, especially during the general market sell-off.
Aptos’ potential
Arthur also mentioned his role as an advisor to Aptos and expressed optimism about the project’s collaboration with traditional financial institutions. He believes that Aptos’ application in the Web 3.0 space will drive its growth and predicts that in the next two to three years, Aptos will achieve significant changes in its market position.
Future Outlook
Arthur said that he and his team are writing a comprehensive model that details the potential of Aptos and the details of cooperation with large financial institutions. He will share more information at the Korean conference in September and looks forward to revealing more at events between Korea and Singapore.
Aptos and Solana
Technology and market acceptance
When discussing Aptos vs. Solana, Arthur stressed that while both use the Move programming language, he does not believe that technology itself is the key factor. He pointed out that what ultimately determines the success of a cryptocurrency is the actual usage and demand of users, rather than technical indicators such as transactions per second. He believes that when financial institutions move to Web 3.0, they are focused on how to actually operate on a public blockchain, rather than technical details.
Aptos’ Market Positioning
Arthur mentioned that the Aptos team actively cooperates with traditional financial institutions to provide solutions so that these institutions can smoothly switch to on-chain operations. He believes that this cooperation will drive the growth of Aptos' transaction volume and network fees. He emphasized that although technology may affect the decision-making process, for ordinary traders, the focus should be on the partnership with these financial institutions and how they use the platform.
Competition with Ethereum
When it comes to the competition between Aptos and Ethereum, Arthur pointed out that although Ethereum has a dominant market share in the issuance of RWA (real world assets), financial institutions choose blockchains mainly based on the functions they need. For example, how KYC (know your customer) works on the chain may affect the choice of institutions. If Aptos can provide a better user experience in some aspects, then institutions may be more inclined to choose Aptos.
Crypto Areas to Avoid
Avoid leveraged trading
When talking about crypto investments that should be avoided, Arthur first emphasized the risks of leveraged trading. He pointed out that leverage should not be used unless investors can pay attention to the market and manage their positions at all times. Many investors may suffer heavy losses when the market fluctuates, especially if they fail to monitor their positions in time. He reminded that short-term market fluctuations do not necessarily mean a decline in the long-term value of a project.
Thinking method for investment decision making
Arthur mentioned that when facing losses, investors should consider whether to transfer funds to projects with better potential, rather than simply waiting for a return on investment. He believes that holding poorly performing assets may lead to opportunity cost losses. For example, if an investor loses money on a project, but at the same time there are other projects that may rise sharply in the next few months, it may be a wiser choice to adjust the investment portfolio in time.
Pay attention to the issuance time and market performance of tokens
Arthur pointed out that investors should pay attention to the issuance time and market performance of tokens, not just the industry or narrative to which they belong. He said that many tokens were issued at a high market value but lacked a user base and growth potential, which would make them face challenges when the market recovers. He suggested that investors pay attention to new projects that have performed poorly in past market cycles but may perform better in the current market environment.
Avoid overestimated projects
Arthur specifically mentioned that projects that have reached high valuations in the 2021 cycle may face greater risks if they currently lack corresponding users and growth indicators. Investors in these projects should consider gradually exiting and investing their funds in emerging projects with better performance.
predict
Bitcoin Price Prediction
When discussing the future of Bitcoin, Arthur gave a rough target price, predicting that Bitcoin will reach $100,000. He mentioned that the price may fluctuate in each $5,000 range, and emphasized that changes in the market may be affected by a variety of factors, including economic conditions and policy changes.
Political and economic impact
Arthur mentioned that the current political situation in the United States may affect the market, especially in the upcoming election. He believes that Vice President Harris is a slightly more popular candidate, but if a financial crisis occurs before the election, Trump's chances will increase. He emphasized that the performance of the market (such as the S&P 500 index) and economic indicators (such as oil prices) will be important references for judging the election results.
Supporting the Bitcoin Ecosystem
Arthur talked about his support for Bitcoin and explained why he participated in the "Maelstrom" open source funding program. He said that the success of Bitcoin is directly related to his wealth, so he hopes to enhance the Bitcoin ecosystem by funding research and projects. He believes that investing in the future of Bitcoin is the responsibility of every holder to prevent large financial institutions (such as Blackstone and Vanguard Group) from controlling Bitcoin's dominance.
How to participate in the funding program
Arthur provided information on how to participate in the Maelstrom Grant Program. He mentioned that those interested can apply for funding through the official website, all proposals will be evaluated by Jonathan Beer, and the grantees will be notified around September. He encouraged everyone to actively participate to promote the further development of Bitcoin.
Bitcoin L2
The Potential of Bitcoin L2
When talking about the sustainability of Bitcoin, Arthur expressed optimism about the development of Bitcoin L2 (second layer solution). He believes that L2 technology will bring more value to Bitcoin, especially when miner rewards gradually decrease and transaction fees need to be balanced.
Arthur mentioned that he is serving as an advisor to an L2 project called Mezzo and believes that these technologies will enable smart contracts and decentralized finance (DeFi) on Bitcoin.
Security and availability
Arthur stressed that while some core developers are wary of L2 solutions, he believes that security is the network's top priority. He pointed out that while some have criticized Ordinals as garbage and spam on the blockchain, this "junk" actually pays transaction fees, thereby supporting the operation of the network. He believes that similar ways should be created to allow DeFi applications to exist on the chain and pay for their use.
Avoid becoming Ethereum
Arthur warned that Bitcoin should not fall into the same situation as Ethereum. He mentioned that when Ethereum dealt with the 2016 DAO hack, it hard forked to save the project, sacrificing its properties as a currency. He believes that Ethereum is positioned as decentralized computing, not currency, so the contradiction between the two makes its development challenging.
