Bankless - How to Prepare for the 2025 Bull Market | Arthur Hayes

Episode Date: November 11, 2024

What is Arthur Hayes buying for 2025? We recorded this on the U.S election day so we don’t know who won at the time of recording. Regardless, Arthur says the election doesn’t matter. To him, the outcome is the same no matter who’s in power, they will print money. We talk about the Chinese property bubble and the coming money cannon which Arthur thinks will be bigger than the COVID stimulus. The Fed’s next move, why the treasury is sucking all the oxygen out of the room. We get into his crypto portfolio, what he’s holding and why. ------ 📣 GET YOUR ALL ACCESS PASS TO THE PODCAST https://bankless.cc/podshownotes   ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://k.xyz/bankless-pod-q2    ⁠ 🦄UNISWAP | BROWSER EXTENSION https://bankless.cc/uniswap  ⚖️ ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum  🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle    🤖 dYdX | UNLIMITED LAUNCHING SOON https://bankless.cc/dYdXUnlimited   🐧 CARTESI | LINUX-POWERED ROLLUPS https://bankless.cc/CartesiSimple  ------ ✨ Mint the episode on Zora ✨ https://zora.co/collect/zora:0x0c294913a7596b427add7dcbd6d7bbfc7338d53f/92?referrer=0x077Fe9e96Aa9b20Bd36F1C6290f54F8717C5674E  ------ TIMESTAMPS 0:00 Intro 5:11 Does the Election Matter? 13:44 Where are we in the Crypto Cycle? 17:23 Chinese Property Bubble 33:14 Isn’t Bitcoin Illegal in China? 37:45 Fed’s Next Move 45:16 Politics & The Money Printer 49:42 Arthur’s Crypto Portfolio 50:33 ETH as Money? 1:01:42 Is ETH Dead? 1:02:20 Ethena 1:03:46 Memecoins 1:05:42 AI x Crypto 1:09:10 War Scenario 1:18:48 Arthur’s Advice 1:20:28 Closing & Disclaimers ------ RESOURCES Arthur Hayes Blog https://cryptohayes.medium.com/   ------ Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures ⁠   

How do you have a recession when the government is like 30% of GDP? It's almost mathematically impossible, which it is right now. Welcome to bankless, where today we explore how notable crypto trader, Arthur Hayes, is positioning his crypto portfolio at the end of this 2024 going into 2025. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. All right, first we've got to get this out of the way. We've recorded this on Election Day.

So literally the day America is showing up to vote at the polls. We don't know who won the election at the time of recording. Neither does Arthur. He's like literally getting ready to go to bed. He's in a different time zone. But the good thing is Arthur doesn't care. Yeah, it's kind of fitting. It's not actually relevant. He says the election's irrelevant. Exactly. So it actually kind of fits. It doesn't matter according to him. We talk about that in the first part of it. But to him, the outcome is really the same no matter what. In addition to the election, we also talk about the Chinese property bubble and the coming money canon, which Arthur thinks will be bigger than the COVID stimulus. We also talk about the Fed's next move and why Treasury is sucking all.

all the oxygen out of the room. He has some choice words and labels for Jerome Powell. Arthur has a lot of choice words. So some viewer discretion might be advised. Don't listen to this one with kids in the car. There you go. Yeah. Thanks David. We should shout that out. He also tells us his positioning for the prospect of recession and war. And then we get into his crypto portfolio, what he's holding and why. One of my favorite parts of the episode is about why he's bullish ETH, but not for the same reasons that David and I are bullish Eth. So we get into some debate on the topic of whether Eth is money, whether it can be money. And I want to think, David, we got a little bit of concession from him, but like not much. We identified the gap between us and Arthur, which I

think is a very overcomable gap. We just need time. Having Arthur on the show is always useful just to kind to get a download on a pretty zoomed out perspective for somebody who zooms out very, very far into the ultra macro, but then also like plays in like DGen meme coin trenches. He's a guy that can trade it all. So let's go ahead and get right into that conversation with Arthur Hayes. But first, a message to talk about some of these fantastic sponsors that make this show possible, especially Krakken, our preferred exchange for buying crypto assets in 2024. If you do not have an account with Krakken, consider clicking the link in the show notes getting started with Krakin today. If you want a crypto trading experience backed by world-class security and award-winning support teams,

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He is the co-founder of Bitmex, also the CIO of the METE. Malstrom Fund. We want to talk about how he's positioned. This is the end of 2024. We're going into 2025. A lot of things happening in the world. Arthur, welcome back to Bankless. How you do, guys? Good man. Okay, so it's an election day over here in the U.S. where David and I are located, so everyone's going crazy. You know, a lot of, I was dropping my kids off to school. Big, you know, Trump flags, you know, somebody down the side of the road, waving flags. Like, it's a little crazy over here. What's your plan? I don't think you're located in the U.S. right now, but like, what do you you doing today? What are you watching? What are you paying attention to? I mean, I'm doing nothing.

I'm about to, after I get done with this, I'll be going to bed, and I'll wake up tomorrow morning, and I'll play tennis. And at some point, you know, I'll check my Bloomberg and see if either Harris or Trump conceded. And if not, then you struck yourself in for weeks or months of a contentious battle of, you know, who won, right? That means similar to what happened in 2000 with Bush and Gore. Yeah. When they were debating what hanging chads and all sorts of other bullshit, because Even, you know, paper ballots and I don't know, it's just nonsense, right? Like, do you think any of this really matters? Let's talk about four investors for crypto.

Do you think it matters who wins? No, I don't think it matters at all. I think the regulatory apparatus will be what it is. I don't think it's kind of irrelevant. The reason why Bitcoin is $1.2, $1.3 trillion dollar asset class is not because of regulations either pro or against. You know, the reason why the Ethereum decentralized computers, is the second largest cryptocurrency has nothing to do with regulations.

The reason why there's all these are the meme coins and all these things happening has nothing to do about, you know, this or that politician and what those stance on crypto. It's a fundamental, a better technology of moving, communicating what value is amongst humanity, and then money printing, right? And so, you know, we only talked about some other technology because it's not really that relevant for most people. It's all about, okay, well, I can see that my paycheck buys me less every day, every year. I can see that the rich get richer and the poor get poor. I can see that, you know, nothing has changed, but oh, look at this new thing called crypto and look at all

these individuals who've achieved generational wealth in a very short period of time because there's this thing, there's a new technology, this new way of networking and communicating, which is allowed a certain portion of a mandate to escape the, and the, and the inflation and debasement and, you know, financial repression and all that sort of stuff. And so I don't see any of that changing in the United States and China, Japan, European Union, any countries, right? Everyone's doing the same stuff. Everybody has a fractional fiat banking system. Everyone has expended a lot of credit to build stuff.

A lot of that stuff at this point isn't worth the money that was put in. But no one's willing to recognize a loss and impoverished some rich people. So they're just going to inflate it away and hope the poor people. people don't revolt. And so that's where we are. And so I had, you know, Donald Trump, Kamala Harris, two sides of the same coin. It doesn't really matter who wins. It's fun theater. I'm sure all the networks in America love all the campaign finance dollars that are going to buy ads and whatnot. And, you know, Zuckerberg and Sergey Brand and all, all the social media bros, they love the billion of the dollars that are getting spent by each campaign to try to

sway opinion. And maybe there's outside countries trying to influence opinion as well. all. So everybody's just spending money on media does better. So does that mean that you're not positioned in any particular way as it relates to the election? I mean, I was long before I didn't reduce my exposure. Yeah. You have not changed your positions at all. Maybe I have to pass on the sidelines that I'm not deploying it because I think it's going to be a bit, you know, there's some questions about how the Fed and Treasury react depending on who wins and how that sort of plays out. But, you know, let's say by the end of January, all that will be solved, I think. And, and, you know, and, it'll be very clear, you know, the path that they're going to go on and then, you know, get on

the horse. That's so funny because I think a lot of people in crypto agree with you in large strokes, but like they do still tend to think that politicians have the ability to at least slow things down. So they might say, yeah, broad strokes, Arthur, you're right. You know, nothing stops this train. The money printer goes burn. Crypto's going to like ascend and it's just like a better communication network. And that's true. And like if you measure that in decades. But like there's Gary Gensler's of the world, for instance, who could just, like, throw a monkey wrench in, like, you know, Western finance clarity around, like, crypto and just, like, slow it down, put the brakes on. Do you think that that's the case, at least in the short run, like, some of these politicians

and the administration choices might have some impact? Like, I mean, Trump has come out and said he's very pro-crypto. I mean, you would think that would be bullish if he won the election on the crypto side then, and, like, more bullish maybe than Kamala Harris. Do you see that there's like at least a short-term play here. Cool. I think even if, let's say that the regulators actually matter, which I don't think they do in the macro sense to the long-term direction of crypto, the specific ways in which America is governed means that even though President Trump or Harris can say pro-crypto things or anti-crypto things, they don't write bills. So bills are written by Congresspeople and

senators. And, you know, in the wake of what is the Chevron case where the Supreme Court basically said Congress makes laws, not the unelected bureaucrats, the onus is even more so on the rulemaking body to create a rule, whatever it is, good or bad, and to put that bill on the president's desk for him or her to sign it. And so if we're talking about the most polarized electorate in modern history, probably the next last 100 years, how the fuck are these guys going to create a bill that's going to get on their desk? Regardless of what either candidate says for or against. So there's absolutely no chance that there's going to be any sort of bipartisan thing that they can agree on of what crypto regulation should be.

And so even if you believe Trump and even if you believe that if there's one person in charge of whatever regulatory agency, they can somehow wave the magic wand and all of a sudden all these institutional investors are going to go and they're going to market Yolo Bitcoin. And you're going to, you know, it's going to be from like $70,000 to a million. And it's somehow how it works. And so on a micro-legislative level. And so I think people just don't understand, well, the Americans didn't pay attention in a civics class. And then everyone else was not American.

Understandable why he wouldn't understand this. Is there anything about the election that you're paying attention to? Because there's more than just the president, right? We have the presidential election. We have the Senate. We have the House. Is there anything about the election that is signaled to you? I just want to see the outcome, right?

What's the makeup? And then that determines, like, who gets the money? So which particular part of the American economy? or electorate gets the free money, how quickly that happens, right? And so if it's one party controls all three bracts of government, then the money gets printed faster. But if it's a divided situation, then you need a financial crisis or some sort of war that says, oh, okay, now we're all together in the printing of the money. And so we'll put aside our differences and we'll do the same thing we would have done if we were in charge. And so it's just the pace of what happens.

So it's really, it all comes back to the money printer. That's the biggest signal to you. That's it. Do the math. If you look, I've done the math. I looked at the recent presentation to the Treasury borrowing advisory committee by the Treasury that was released last week, late last week. And they have a nice chart and it shows the largest five expenditures of the federal government, which are health care and social security, defense and veterans benefits, and interest on the debt. And so all five of those combined grow faster than nominal GDP. So your spending is growing faster than your ability to tax to fund it. there's just mathematically no other way but printing money.

And so I don't care who gets, who's just putting in office. Both Trump and Harris are going to bomb somebody. They might not bomb the one that the other one's going to bomb, but they're mobbing somebody. So defense is going up. And nobody cuts benefits for old people because they vote. And so if you want to be the congressperson

that cut the benefits of the boomers and the silent generation, then you won't be in office in two years. And so it's a very simple calculation that spending, can only go in one direction because it's in a politician's interest to continue to spend. Okay. We're going to come back to that. I want to come back to that in the context of what China is doing, too. You've written articles about this and we'll pivot back to the Fed too. But it's like the high level for Arthur Hayes, it seems like, they're going to print money is just how fast, right? And who's going to print? It doesn't matter. It's just how fast. Okay, but like before we get there, let's talk about the cycle that we're in because a lot of people in crypto are a little bit confused. Like even David and I have been talking like, wait, is this a bull run? I mean, it kind of feels like it because Bitcoin's close to all-time highs. And yet institutional demand-driven, it doesn't feel like. like there's a new crop of crypto investors. So are we really in a bull run? Are we like,

so what's your sense of the crypto market cycle right now? Is this bare bull? Is this something else? Do you even think about it like that? We had a very good bull run from, call it, late 2020 up until early 2024, sort of in the April time period. And if you, you know, want to be a very good student of money markets, you can take a look at the reverse repo facility at the Fed. And September 2002 was when it hit the high of $2.5 trillion, and it was drained down to what I don't know was now, $200

billion over the next 18, 24 months. And that corresponds perfectly to the rise in crypto. So there was a bull market. Janet Yellen said, fuck you, Jay Paul, we're fucking printing money. And she did it. Pumped in $2.5 trillion into the economy. Every asset

went nuts, right? We're at S&Ps at all-time high, NASX at all-time highs. crypto is at all time highs and certain asset classes. So there has been a bull market. It hasn't been as broad based as traditional ones where every single piece of shit alt coin is 10x, right? And I was like, what the fuck? I thought I just had to like, you know, buy Bitcoin.

Then the next week I sell my Bitcoin. Then I buy the worst shit coin that could buy it on crypto Twitter. That goes up 10X. And I sell that for a bit. Then I go back into Bitcoin. And then I rinse and repeat. But it didn't happen like that this time. But in a macro sense, there has.

has been a bull market. It's just that very few people have participated in it. And so you have a lot of people who said, oh, it worked like this in the past cycles, therefore it must work like this in this cycle. And they got hosed. Sorry, David, you looked like you had something to say there. No, I was contemplating. Oh, okay. All the dog shit in your portfolio? Yeah, that's exactly right. Yeah, David, it's like he's thinking about its life choices. My God. All right. So what's your base case here, Arthur, then like, like, four-year cycle, either the way others played out? Someone else asked me this like, oh, it's going to be the four-year cycle. Like, why try to be prescriptive?

Just adapt to what is. I think if you try to put these prescriptive, oh, it's a four-year cycle, therefore in the second or third year, whatever it is, I must do this. Well, okay, if everyone does that, then you don't get the result in the past. So I don't know how many years this cycle is going to be. It doesn't even matter. It doesn't matter. Yeah.

Look at the liquidity cycle. Bitcoin, I think, for the first time, is very clearly directly related to liquidity. And China was in the past. It was the dollar this time. And it goes back to China and maybe the global aggregate. But the tech is solid. The tech changes less and less, obviously, as Bitcoin gets older and older. And the thing that really matters is how much fiat is being debased. How fast, from where? What's the pipe? Understand that. And I think you get a bet spreader sense of where Bitcoin and crypto goes. Is it a four-year cycle? I don't know. Could be four. It could be five. It could be six, or ten. I don't know.

doesn't matter. All right, let's come back to your crypto portfolio a little bit later and see how kind of your positioning for this, because like I think a lot of people are still wondering if we're going to have this play out, like we're going to get the all coin kind of like trade going on. But we'll get to that later. Let's talk about liquidity because you think that's key to understanding all this. All right. So a lot of crypto investors don't understand China. I mean, I think a lot of us like barely understand kind of like macro and the Fed. You seem to have a take on China, which is basically, this is a quote from your recent article in the 28th. given that the Chinese property bubble was the largest in human history. That's what you said. The largest in

human history, the amount of one credit created will rival the sum of dollars printed in the U.S. in response to COVID 2020, 2021. Wow. So you're talking about a Chinese property bubble and you're talking about like a big money cannon injection of fiat liquidity into these markets as a result. Give us the context here. So like how did we get here? What is what you call like, monetary chemotherapy and why is China heading in that direction. But like, why is there a property bubble in the first place? Well, at the end of the day, the Chinese government said we want to industrialize very quickly. And they said, okay, well, industrialization happens in cities. They were a very agrarian economy coming into, you know, 1950 after the disastrous civil war

between Shankaj Shek and Mao Zedong. And so the communist party said, we're going to urbanize. And so every five-year plan, there's an urbanization target. Now I'm all fucked things up pretty bad while he was in power until 1976, and then things sort of liberalized under Deng Xiaoping, who was basically like, I'll do whatever it takes just to create prosperity in China. And if that goes against sort of Maoism or traditional Marxist-Lenin theory, whatever,

let's just grow. And so let's get these people into the cities. And so, again, all credit is determined by state preferences because the largest banks are owned by the state. The largest companies in any sector are all state-owned. And so if the government says we want to have people in cities, then what do we do? We build stuff. And so if you're going to move, I don't know how many hundreds of people have moved from farms

and to the city in about 30 years, right? That's just going to create an epic boom in land prices, which I think the figure that I have is they're up like 80x over the past 20 years. It's going to create an epic boom and all the other manufacturing and industrial goods you have to use to build apartments. cement, air conditioners, you know, cheap furniture, right? All this stuff. All these companies did very, very well from the late 80s until, you know, 2020. And so the problem was that at a certain point, you reach saturation and how much property you need for a particular amount of people. And they

reached that saturation. And then they said, well, government policy says we need to build housing. The only thing that banks are going to lend for is not the only thing, but one of the main things property, therefore I shall buy property. I shall build property. And if I'm a Chinese, you know, investor, I can't invest abroad. The currency is restricted. Of course, the super wealthy are able to get their money out. But the average Chinese saver doesn't have access to foreign investments. And so when you're getting two to three percent in your bank account and the economy is growing at 10 percent a year, you're like, well, fuck, that's not going to cut it. I need something else. Property was the only thing that they really could invest in

that had a track record of always going up, was supported by the government, was supported by the banks and the credit. And so everybody believed property can only go up. And it was true for the past that use. The best thing you could do was save your money, borrow money, buy a property. And so that's what happened.

And Xi Jinping gets into power. And he's not the first one of recognize this, but it's a well, we're misallocating credit. If we want China to be this manufacturing, country, we want people to have a harmonious society. If we have the most expensive real estate in the world, when you think about it per median income, I had a chart in my assays like Beijing, Shanghai, Shenzhen,

like the rental yield is the lowest in the world, meaning the prices are super high. And if you look at the price to median income, apartments in the major tier one Chinese cities are the most expensive in the world. And so obviously that creates a lot of social angst, right? The old own all the shit. And then the younger, like, what the fuck?

I can't get on the ladder. I know this movie. And I'm not going to have any kids. I'm not going to have a family. And so you get sort of birth rate decline, which in a country that needs young workers to manufacture thing, that's also bad. So she says, okay, well, we're misallocating credit. I need to stop it.

Now, it's hard to stop it when literally every arm of the government has made money on this. All the major banks have loans against this. All the major industries, the majority of their business is property. and the number one asset held by everybody in China is property. How do you pop that bubble without causing massive social unrest? And so I guess by 2020 after the COVID lockdowns and whatnot, he thought he had enough control politically and economically to pop the bubble. And so they started doing whatever country does when they pop a real estate bubble,

same with the Fed did in 2007 and 8, they start raising the price of credit or restricting developers from getting it. and predictably the market collapsed. And so we've brought about two or three years into this situation. And deflation is sitting hold in China. You know, the median sort of time that it takes to clear a property bubble is, you know, five to ten years. You think about the United States. Japan, it took on, what, 20 to 30 years to get out of it?

And so that's what she's turning down the bubble like, okay, what the fuck? What am I going to do to get out of this situation? And at the same time, you know, the geopolitical situation is heating up. There's proxy wars everywhere between China and the U.S. There's a trade war and all these things, right? And he's trying to rate rights as an economy and this property bubble. So there's two options. One is you do the Argentinian situation where you do a liquidation of credit.

Okay, you bought a property, you lent against this thing and went down in price. Sorry, that's cold capitalism. You lost money. And so you're going to go out of business. You're going to go bankrupt. You're going to fire some workers. That's the one option. That gets rid of all the debt.

Very quick. extremely painful could cause a revolution, you never know. Or you do monetary chemotherapy, which is quantitative easing, lower the price of credit to zero, make the banks solvent again in fiat money terms, and then do bank-directed credit to get the economy back going, which is what Japan has done, what the European has done, and what the United States has done after their respective property bubbles. And I call it chemotherapy because, yes, well, it does cure the economy, the financial sector makes them whole, the banks are whole they can lend again, you know, destroy the lower middle classes with inflation because you have to financially repress them

to make sure the capital doesn't leave. And given the amount of money that China printed to create this property bubble over the last 30 years, they've just, the amount of credit in suit in China is enormous. The amount of chemotherapy they're going to have to put on their economy is just going to be next level. And so I know a lot of people think, oh, it's not enough. There's a lot of economists like, oh, China's not doing enough stimulus. Well, everyone said the same thing about the Fed in 2008. What TARP wasn't enough, we need more. By March of 2009, you were doing quantitative easing one.

S&P didn't bond them until March 2009. And then over the next 12 years, massive bull market, and they kept printing trillions and trillions and trillions of dollars. The European Union wasn't doing enough in 2011. The euro is going to crack. Maro Drag, he gives a speech. Well, do whatever it takes. He's done whatever it takes.

They've been printing money since 2011. You know, Abaynomics started in early 2000s. Karutasan came in as I'm going to print the most money ever. You know, yield curve control, quantitative easing. And again, it wasn't enough at the start. But once you do it for 20 fucking years, it's enough. And so it's just wait. Now they don't have to come out with a bull full bazooka on day one.

It takes a while. And so I think there's a structural bid under sort of, you know, fixed supply assets like Bitcoin and gold that, are going to go up because there's just so much Chinese fiat entering the system to reflate their system. Yeah, what's crazy here is because we've seen this movie play out in the West, like almost like to a T. All right. It's like you were mentioned in 2007, 2008. And you actually mentioned earlier in your essay that there's like an underlying reason. I had included into this, but I found this really interesting. There's an underlying reason that governments want citizens to own property. And it's actually, you know, partially you say, for regime stability. Because when citizens, a larger percentage of citizens, a larger percentage of citizens,

own property. They have a shelter. They have a place over their head, and they have something that they need government protection for. It's like you think about the basal use case of government is to like secure your property, right, to make sure that somebody with, you know, more guns can't just like come and take your home and your property away from you. So governments sort of want citizens to own property so that they will prop up regimes because they need that security overshadowing it. So this is just a function of governments and this is why we see, you know, property bubbles basically in any sophisticated, complicated economy. Is that right? That's my idea on the theory of like, why disperse ownership of property in the place of like,

you know, organized religion or some other, you know, cohesive rule of why you should respect the authority of the state. So, Arthur, I do want to kind of compare and contrast the O7 United States housing crisis to the one that you're alluding to in China. The difference that I'm kind of getting is that there's like a little bit more of like a controlled demolition rather than like an uncontrolled explosion that I think happened in 2007, because we seemingly had no control over it in the United States. It was a complete surprise. Well, the Fed raised rates starting in 2000 and what, I don't know, 2006 or 2006?

I mean, you know, the first canary to fall were the two BNP Harrybaugh credit hedge funds. They gated each other. They gated investments in the summer of 2007. Beerserns went bust within seven months. It was bought in JP Morgan had the fourth. shotgun marriage. The Fed was raising rates. They stopped at that point, but it's always caused by a restriction of credit because the authorities are, oh, we've gone too far. They recognize they've gone too far, but they think that in their infinite wisdom, that what they could prop up,

they could also take down very, very slowly and not cause any services. And it's the same hubris in every single central banker or government official. They think that they can build it and they can take it down in a slow and control fashion, and it never is the case. And so then they always get to the situation where they have to take the chemotherapy, even they don't want to take it. Can you kind of compare and contrast the sizes of these two things? Because like I alluded to, listeners are going to be a little bit more familiar with 2008 and the size of that whole thing versus whatever is going on in China. We're totally uninformed about China. How big is this unraveling, would you say? The interesting thing about China is that in the Chinese system,

as opposed to the U.S. system, most people buy an apartment. So like you get some money and you say, oh, I'm going to move in in like two or three years time. So you buy an apartment off plan. You don't buy used. You buy new because the bank is going to lend against new. They're not going to lend against use. That's how it works in Asia. So you go get a loan from the bank.

You put your down payment down for the proper developer. And you put down, I think, 10 or 20 percent immediately. And then within a short period of time, you get your mortgage. And then you pay the full balance to the developer before you get the property. You wait years before you get your unit. but you've fully paid for it. And so you're trusting that the developer is going to make good on that promise.

So the developer is short a house or an apartment, long cash. And so what is any person who runs a scheme like this? They engage in Ponziomics, where they say, okay, well, I'm going to promise to build more apartments than I have cash to build. But as long as I have a good new sales funnel,

so long as there's growth. Then I can get leverage from the bank on the cash I'm getting in from new marks. and I can build the houses that I promised to build in my prior years. And so that's the game that they ran. And so once the developers started lost access to credit, then confidence from the buyers are like, oh, fuck, well, is this person actually going to complete this house? And because they didn't have any new sales and no bank credit, they couldn't complete the old apartments.

So there's something like, I don't know, however many millions of units promised to be delivered. and the question is, will these developers get enough government financing to do it? So it's a different problem. It's not exactly just straight money. It's they want, they need apartments. So obviously the Chinese government doesn't want to get in the business of building apartments because if you build it like shit, then they complain to you, not the developer that one. So they've been trying to pussyfoot around the situation of let's give some money here and there.

Let's try to incentivize lending. But at the end of the day, it's the market short millions of units of, apartments, who's going to build them? Right? It's a different flavor of the situation in China based on how the developers are funded. Okay, so in the United States, we needed to make our banks solvent. So we kind of just injected liquidity straight into the banks. What you're saying is we need to still create liquidity for these real estate manufacturers. But liquidity is being created either way. It's just like, where is it going is maybe kind of the big difference. But like, I do kind of want to hang on the point of just like trying to measure how big this is. At the end of the

the day, like if liquidity, it's all about injecting liquidity, can we measure the size of these two things? Like, again, like just how big the United States 2008 housing crisis was versus how potentially large this looming housing crisis is. I'm trying to think if I can right off the top of my head. If you remember how many trillions of rem and be value of apartments are basically uncompleted. But it's, you know, it's probably in the half a trillion to a trillion dollars worth of just like uncompleted apartments that need to be built, right? And so that's the one problem. But obviously, they snowball, right?

Because if I'm a customer and my savings is in this apartment, I'm not going to get it. Well, then I'm not buying other stuff. There's second order effects, right? I'm not going out shopping, not traveling. My consumer confidence is low. So the money multiplier drops. And so I don't go to the bank and borrow money anymore. Not that the make wants to lend it to me because, fuck, I guess lost my apartment.

I don't know. I busted my ass to save for this thing. And now the developer's gone bust and I'm not going to get it. So I'm not spending. So it's a multiplier effect on that. We have these millions of people who just, they don't have the units that they were promised to get. Okay, so massive liquidity injection then by the Chinese government. So like for people, though, that aren't connecting the dots here, Arthur, in terms of like, why is that good for crypto, right?

It's like your base case is, you know, more liquidity equals good for crypto. Somebody might be hearing this and say, but Arthur, isn't like Bitcoin, isn't crypto illegal in China? Isn't it hard to get? That's wrong. Okay. So tell us about that. For someone who thinks that, how does it actually work in China? So Bitcoin is not banned in China.

Certain financial institutions are banned from using it as a payment. The national currency of China is the rem and B. And so certain things you cannot pay with any other currency besides the RIMNB. But individuals can own Bitcoin. They can trade Bitcoin. Certain institutions are allowed to hold it as well. What China did in 2007 and then finished up a few years later is they basically said they went to all the major exchanges, the big three at the time,

Huawei, OK coin, and VTC China, and said, you will no longer have a Bitcoin Remin-B trading product. If you don't want to see it, we can't ban it. We know that's a fool's errand. People can still hold it, whatever.

We know people are going to trade it P to P. But you are not allowed to have a, public display of what this currency is worth in rem and B. And so that is what has been taken down. And so, yes, there's, you know, the large Chinese exchanges all still operate in mainland China. The way they do it is they have these, I don't know if you guys use local bitcoins back in the day, but it's like that. It's a messaging board. There's local traders who

are able to wire money in it on bank accounts and you can buy and sell different cryptos. And that's how you get crypto in China. It is not banned. So that's how the average retail kind of like mainland China participant would do this with like kind of like a local Bitcoin P2P type of experience. Correct. And like how liquid is that market? How efficient is that market? It's obviously not as good as I'm not, I mean, you can do size, like, definitely a million a dollar. I mean, there's definitely a lot of size that goes through that. All the major exchanges, like, you know, the binases, the okay, is the hobbies of the world. They all have their messaging boards in China and do decent kinds of size.

Because I don't have any sort of numbers on that. It's not really publishing. But if you want crypto in China, it's not hard to get is what you're saying. It's not hard. It's not like you go to Hong Kong. Obviously, Hong Kong is China, but not China in the same respect. Yeah. But you go to the local currency dealer, it's, you know, Bitcoin.

is it's a remandb dollar and ustdt right u sdt right usttt is like massive in china right people don't understand like they think fucking jeremy allaire is going to take some business out of tether go fuck yourself feather is king in china they love it and it's liquid and that is the flow and the currency dealers will give you tether versus remn b versus u.s. do they trust it more because it's not like jeremy me, there and sort of US gov back, like, you know, US protection that's a little gray. I think it's more of a just, they're very comfortable with the BitFinex

founders. Yeah. BitFinex founders have been involved in China since the beginning. I mean, they started in Hong Kong. Then they were in Taiwan. And so, you know, Tether complies with all the same St. St. Chis regime as circle. So there's no difference there. I think it's just more, they know the executives. They've trusted the brand.

It's been around for a long time. And so that's what's used. And the sort of the flywheel of the, you know, a network effect. Okay. So if these markets are efficient, if you want crypto, you live in China, that you can get crypto. And the Chinese government, you said, like, knows this, knows that they can't fully stop kind of like p-to-p trading, at least not without taking some super draconian type measures that they're not prepared to take. Okay. So that's basically why if you're money printing in China, if you're money printing, you're the Fed in the U.S., your money printing in Europe, it all goes back

to these store of value, non-sovere, non-fiat store of value assets like cryptocurrencies, like Bitcoin, right? The same money printing. If it happens to the U.S. or China, it's still flowing back to Bitcoin because this is where people want to hold their values. Is this correct? Yeah. On the margin, people have the demand for Bitcoin. Obviously, there's bigger demand for gold and maybe foreign assets, right? So there will be capital flight out of China as they create all this currency and, you know, the very rich and connected are able to get their exchange your yuan for dollars and get out of the system. It's all the same sort of flows. and Bitcoin is sort of in that sort of blob of stuff that people are going to buy.

Okay. Let's shift towards the U.S. and the Fed. And what's their next move? So, you know, they pivoted somewhat in September. What's happening next? So if you can afford it, I would highly recommend getting a subscription to Zoltan Pazar's new blog. Yeah, he's great.

So he, I saw him at a conference recently and I went and got a subscription and I was surfing last week. And between surfing and yoga and massages, I started. of reading, I read all his stuff. And so he has some very interesting sort of notes about what quantitative tightening is doing to the markets and how the U.S. Treasury has been fighting it. And so there's been this back and forth battle between Yellen and Powell. Yelan is more powerful than Powell because the U.S. government's debt load is massive, and, you know, the U.S. government will get funded. Central Bank independence be damned.

And so what does that mean? That means that when Paul was doing QT, Yellen did, we're going to drain the reversed repo. We're going to switch the duration or the types of bonds that we issue. Instead of issuing long-dated bonds and nobody wants to buy, we're going to issue these treasury bills, like less than one-year maturity than everybody wants. And so if you've got, you know, cash in the Fed that earns, let's say, 1%, well, I'll give you 1.05% to buy my debt. So why don't you take your money out of the Fed and come buy my stuff?

And so that's what happened. And so, you know, a trillion of QT has been done since they started. Well, you're only at $2.5 trillion of essentially QE. And that's why the markets are ripping. Now, the problem is once the reverse repo facility gets too low, then what happens? She runs out of its use. And so what does she do? She goes over to policy.

She says, stop that QT thing. And he tapered in May when, you know, U.S. Treasury was about 4.5%. I think, and this is Zaltin gets into a little bit more detail. It's probably not really relevant for this podcast. But his theory is that around this level of overnight reverse repo balances, which is around $200 billion, it actually becomes destabilizing for the money markets that underpin the functioning of the U.S. Treasury market. And so Powell has to stop QT and very soon afterwards start quantitative easing.

So my base case is, well, first of all, if Harris wins the election, and I think that the Democrats are incentivized to make sure that financial conditions continue to ease and there's no financial wobbles, which means that I think the Fed on Thursday either stops QT entirely or they plant some questions in the crowd where Powell can insinuate that QT is going to end in the near future. So you better get ready for kind of thing and sort of something. sell that. If Trump wins, I think that they sit back on their hands and they let shit get fucked up because they don't like him. Really? Centralized finance held all the power. But now Defy gives it back to you. Enter the unlimited era with DYDX unlimited.

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Trump's going to put his own people in power. Sure, sure. When he gets there after, if he wins on January or whatever. But in the interim, these people hate it, right? Jenny Ellen's been campaign for Harris. There's been Fed governors going on the record saying, I'm going to do what's in my power as a Fed governor to make sure that Donald Trump doesn't win. They don't say it like that, but they mentioned Donald Trump's name as in bad for American democracy. And therefore, I, as an unelected bureaucrat, I'm going to thwart the rule of the people by fucking some shit up for it, right? So that's a

They said this. And so, you know, while I do believe that, you know, from a money markets and plumbing perspective, this has to happen, the timing could get a bit off if the preferred candidate of the government establishment doesn't win. Yeah, but does this mark kind of a new era that we're in where sort of fiscal policy and, you know, like treasury is dominant and Powell matters a lot less than he used to or the Fed matters a lot less? Or do they still like both matter that, you know, like which is the tail and which is the dog here? Well, obviously, Yellen has more power than Powell, right? She has, I don't know, was it $40 trillion dollars with a debt to finance? A lot more. The more debt you have, the more power you have in this system, basically. Yeah. So if, you know, think of QEEEE was 2008 to 2000 and whatever, $20. Powell had the power. And then they did stimulus checks. Treasury issued a bunch of money. And then Powell was forced to finance it. And inflation went nuts, right? Inflation is still high, right? It's still above his target. And yet he's cutting rates. He's tapering the runoff of his balance sheet. Because the Treasury's funding needs are so large that it's causing strains in the well-functioning

of the financial markets, and thus Powell has to adjust to match the reality that Yellen is creating. It's not the other way around. And so Powell is just, or whoever will be in charge of the Fed. Next is, as I call, the beta-cuck bitch tallboy of the trophy secretary. It's like a pretty classic bitcoiner take that as time goes on, the money printer always just becomes more corrupted. The politicization of the money printer is just inevitable. I think like back when we created the dollar on the gold standard, that was the most, like, credibly neutral version time era of the dollar that we ever had. And ever, as time has gone on, it's just like there's been just more and more political influences that are creeping closer and closer to the money

printer. And now with like kind of them like formalized flipping of power over the money printer between the Fed and the Treasury, it kind of seems like we're in the final stages of like, well, eventually we're just going to like rip the mask off and just like not even pretend that this is political or credibly neutral and just start issuing money in the direction that politics, political parties want it to go. That's the trend that I see. Is that how you see it? Yeah, but it's cyclical, right? And it's fed in the treasury with the same organization from 1945 to 195 in the United States, right? In China, like the PBOC is just another arm of the state, right? And so they do what she tells them. And so, you know, I think that America will become

American capitalism with Chinese characteristics. America needs industrial policy to build the stuff that they outsource to China. And so they're going to have to do the same thing than the Chinese did to build up their manufacturing situation. Financial repressed to people at home, allocate credit to the industries that they believe are relevant for fighting a war, right? The chips, you know, the factories. Apparently there's going to be some new shipbuilder bill to reshore shipbuilding in the United States, right? All these sorts of things. These are extremely expensive, especially when you have a population that all have liberal arts degrees.

and no one can, you know, use a screwdriver. So it's as expensive. But it's been done before and it'll be done again, right? That's a cycle. All right. Speaking of liberal arts degree is like maybe that brings us to jobs a little bit. It's like, do you care at all about recession in the U.S.? Does this impact kind of like your models?

Are you looking at like jobs reports and this sort of thing? How do you have a recession when the government is like 30% of GDP? It's almost mathematically impossible, which it is right now. Is that why we haven't had a recession? Correct. Because everyone's been talking about the looming. recession. The recession's coming. The recession's coming. Yeah. And also, I have some very expensive subscriptions to people who I respect. I'm like, look, like, you know in economics, right? GDP, government

transfers are a big portion of it. If the government is like 30 to 40 percent of all economic activity and they are incentivized to increase nominal GDP to tax it, why would they ever let it go down? This doesn't make any sense. And so there will never be a recession. We're never getting a recession. No. Recessions are dead. As long as the government is willing to run up fiscal, deficit, there will not be a recession. Would there ever be a situation where the government's not willing to run a fiscal deficit? Voting preferences change, hyperinflation, you know, war aftermath, maybe they've finally de-levers their balance. You know, there's situations, but we're not in that situation right now. This is a, this is war time for U.S., Russia, China, Europe, right? They're all at war

with each other, and so it's time to spend money to build stuff. Does Europe matter at all in this equation? We talked about China and the U.S. does Europe matter? I feel bad for the Europeans, but they just elect some idiots who just keep taking dicks from the U.S. all day. So it's like limited sovereignty, you see, and kind of like Europe over its economic destiny. I mean, look at Germany, right? They foolishly said, I don't want any more cheap Russian gas. And now one of the largest sort of ammonia producers, BASF, is shedding production. All the car manufacturers can't produce cars at the same price level as the Chinese, and they're getting their asses kicked. economy is slowing, price of energy is down.

And so what are they doing? They're importing expensive LNG from the U.S. And you can pick a European country and leaders are doing dumb shit because of their allegiance to, you know, America. Okay, so we got China money printer. We've got U.S. money printer. They're going to print money to, you know. We're all printing money here.

It was pretty much. Okay, so let's talk about your crypto portfolio right now or just like in general, how you're position for this. Maybe we'll start with like, you know, like cash versus crypto or something like that. So, like, how allocated are you into crypto right now? In my crypto bucket, I'm losing 95% invested. Wow. I have a bit of cash.

But, yeah, I, you know, obviously we run a fund. It's all my money anyways. But we have Bitcoin, Eath, and then we have a lot of lock tokens and a lot of projects. How big is your crypto bucket portfolio percentage versus non-crypto? Liquid crypto bucket, I don't know, versus non-crypto. It's probably like 5, 6x. of the other bucket? Five to six times larger than the non-cryptop bucket?

Okay, nice. All right, one of us. You're one of us. All right, cool, cool, cool. Got that established. All right, let's talk about Bitcoin and Ether then. So you specifically mentioned Ether. I want to talk about that for a minute because it feels a little bit like Ether, the

asset has been left behind this cycle. It's like, what's happening to Eith, man? Like, do you have a take on this? So I still haven't done all the numbers together, but essentially if you take a look at, Let's say post-F-TX blow up, right? Samana went down to what's $7.60? And now it's $170 or $760, something like that, right? Like amazing performance.

And ETH went from what, like, I don't know, $1,200 to $2,500. Kind of like double-ish, right? Yeah. So like, why has Solana done so well? Well, on a sort of percentage change basis, the profitability, if you own soul and stake in and become a validator, has dramatically improved over the past sort of 18 to 24 months, and it correlates perfectly with the rise in the price, right? Revenue is up

because transactions are higher. We have the new view of MEV. You have the sort of the priority fees and all these sort of things and, you know, and the validated rewards from being evaluated. Right. So the profitability of the chain has improved dramatically, and therefore the price has done very well. ETH already came into this thing as the top dog, right, in terms of like size of the network. And so on a rate of change basis, obviously didn't go down as much either, right? Solano went from 250 to 7. Eith went from, I don't know what, like 3,000 to 1,200. Yeah.

You know, 50% decline. 4,500, yeah. Something like that. And so, but everyone in Eth thinks, oh, it should be up 10,000. Well, show me $10,000 worth of improvement in the underlying metrics of the percentage of circulating in supply that has been burnt because there's been transactions on the network. And so that hasn't happened, and therefore the process has gone anywhere.

But law of large numbers tells me that as Solana gets larger, it's harder and harder to replicate those past returns. And so a lot of the tourists who are in Solana because it's done so well from 7 to 170 or 160 because things have improved off of a very low base, right? The network I just started almost when FTX blew up. Well, you're not going to replicate that again. So it's going to be hard going forward to replicate the past success. And I think what's that narrative shifts and they get a bit of sour grapes,

then you start seeing more sort of like activity back on either. They're like, oh, well, guess what? If, you know, L1 plus some of L2 transaction volume is higher than Sijuana, the transaction fees are coming down, it's more secure because in a proof of stake situation, it's got a higher total notional value of the network, therefore it's more secure. And if we believe that there's, like, you know, dangerous state actors or corporation that want to take down competing sort of free association of people using compute, then wouldn't you want the strongest chain, which is the one that has the most value to be slashed? So I think all these things start to matter when the velocity of change slows down on Solana because it's past success breeds future failure. Okay, so that's cool. That's interesting.

I do think that's how the market is viewing Ether right now relative to Solana. They're looking at kind of cash flows. And Salana is like thrown off a lot of cash. It's almost looking like a capital asset. I will ask, though, this is different than the way people value Bitcoin, right? Bitcoin doesn't have any cash, doesn't have any burn. It's just viewed as like this monetary asset. Correct.

And so a lot of people that are ETH, bank holders maybe, Eith holders are like, Arthur, dude, different rules apply. Why not? ETH is money, man. Eith could have a monetary premium, this magic thing that just like makes it go up the way Bitcoin, like, has that. Bitcoin doesn't have to justify itself to like Larry think with, you know, the size of its cash flows. So why can't ether be money? Why can't ether be like Bitcoin? Because they decided in 2016 to preserve usability over moneyness when the Dow.

The Dow. The Dow, that one time. It takes one time. Not going to let them off for that. You know it takes one time. What you do at once, you're fucked. Yeah, it's not money. The community clearly spoke.

We want usability. We believe the decentralized computer is better served if we sort of rewrite history and go forward. You cannot be money anymore. You're not money. You are. Hang on, I want to debate that because there's been other times post-Dal when the Ethereum community did not make that same choice, especially with the parody hack and

parody tried to recover. How large is parity hack percentage based on the total value of the network at the time? Was it the same percentage? No, it wasn't close to the percentage of the network as the Dow was. But the Dow was like existential. And so I kind of actually think that that alludes to my point. Like, because the Dow was existential, like, it was kind of like, well, Ethereum kind of fails if the Dow is allowed to proceed. I don't know.

We don't know that. That's a counterfactual argument. We only know what happened. Yeah. And it was essential. You were presented a choice. Be money. be a computer. We chose as the Ethereum community to be a computer. So guess what? You're a fucking

computer and... Well, no, Bitcoin rolled back the blockchain just like Ethereum did in 2010. Like, there was an inflation bug in Bitcoin and they rolled back the blockchain. No one remembers that. Yeah, no one remembers that. But like, it still happened. I think, like, some of these things are like lost to history. People are coming into Ethereum these days and don't know about the Dow and don't care about the Dow and the properties of Ethereum are the same nonetheless. Well, but the problem is that apart from the history, eat is useful.

Yeah. Right? It's spent to do work. When you spend them to do work, you can't be money. Why is oil not money? Because I need to spend it. It's got another... Oil is money.

We got the Petro dollar. The dollar is worth this currency. The petro is the asset. Heath is an asset. It's not a currency. You know what's funny about this, Arthur? We actually had Peter Schiff on the podcast, and he was like, hey, the reason that Bitcoin is not as good in money as gold is because gold has some, like, utility.

You know, like, he held up a phone. He was like, how much gold is in this phone? And he was basically like, look, there's some percentage of consumption of gold and it has some utility value. And that actually makes it a better money. I don't know about like the case that just because Bitcoin has no other kind of like use, it's not used as a consumable, transformable kind of commodity that that makes it a better money because like gold has always been used in industry. Well, I mean, as a percentage of what gold's use cases, I think gold's use in industry is much lower than ETH.

Literally, we're talking about cash flows. You have to spend ETH. the value of eth as a such-dress computer is predicated on you spending ETH to use the computer. The value of gold as a monetary asset is not predicated on industry using gold. Let me ask another question because we're actually we could get into like debating this because we're kind of ETH's money bowls as you know, Arthur. But let me just ask a more general question of like what would change your mind on this? Because I know you're a trader. I know you're super practical. I know you'd like,

you know you would change your mind on particular assets and the way they're framed if evidence came forward to kind of like persuade you otherwise. What would persuade you otherwise, that ETH actually could have some monetary premium. I think it's so fundamental to what ETH is, that unless you're saying that there is no longer any endogenous yield in ETH, the fee is no longer paid an ETH to use the decentralized computer that's hosted on it, I don't think it can ever be money in the way I think about money. So you think because it has utility. So if you've went to $100 million per ETH, that's actually a problem.

Because if it's too expensive to use ETH as the commodity, that runs the computer, then nobody uses a computer. And so there is a price at which eth is too expensive, and then it becomes not useful anymore. Okay. If like if the price of oil went to a billion dollars per barrel, then the economy collapses and nobody uses oil anymore because it's too expensive. I got it. I still feel like people get wrapped up around this idea of like they're not separating, like ether is a separate asset from Ethereum block space. Like Ethereum block space is really the oil in this case, right? And ether is more the petrodollars. It's the monetary unit used to purchase the oil. it's not the oil itself. It's not the actual commodity. So like,

Ethereum block space could run out. You know, it's a different asset than Ether is the monetary unit. I don't have a representation of both as a currency. I can't separate them in terms of an asset. So yeah, that absolutely makes sense. But okay, then give me the Ethereum block space money or asset or token, right? That's going to allow me to sort of bifurcate these things and then have the usable thing and the non-usible thing, right? I see. I don't have. I guess have E. Yeah, I see. And so it's both. It's interesting. There have been projects to really create kind of like a gas token on ether, a blocks based token that might be interesting in the future. But still, you are bullish ETH from a pure cash flow perspective, it sounds like, if you're holding it in your portfolio, so it's outside on that. Also, it's the most developers. And if we think about the most innovative new things in DFI or infrastructure, they all start on ETH. There's copied on Salon and maybe it runs faster or whatever, but they start on ETH. And so I still think ETH is sort of the daddy, chain, it sponsors all the idea that has some of the smartest people developing new things to take this industry forward. And therefore, I think it's on a long-term basis, a better asset to

hold. I love trading Salana. It's great. It's liquid. It's moves fast. It's got a very good community. Do I want to hold a large portion of my portfolio in Salana? Fuck no. Okay, so Arthur, if ETH isn't money, then that implies that some external money needs to be imported into the Ethereum ecosystem because Ether is the only, you know, native asset inside of the Ethereum ecosystem. Everything else is, like, created downstream of it or is imported from elsewhere. And we have a large amount of like stable coin imports into the Ethereum economy. We have some amount of Bitcoin imported into the Ethereum economy. So if East isn't the money of Ethereum, what do you think will become the money of Ethereum? No, money of crypto.

Heath might be the money of Ethereum. I'm talking about, if I'm thinking of my more portfolio, what's my monetary reserve asset? Okay. It's Bitcoin. Yeah, sure, ETH can operate as money within its own ecosystem, but I'm not really trying to, like, silo myself on. Oh, we got them. ETH is money.

At least in Ethereum, we got them, David. If the Ethereum ecosystem grows to become the, like, dominant backbone of the internet economy, and, like, we have all these layer twos. We have there in all these different corners of these websites, a bajillion different chains, have specific chains, and they're all kind of hooked into the Ethereum base layer. in that world, if Ethereum does become like the backbone of the internet in terms of like, you know, the internet value, in that world is ETH money? It could be. Okay. Let's see if ETH can do that. And then let's see what actually is happening on chain. Okay. So overall, though, this cycle,

the bears are saying Eith is dead. This cycle is going to skip Eith entirely. And like, we already discussed your concept of the cycle, which is like, why do we need four year? We don't need four-year cycles. It just is what it is. But do you think Eith has a bid at some point in the next couple of years? It's not like dead. we haven't already seen all-time highs like you're still a believer here. Yeah, of course, and believe it. I think it's going to do very, very well in this cycle. And again, I think the enthusiasm for Solano will decline as it gets so large that the percentage changes needed to equal the past returns are just not going to happen. It's just hard.

What else do you like in crypto? Should we talk meme coin? Should we talk defy tokens? I mean, you take us. What are you looking at? So, my favorite sort of thing that's in our portfolio and probably our largest position, thankfully, is Athena. So I think that they are going to do very, very well as yields in Fiat are compressed relative to the growth in nominal terms across the world.

And if crypto is dripping, the basis that Athena is capturing is going to blow out. And so you're going to get back to the 50, 60, 70 percent annualized yields in Athena, and that's going to bring in the TVL and the token price will go up. Also, I think that the Athena team is doing very, very good work and just systematically knocking down exchange after exchange, use case after use case, and saying, okay, we want USDA as collateral so that people can use it. And we want to underpin all these different economies. I know that they're working on some of the largest exchanges, adding USDA as margin currencies for all of trading, which, again, is just going to increase that flywheel and get them on the same sort of, pedestal as USDT and USDC, and then it becomes a question of like, what types of risk do you want to take? Do you want to take U.S. dollar banking risks? Do you want to take centralized and maybe decentralized exchange custody risk?

Choose. I know you're a fan of meme coin speculation. I'm wondering, how do you evaluate a meme coin? What does it take for meme coin to get onto your portfolio? Are you kind of just like ape first and investigate later? Or do you actually have like a process for evaluating a meme coin? it's like I got to hear about it right so I number one I don't spend much time looking at screens so I'm doing other shit and so if I hear about something obviously I'm late relative to everybody else

right and early everyone's always late to their meme coin no one's early to the meme coin that's the point because if you I don't know I'll have the exact number but there was some pumped up on statistics in terms of like the longevity of a meme coin at particular nominal values of market cap and the percentage of the total supply of all coins issued that made that level so to get over like a half a billion dollar market cap is like there might be less than 50 of these things right it's like one in a hundred thousand or something yeah but obviously if we're talking about meme coins as an attention asset class you need to be sufficiently large before you get the most amount of influence to your project right so if i'm not sitting on my computer all day i don't have time to try to find the next

you know 10 million dollar to 500 million dollar market cap meme coin then once something crosses is 100 million to 200 million market cap, and I somehow hear about it, whether it's on Twitter or somebody mentions it on podcast or somebody's chatting about it in a chat that I follow. Then I'll aid because, okay, it's proven that it has enough virality to make it across these very hard hurdles, and therefore it's more likely to get, you know,

Matt Levina and MoneySuff and Blumber talking about how dumb it is that these crypto idiots are buying this. Right? When I see that, I want to own that. because he's talking about it, he heard about it. So that means all these other Muppets are going to buy it to now. Okay, so what's Matt talking about now? He wrote something about goat? Goat.

Yeah. What do you think about this whole, like, AI meets crypto kind of thing, right? It's like it's starting sort of in the meme coin world, but there are other, like, crypto projects. Like, I think you've written posts about this. I mean, have you pivoted to AI in terms of your portfolio holdings? Are you like Nvidia's stock and that kind of thing? Or do you think crypto is a good way to get exposure to AI?

And what do you think the intersection is here? Well, I think obviously I've written about this. I think AI agents will use Bitcoin intrinsically because it's something they can understand from a particular code basis. Fiat currencies and human legal system is not entreated to their world. So that's this one thing. But they can't have much agency on Bitcoin. They can't do much on Bitcoin.

Why couldn't they do much on? But they can, you know, couldn't they spin up their own, you know, data center, build, you know, if you have self-replicating robots, they could build their own ASIC miners. Like, why not? Oh, that's a future I'm not prepared to think about. I feel like that's pretty far off. It's getting a little physical, a little too physical. Yeah, obviously it's a longer tail thing, but if I'm an AI, why would I use some

fiat currency that lasts 100 years and dies every time a bunch of humans get together and decide to debase it because they want to get reelected? Right. That's the history of all fiat currencies over the last 10,000 years. So knowing that they've literally been trained on everything that we've ever done and written and they know our history, why would you buy a dollar or a euro or a yen? It will not exist in 100 years. Just, we know this.

But Bitcoin theory could. Well, I agree with that. Understanding, like, human history, like, humans always, like, inflate their own currencies. They always, like, make their own currencies and they just make it up. And then, therefore, that, like, aids itself, flends itself to the value of Bitcoin. But then also, you could kind of argue the opposite side of things. Well, like, if humans always just end up making currencies, won't the AIs also end up making their own currencies?

Maybe they will. We don't know. Maybe the... Is not what goat is? It's like goat coin. To me, we're not. It's almost what a goat is. You're going to start a shit corner's and I'll move up the stack.

Yeah. As we all do. Come on. Let's be honest, right? As we all do. But like, I mean, the really neat thing in watching these experiments, like a goat or also like Luna, this kind of thing is watching them interact on chain. Like a revelation that David and I have had recently, and this has been, we talked about

for a while, that the biggest group of unbanked in the world is going to be like basically AI agents. A. AI agent can't roll up and get a bank account, get AML KYC. Right. So they're going to do all of that. this entirely on chain. And if that's not bullish for selling block space, this block space commodity, I don't know what is having the AI agents as consumers of all of this. Are you following that train of thought? Do you think that's bullish for our bags here?

Yeah, absolutely. I mean, it's caution that I think that AI agents will be able to fool all email and KYC forms. So they're all digitized anyways, right? They can fake an image, they can defapeach shit. They'll have big accounts for sure. But again, I think intrudgingly to like commerce that's frictionless that's cheap enough for them, crypto makes the most sense. Now, whether they create their own crypto currents, yeah, I don't fucking know, but I think this is an interesting way to start, and that's why I think there's a lot of hype around these AI meme coins because it's a completely new life force that is entering our space. Okay, so we talked about the money printer, how that's just like going to happen. We've talked about

how your position with respect to crypto, but like over the last, I don't know, two years, every so often, at least once a quarter, there's some kind of like war scare that happens, right? I can't even think of the most recent, but obviously we've got, you know, the entire world is kind of a powder keg. You've got Israel and Iran. Everything is going on in the Middle East. You got Russia, Ukraine, you got China and the U.S., whatever power dynamics are there. And so like the thing that keeps interrupting this, you know, secular bull feeling is like, suddenly could there be the outbreak of war? How do you position yourself for news events like that. You know, some country is chucking missiles suddenly at another country. Like, you know,

war, I think you had this quote, but like war in general is uninvestable, right? You want to be out of these high-risk assets, don't you, in those types of conditions? So how do you like trade the ups and downs of this type of thing or do you just largely ignore it? I mean, I think my fundamental thesis is that war is inflationary. And if you look at the price of gold after the oil shock from 1973 to 1980, gold did very, very well. Stocks did very, very poorly, right? So if we believe that Bitcoin and gold are in the same sort of situation where there stores of energy and energy goes up in war because what is worth is we spend energy to

destroy things, which is completely retarded, but it's waste energy. And so the energy that's stored is obviously more valuable. So over time, Bitcoin will keep pace with the price of energy and a war time scenario, the problem is it's extremely volatile. And so if you are worried about war, then you should be using little to no leverage and you should size or positions accordingly, meaning that like when you go to bed at night, you can keep your phone on silent and do not disturb because you don't care what happens overnight. Bitcoin can be down 75% when I wake up tomorrow. Am I going to sell any? Fuck no, right? Because I understand, okay, well, there's a short-term

dislocation. You sell what you can, not what you want. And if Bitcoin is extremely liquid, maybe it's a Saturday night and somebody threw some missiles around. The only thing that people could trade is Bitcoin. They dump that so that their risk is, you know, the right way around on Monday morning when all the other markets reopen. Cool. I'm ready to rock and roll and handle that sort of volatility because I'm not going to get liquidated. But I know that over time, you know, five, ten years from now or whatever it is, Bitcoin will keep pace with the price of energy and energy will go up because we're destroying it through war. So that's how it feels like it should trade, right?

it should trade similar to gold. It doesn't always, though. Yeah, as I say, short-term volatility. It's extremely volatile. There's a great chart of gold versus the German mark during the Weimar Republic, and it's like a fucking yo-yo.

But obviously, the general is trend as a logger with, you know, an exponential increase in value, and then as the mark was devalued. But if you use leverage, you'd have gone bankrupt multiple times throughout that cycle. Do you hear about that fund

that got bankrupt shorting Luna while it was crashing? Yes. Because they took like 100x, leverage and they shorted Luna. It would have been a great trade, except they just got bankrupted. They bankrupted themselves like three seconds into the trade. Yeah, it's a great thing. The price of Luna was really volatile, but it was going to zero mathematically. We all knew that once you knew what a death spiral was and the math behind how these algorithm and stable coins

work, but did that mean that it didn't go from like, you know, 10 to 20 and like a few ticks because, oh, then they're going to fix it kind of thing, right? So it's a similar sort of situation. Just don't use a lot of leverage. If you're really worried about war, You know, size appropriately, no leverage, and over time, you'll be fine. You said this. I like this line. The worst thing I could do as a trader is trade based on who I think is right on the right side of this war.

That will lead you to ruin. As war will be met on either side with financial repression, outright asset confiscation and destruction. The best thing to do is get yourself and your family out of harm's way and then shepherd your capital into a vehicle that outperforms fiat debasement and maintains its energy purchasing power. That's like a common theme like for you is like fiat debasement. being able to preserve and maintain your energy purchasing power.

Is that still how you kind of denominate things? Like at the end of the day for Arthur Hayes, I remember one time you came on the podcast and you told us, like, if you could, you'd like denominate and like you'd have like, you strap oil barrels to your back and like haul them around as like the way to denominate because that's just like pure energy. Is that still how you're kind of denominating these days and like the cost of energy? Yeah.

Well, first of all, I always divide any sort of fiat asset by the respective central bank balance sheet and see if it outperformed. Tech stocks did well versus the Fed balance sheet from 2008. SEP got smoked. Real estate got smoked, right? So these things are not performing

as the currency is debasing. Gold obviously did well. Bitcoin did fucking, fucking, oh, and gold didn't do that well. Bitcoin did fucking amazing, right? Obviously, from 2008 to the present. And so that's my guiding light of a chart. It's like, here's what happened.

I have an empirical evidence of what happens when a central bank decides to debase the currency. And we weren't even in a war time, at least in the United States of this perspective. And so why would I own general stock indices, right? It's just dumb. I can see in the chart. It doesn't make any sense.

I can debase things by the price of oil. And I can see that from 1973 to 1980, a unit of the S&P 500 bought 80% less oil by the end of the decade. I'm going to do it at the beginning. And so stocks in general are bad inflation hedges. There are particular stocks that do well. You have to be a stock picker, but like the general stock index investing leads to ruin. But gold did well. Gold pretty much was even with the price of oil after Yon Kippur war in the Iranian Revolution.

So obviously nothing is, this is a crystal ball, but the historical precedence that I've looked at, you know, assets like gold and Bitcoin will do well as Fiasda based and energy goes up in price in Fiat terms. Do you still like gold then? You still like gold, Arthur? Absolutely. I'm a vote full of it. I like gold because gold is what the central banks are going to buy. Central banks are buying gold to de-dollarize to save against war. There's some interesting theories about how Trump or Harris could essentially revalue the gold in the Fed's balance sheet to instantly devalue the dollar,

but give the Treasury billion the dollars to spend to do industrial policy or handouts or what have you, right? Because the Fed's the only central bank in the world. I think the carrying cost of gold in the Fed's balance sheets at $42 an ounce. So if they just put it at the current market price, that's something like $500 or $600 billion of money they can hand to the Treasury, which then gets to spend into the economy without increasing the debt load. So there's shit like that. So gold is what the system will buy to reflate itself.

The gold prices go out 14 times for the general central bank balance sheets to match how much gold relative to the amount of currency was issued that we had in the 1980s. So I love gold. Okay, you love gold because central bankers love gold, but do you think that changes? Like, maybe the current crop of institutional gray-haired central bankers need to go for that to happen. But like the new generation, does a cryptocurrency, does Bitcoin become kind of the new gold that central bankers like hoard? I'm not talking about like the next 10 years. I'm talking about like, you know, millennials are the new central bankers or something like this. So, you know, 30, 40 years in the future. I mean, maybe, but I think the trade right now is gold goes up 10 to 20x in the next

five to 10 years based on just historical precedents and who's in charge right now. Could that change? Sure, of course. It could change. And my view would change. And I adjust my portfolio accordingly. Arthur, since 2022, we've had a major conflict in Russia, in Ukraine. We've had the largest conflict in the Middle East that we've had in a very long time. We haven't had Taiwan in the news for a while, but still nonetheless, like, things have kind of escalated over there in that region. Is this a trend that we should pay attention to, or was the last two years kind of just, like, we're done with all of that? Where do you think, like, violence is going on the geopolitical scale? I mean, I think there'll be conflicts in a lot of other places, right? There's China versus the Philippines.

There's, you know, Venezuela versus Guyana with their oil fields. There's what's going on in the, you know, former French colonies in northern and western Africa. And all these are just flashpoints between the United States and NATO and then Russia, China, Iran, right? And so there are all these different flashpoints. And the theory goes is the reason why, you know, nuclear powers like Russia, China, and the U.S. fight proxy wars is because no one wants to engage directly with each other because they're afraid of thermonuclear retaliation and war. Right. Let's hope that theory holds because, you know, of course, it's very sad that it'll

these people are dying in all these different places. But if we exterminate the entire human race because a bunch of old fuckers decide to throw missiles at each other, that'd be even worse. Yeah, that would be very bad for the price of crypto. We wouldn't be around. It's pretty much better. It's uninvestable. It's totally is thermonuclear war is completely uninvestable. All right, let's end with this. Then, Arthur, over the years you've got a lot of advice, like good advice, I think, like to you crypto investors and traders. What's your best advice for them at this, you know, point in this cycle.

Like, what should they be thinking of? What should they be doing? Read a book about World War II. World War II. And what happened, World War II, World War I? What was life like for, you know, the average man, woman, and child during these wartime periods? And, you know, see how shitty it was. And then the next time some dumb-ass politician is trying to get you to wave a flag and

go send your son or daughter off to war, say, fuck you to them because this is fucking retarded. And so I think that would solve a lot of problems. People don't read any books. They don't understand history. no one was around then, so they think that, you know, this is a glorious thing to go and throw missiles at each other around the world. I'd say that's an advice. And you'll also see what happened in the finance. Because all the things that we're about to do in every major country have been done before in wartime. And so the playbook is there. Of course, there wasn't Bitcoin back in the day. There was gold in other ways of sort of trying to protect your wealth. But similar sort of principles applied and similar sort of ways when people made a lot of money and people lost fortunes as well. Yeah, big plus one on that and reading history. I mean, it kind of sucks for us, too. It's like the old. generation that was around like the World War II vets and people who live through kind of like

1920s, 1930s. It's just like they're disappearing. So you can't have a conversation with your ancestors. So like a way to do that is to go read a book. Arthur Hayes, thanks a lot, man. Thanks a lot. Great to have you back on. We'll talk to you soon. Cheers. Got to let you know. Bankless Nation, of course, none of this has been financial advice. Cryptos risky. You could lose what you put in. But we are headed west. This is the frontier. It's not for everyone. But we're glad you're with us on the bankless journey. Thanks a lot.