The Wolf Of All Streets - Bitcoin Is Money, Ethereum Is A Crypto Commodity | Massive Interview With Arthur Hayes

Episode Date: December 11, 2022

Arthur Hayes is a legend in the crypto space. If you are a trader, then you know that Arthur Hayes invented the most popular crypto derivatives instrument - the perpetual swap. If you are not a trader but are familiar with crypto, then you know Arthur from his famous blog, where he dives into complex ideas and explains them in 30-minute-long reads, aimed primarily at helping himself walk through with his investing thesis. If you want to revitalize your bullishness on crypto, then this is a must listen. Arthur Hayes: https://cryptohayes.medium.com/  ►► JOIN THE FREE WOLF DEN NEWSLETTER https://www.getrevue.co/profile/TheWolfDen  GET UP TO A $8,000 BONUS IN USDT AND TRADE ALL SPOT PAIRS ON BITGET FOR ZERO FEES! ►► https://thewolfofallstreets.info/bitget   Follow Scott Melker: Twitter: https://twitter.com/scottmelker  Facebook: https://www.facebook.com/wolfofallstreets   Web: https://www.thewolfofallstreets.io  Spotify: https://spoti.fi/30N5FDe  Apple podcast: https://apple.co/3FASB2c  #Bitcoin #Crypto #Trading The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. This video was created for entertainment. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this video constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.

It's not every day that you get to sit down and speak with a legend in your industry, but I had that opportunity today. I spoke with Arthur Hayes, the creator of the Perpetual Swap, which is arguably the most innovative and important product in the history of crypto trading, and also a man whose long-form blog posts have become canon for anybody who studies and is interested in the crypto space. You do not want to miss this epic conversation with Arthur Hayes. I've always wanted to have a conversation with you because for a number of reasons, but the perpetual swap is arguably the most innovative and impactful invention in the

history of crypto trading. And effectively you invented it, right? What was the thinking behind that and how did that come about? So basically back in the day, we used to me and my co-founders answered every single support ticket. And, you know, this is before bitcoin derivative trading was a thing everybody was used to trading on spot trading margin those sorts of things and we get a lot of support tickets by clients who are confused about some of the ways that the platform operated specifically like what happens when a futures contract expires we would get a lot of

support tickets of people who were upset because they thought that something was wrong with the platform but why the position disappeared on a particular day and then we you know point them to the documentation and explain to them you know this is what happens when the features contract expires that's what that expiry date means after that date you know long grammar position people like to have a position then you need to re-enter we enter the market. And we kept getting those sorts of questions over and over and over again. And another common confusion that a lot of clients had was, okay, why does the futures contract price differ from the stock market? And then you'd have to go into covered interest rate parity, the differential of interest rates between two different currencies, time value of money, triangular arbitrage, all these sorts of things that you need to understand to understand why a futures contract, especially on a currency pair, price is different than the spot price and again that was a lot of information for a lot of our clients and they didn't really

Understand it and as such they prefer trading on margin because that's very easy. Okay. I borrow some money from somebody I Go long or I go short and I go long and I go short at the price of The instrument and the spot market it's just like trading spot Bitcoin because it is you're trading on the same order book So we had this question amongst us. Okay, can we create a futures contract? in the spot market. It looks just like trading spot Bitcoin because it is, you're trading on the same order book. So we had this question amongst us, like, hey, can we create a futures contract that never expires? Because that would solve

a lot of these issues. Number one, we have all these different futures contracts, you know, quarterly, you know, the March, the June, the Sep, the Dec, right? And that's splitting liquidity across all these different contracts

wouldn't it be great to have liquidity in one contract and you know back in 2016 when we created this thing we were the underdog we didn't have that much liquidity or open interest in our derivatives markets versus our you know much more successful chinese competitors so we didn't want to split liquidity shitty liquidity across four products is you know not a good thing so we're like okay let's how do we combine liquidity? How do we make it easier for customers to understand? Because we didn't have a margin trading platform for people to graduate from. We didn't have a spot trading offering.

We just had derivatives. So you literally had to guess. If you wanted to trade a derivative, you came here, but all the other stuff we didn't have. So it's not like we could bring traders on a journey through our different easy stuff of just buying spot Bitcoin to using margin to doing derivatives. So we had to create a very understandable, easy

product for them right out the gate. And then it's like, okay, how do we cut down on our support load? There's only three of us answering these questions, and we're getting the same ones. So as any good technology companies should do you use technology to remove humans from the process so what can we do uh so we you know we thought about it we thought about it and the first iteration of the product was okay let's

create this um swap it's essentially a swap between bitcoin and us dollar it's synthetic because there's not actually movement of any cash flows between either side and back then the key interest rate was the bitcoin and the us dollar rate on the bifinex uh peer-to-peer lending markets so we'd say we would take that rate from bitfinex and we'd use that to determine uh how much interest each side would pay each other right and the thinking was okay if bitcoin's in a bull market then us dollars are very expensive because people want to borrow them and they want to speculate on bitcoin therefore the right rate on bitfinite should rise and if the someone's going long the perpetual they should pay more funding to the person going short to keep the market in line and make it expensive for people to go uh to go in the pro cyclical uh of the market, right? You pay more as long you

pay money when the market's rising. If you're short, you pay money when the market's falling. And, you know, this is back in May 2016, when we launched this product, and the price of Bitcoin was, you know, going up very, very quickly. And the problem was that the interest rate on Bitfinex was not enough to deter people from taking the other side of the trade. So the longs, but yeah, I guess it'll keep going long. And the price of this instrument just get getting pushed at a higher and higher and higher premium to the underlying spot price of Bitcoin, which meant that the product was not doing very well and was failing. And so the idea that I had was, okay, the Bitfinex rate is not responsive enough to the conditions of the market.

What if we did a look back and we said, okay, we're going to track the premium or discount of the perpetual swap over our index, our cash index for Bitcoin. And then we're going to say, okay, for the next period, longs or shorts pay each other, depending on what that historical premium was. And that seemed to work. And then all of a sudden, the interest rates got really expensive for some periods. And that deterred people from taking that position. Or certain people couldn't afford the funding based on their margin requirements. And they had to close before they got liquidated. And so all of a sudden we saw, okay, our markets are starting to look normal. The perpetual swap is starting to look like the spot market. It's behaving as the intention of what we did to develop this product. So that was kind of like

how we sort of got to where it is pretty much today and what this product is. If you've been following me for the last few months, then you definitely know that I've been trading and investing on BitGet. Now, listen, it took me six months to decide that they were going to be the sponsor for the newsletter. But once I saw their partnership with Juventus, that they were the world's leading copy trading platform in crypto, and also that they're a top five exchange

by volume, well, I was sold and I was convinced. And I've been using it ever since to dollar cost average and to invest in Bitcoin. You can also trade there with leverage, but of course, be careful if you're going to do that. And I don't know if you saw the recent news, but they've also done a deal with Lionel Messi. Now, you can get up to an $8,000 bonus using my link below

and you can trade spot with absolutely no fees. You also get a 15% discount on trading leverage. Go ahead and sign up right now using the wolf of all streets.info slash BitGet. Claim that huge reward and use the world's best trading platform. Right. And that's the product that effectively every single exchange that offers any sort of ledgerage is utilizing for the core of all of their trading. And that's what the customers are coming for. I mean, that must be quite a feeling to see something you invented become effectively the industry standard. Yeah, it's great. And as someone who loves derivatives and is studying financial markets,

you know, for my entire professional career, it's great to be up there with, you know, individuals who have created, you have created products that everybody trades. Everybody wants to be like the old school J.P. Morgan people who created the credit derivatives markets or Myron Scholes and those guys in the 60s and 70s who created options pricing. And so, yeah, it's pretty cool. So why don't we see perpetual swaps in legacy markets? It seems like a much more

efficient way to actually trade than what we have currently. Change is hard. If you're an organization and this product has been working for the last 50, 60 years, why are you going to take some

crypto product and then try to shoehorn it into how you define things? And as we know, traditional trad-fi markets are very big on classifications and labels. If it doesn't fit inside the box, then you can't do it. And so I think it's a big mental stretch for a market. So we're no longer doing quarterly futures contracts going out for two years. We're going to collapse all that into this perpetual swap thing. And guess where it came from came from came from the crypto markets

everybody like what are you guys thinking like we were better than crypto this is real finance like those guys are retards like so that i think it's not going to happen well we've been giving them a lot of fuel to the fire to believe that we are all that at the moment i would say like we're at uh at the depth of the deepest possible valley for perception of crypto, which obviously leads to the next question. Just generally, where do you think we are with this market? I mean, my argument is that we're somewhat bottoming. I think we would have bottomed if not for FTX, but it feels like we have some serious

depths of despair here and negative sentiment and stories that Bitcoin is going to zero and that crypto is dead. Kind of my favorite bottom signals. Absolutely. I think we are in the bottom stages. And if we take a step back and we take a look at why we went up so high, right? We took a, I don't know, four or five hundred billion dollar market cap asset and went up to one and a half trillion, two trillion at the top in terms of Bitcoin in a span of a year.

Why did that happen? Well, the biggest economy in the world printed the most money that they've ever done since World War II to fight the COVID pandemic. And obviously, a lot of that money flowed into crypto. So if you have the largest ever misallocation of credit since a global world war for a pandemic, and some people argue that was completely unnecessary, then the excesses that are produced have to be unwound. And those excesses contributed to the behavior of, you know, Sam Beckman agreed at FTX, you know, Kyle and Sue at three zeros, all of the centralized lending platforms that are basically all bankrupt or insolvent.

They all were able to achieve this outsized quote unquote success because they were riding on the back of the most amount of free money in the reserve asset by the largest economy ever seen since the last global war. The U.S. wasn't even a reserve currency back then when it printed so much money. I think that it's very sad that all this has happened.

Obviously, there's possibly some fraud or theft or all sorts of bad stuff that happened. We'll see. Not for me to say. Not me saying it maybe and but at the end of the day like why why was how were three arrows allowed to borrow not allowed why would somebody lend three arrows a billion dollars in the collateral like i don't care what they told you it doesn't matter like you should never do you should never do that

you should ask for something at least right um why was spf able to put on this you know dog and pony show and con people as effectively as it was yes you fit all the right characteristics and i laid those out in my essay white boy but at the other end of the spectrum if you've got a bunch of money and you're an institutional money manager you'll get paid unless you spend it. So you spend it on a thing that looks like that you won't lose your job at the end of the day. No one's going to lose their job because they allocated to SPF. Maybe they will this time, but I don't know.

I don't believe so. They wouldn't have. So I guess that's the thing. And yeah, there's the bad side of crypto, but it was fueled by a lot of money printing. And we've washed a lot of that out. So obviously, subsequently to the printing of the most money since World War II, we've also tightened financial conditions the fastest, probably since Volcker in the 1980s. So we've gone to the other extreme.

Well, guess what happened? We bankrupted all these business models that never existed in the first place. I haven't fully come to terms with whether or not i think centralized lending in the tradify format actually works in a bear asset like crypto where you don't have a lot of the legal protections that you have in a tradify system because those are part and parcel of the system itself the whole point of crypto is that we don't need a legal system. We have auditable blockchain code. Does that mean that we can allocate credit in the same way and use the same sort of underwriting standards?

I don't know. Obviously, the track record is not so great at the moment. But looking forward, pretty much everyone who could go bankrupt has gone bankrupt. The largest exchanges, the largest centralized lenders, and they've all sold. What did they sell? They sold Bitcoin and ETH. sold what do they sell they sold bitcoin and eat

and what's left on the balance sheet dog shit chip coin that is super liquid that they can't even sell in there and they can't do any hell of it so it's i think the thing that everyone you look at the balance sheet of alameda there's no bitcoin on it look at the balance sheet of any of these of three euros there's no bitcoin on it because what do they do they sold the bitcoin as they were going bankrupt they sold the bitcoin sold the Bitcoin as they were going bankrupt. They sold the Bitcoin during the wave before they went bankrupt. Now they're bankrupt and now the court has to decide, how do

I split up all these illiquid shit coins that have no use case probably and maybe we'll never have a market cap to support anything in the future. So that to me tells me that at least Bitcoin, which is the reserve asset of crypto, is doing what it should do. It's liquidated first because it's the most pristine asset and the most liquid, and therefore it's going to lead us out of this bottom of the first two. And obviously

the shit coins will follow, but there's a lot of bags held on bankrupt companies who need to liquidate those. But at least for Bitcoin, I'm fairly confident that the largest, most irresponsible entities have all had to sell all their Bitcoin to the diamond hands. As one of the larger Voyager creditors myself, sadly, and someone I was friends with their team and was trading on the platform early,

I would like to believe that it's over for CeFi and that nobody makes that mistake again, but I do not have that much faith in humans and their ability to FOMO into greed. But to your point, I don't understand giving a $700 million uncollateralized loan in any market, but it probably speaks to the situation that they put themselves in, which is that these platforms grew massively in a short amount of time because of the yield they were offering. And when those yields disappeared, they had to just continue to behave in a more risky manner and continue down that curve to try

to even just keep up with the yield that they had offered or lose all of their clients. So it seems like they built a business that could not be sustained unless the bull market never ended. Exactly. And that's the same trade I figured out. It's the same trade that Alan made. At some point, they said, we make more money if we go long and we're right. Absolutely. The problem is the market also goes down.

The thing that kills me about FTX, just rationally, is like, you know, first of all, the casino always wins to some degree, right? And these are casinos that have high leverage. So you could just wait for retail, obviously, eventually going to make bad decisions and rents. They had knowledge of the order book. They could literally sweep people's stops from Alameda and they still went broke. What kind of greed and hubris does it require to not make money in that environment? Like you're the house times 10. Yeah. And you had free loans from the house. What do you do with the loans? You could have taken the loan and just put it back in the treasuries.

You still would have made a 4.5% net interest margin of $8 billion. Great. You're crushing it. Maybe that's unethical at best. Ethics were clearly not their principle. You could have made so much money in a sub- you know, you know, a sub will at night, see if you eat all cucumbers he wants and, you know, go hang out at the penthouse.

But instead, they went along, you know, shit coins. You made an interesting point earlier about having to allocate if you're in one of these companies or in a situation like that. I think one of the untold stories that I've been thinking about, the Andreessons and the larger funds, they've raised three and a half, four, five, $6 billion in crypto venture funds that has to be allocated even in this environment. You can't raise $4 billion and wait 10 years, right? So there still has to be a ton of institutional money that's sidelined and waiting to buy, whether it's at these prices or with some turnaround. Maybe that's not Bitcoin, but in the VC space, it seems like there's still billions that

have to be allocated right now. Absolutely. But I do think that maybe when they make those capital calls, that money isn't there, right? So that's just what they sign the term sheet now. The types of persons who could allocate, they might have some real estate losses and fixed income losses. And they're like, you know what? That crypto thing that I told you I was in for nine months ago, maybe not. And okay, I'll forfeit the other parts of what you've already invested in. I mean, it doesn't really matter. It's probably gone down 90% anyways. So I think that dry powder that they have might be a little might be

a shimmer when they actually come to call on it but at the end of the day like these large shops you know they can't be doing deals that are a million dollar they need to be writing 100 million dollars 50 million and you can't and to like series you know companies in equity rounds or look like they're you know they're going to go public at some point. Okay, there's no crypto companies going public anytime soon. This is not happening. Okay, then I'm talking about some large, big token sale. Who's the retailer that's going to soak up those tokens? They're all bankrupt too.

So I just don't see how that money gets deployed, even if they call the capital and it's there. There's nothing for them to invest in because they're not the type of shops that are going to go around to these little indie conferences and put a $15,000 check into a true decentralized protocol that's actually doing something real. They can't do it. It just doesn't make sense for them.

So that's great for me because I'm just an angel on a lot of stuff and I'm able to trade in very small sizes. You can get $25,000. Yeah. an angel on a lot of stuff when I'm able to trade in very small sizes. But you're not going to find the next Uniswap because you're able to allocate $10 million into a round. Probably not the type of company that's actually going to be pushing the envelope for this ecosystem.

People questioned so heavily when Andreessen did the huge investment in Adam Neumann's new project after the WeWork failure. And my thinking was, they probably just had to get a couple hundred million dollars and he gave them the opportunity to actually allocate that much in this market. It's not going to get it in there. Not 10 million at a time, even in a VC fund like that outside of crypto. So here's a couple hundred. Why not? Has anything changed in your thinking now for the asset class as a result of this contagion? I mean, you obviously always referred to Bitcoin as the most pristine asset of all time. So I doubt that's the case. But I think a lot of people are conflating problems

with the crypto industry, with the actual assets themselves. And for us, I think it's easy to separate. But do you think that this has caused any meaningful harm long term to Ethereum or Bitcoin as assets? No, it's just proven the value prop, right? Given all that's happened, imagine in 2008, right? And you had Lehman Brothers go bankrupt. You had the contagion around every single merchant investment bank. You had AIG.

People worry about the actual functioning of the financial system. Like, is the bank going to open? Is the exchange going to open? Because the counterparties went bust on all these interlinked derivatives. Did we do the proper accounting? Do we know what's on their books? So the centralization problem during a credit crisis leads to the implosion of the actual underlying functional system. Nothing like that

happened in crypto bitcoin blocks ethereum locks still produced still that are still validated so our contract still worked uniswap still worked i can still send bitcoin on the network you know maybe it was a bit more expensive because there's a lot of stuff going on but it still worked even though the largest largest, number two, number three largest exchange went bankrupt in three days. And yet everything that actually uses technology worked just fine. That would not happen in Tradify. The entire Tradify system would be bankrupt, and we would be talking about not being able to use the bank. occurred and if you read recently there's a lawsuit by Elliott to the London Males exchange due to the the large nickel position he was called a

bitch big shot some Chinese tycoon who basically tried to corner the nickel market and blew up and the LMEs defense was hey we couldn't enforce the rules as written in these contracts and ask for more margin because we were worried about the exchange going, many multiple counterparties of the exchange going bankrupt. And that's a systemic financial risk. Therefore, we did the appropriate thing by not giving you what you were owed, Elliott Management, hundreds of millions of dollars, because you're on the right side of this nickel trade, we're okay. Now, imagine if that had happened in crypto, right? Hey, we put out there that we guarantee that we're going to give you this money, but because everyone is going to go bankrupt and we're worried about the entire financial system

not working, we're not going to pay out. That's exactly what the Tradify system does. Crypto doesn't do that. Bitcoin doesn't care which companies come or go. Ethereum doesn't care which companies are there or not there. So that's what people have to understand, is that the actual technology, the reason why they got so excited about this in the first place,

continued working, no issues. And people just have to be able to discern, when they're investing in a centralized entity or using a centralized entity, there's nothing wrong with using them. You just have to understand their purpose and what they're there for versus the underlying technology. And obviously most people never get that distinction. And that's why most people will lose money in these kinds of situations.

And it'll be those who are achieving right now. And when the next bull market comes around and Bitcoin's at a much higher price than the last bull market, everyone's going, well, why didn't I invest at the bottom? Well, you thought Alameda was Bitcoin or you thought Genesis was Ethereum when they're just companies, poorly run companies, but just companies. I loved what you called, I think it was Genesis, Grayscale, DCG, GUnit, right? It's an old rap DJ. But obviously then I need to ask about Genesis and Grayscale. Do you see that as a potential next victim of this contagion

or do you think that that's overblown? I think Genesis is already a victim. They've already shut down withdrawals. And whether or not they declare formal bankruptcy or not, it doesn't really matter. Like, you can't get your money out. Like, I don't care if it's bankrupt or not. I'm not getting my money out. then you have to wonder okay well then

is gbtc going to be unwound i don't think so i think it's pretty ironclad that thing is there and so the bitcoin is there can't get it out there's no incentive for you know very silver to unwind grayscale because it produces $200 million of free cash flow for doing pretty much nothing every year. So he's just going to keep it. Whether or not, how he restructures his corporate empire, I have no idea. But at the end of the day, the Bitcoin and that trust aren't going anywhere. So I think it's kind of a Genesis sold all the Bitcoin they could have sold to try to

stay afloat. That obviously didn't work. If Barry had more Bitcoin to sell, he'd probably be selling it to not have to deal with this sort of issues. So I think, you know, the damage is there. I feel sorry for anyone who has their money locked in one of those entities. But, you know, for the broader market, it's kind of irrelevant at this point. Feels like 90% of people in crypto have some money locked somewhere at this point. Yeah.

Kind of the way it is. Well, if Bitcoin is the most pristine asset, then how do you view Ethereum? So Bitcoin is money. Ethereum is a crypto commodity. And so that's my belief system. I know some people are in this Ethereum camp that it's the soundest money,

but use case of Ethereum is the power of the decentralized computer. And the analogy that I like to give is imagine if you're Saudi Arabia. Obviously you want the price of oil to be high because you make a lot of money, but they can't be too high. Imagine if oil was a billion dollars a barrel, no one would buy any of it. Therefore your oil is worthless. Same thing goes for Ethereum. If it becomes so deflationary at a certain point that the price of Ether is so high and its fiat value for gas is so expensive, no one's going to use it. And so I think ultimately, if we get to this situation where the Ether price goes too expensive, inflation will have to be

introduced back into the system because otherwise it will not fulfill its role as being the commodity that powers a decentralized internet, because that's the number one goal of Ethereum. And that's why I believe Ethereum is not money. It can act like money, but it's not Bitcoin, which is money. Bitcoin does nothing. It deals you nothing. You can't do anything with it. You can store it.

You can send it to people to pay for stuff and that's it. And that's the feature. And that's why it's there. People like to deride it for that, but okay, cool. Gold doesn't do anything either. Guess what? We have thousands of people with guns guarding underground vaults with this worthless, inert metal sitting that people have now ceased to be bullish about it just because it's been a few months when we all know it should take many, many months and years to really, really play out. But welcome to the sort of memory of a goldfish in the crypto space. That's a hard needle to thread because if it does become particularly deflationary and we get another bull run and people get bullish on it, I think it goes to 10, 20, 30,000. And to your point, then it becomes moot. Does that open the door for other layer ones that are cheaper, faster, even if they're less secure? I mean, is that really their opening to sort of gain some dominance over Ethereum?

I mean, I wouldn't call myself an Ethereum maxi because I think there's some philosophical issues that they have to solve in the next bull run, but I think all these other like Ethereum killer L1s, yes, they could be on paper faster or whatever, right? It doesn't matter. Every cycle has a particular flavor of L1 that's supposed to

be Ethereum. This cycle is the soul cycle, right? And yes, there was lots of ways in which Alameda and FTX influenced that, but at the end of the day, the zeitgeist was okay, Ethereum's slow. This thing's fast. It's the new thing

on the block. This thing is $3. Ethereum's $1,500, $2,000, whatever it is. This thing, a moon, and you can do all the extrapolations. It's the nominal price fallacy let's see people flood into these assets and every cycle is going to be one i don't know what the next flavor of l1 what's you know proof of what that is going to say oh this is the new way to do it this is the better way than proof of stake or proof of work or proof of time or

proof of block or whatever the they come up with it doesn't really matter there'll be some promoter who's got a nice looking, you know, pitch deck is back by the right of these seeds. And they think people supposedly know something about crypto and the single moon. I hope I find out which one that is and I get in on it. Me too. But it won't be anyone that,

but it won't be, but it won't be something from the last cycle because, you know, if you look at how many developers are in any of these projects, other than Ethereum, it's like a few handful maybe 100 that's not how you build a real ecosystem if i'm if i'm a talented developer i want to go where my application is going to be used the most where's my application going to be used the most the ethereum network okay well maybe if aptos or solana or you know cosmos has a bunch of treasury money to hand out, I'll build something on there.

But what am I building? I'm building a clone of Uniswap. I'm building a clone of Compound. Am I building anything actually new? Am I building any real new primitives? Absolutely not. I'm doing nothing. I'm me too.

Again, you can make a lot of money and me too. But it's not going to make money in the next cycle because we've moved on. We saw that that was worthless and they didn't have any actual adoption. And so what's the new thing that we can get excited about? And we can go, then it can go from a few cents to a few hundred dollars. That's what I want to figure out. We might get some pushback if we call this podcast hashtag me too with Arthur Hayes, but I think it would be kind of a compelling title now that you said it, honestly. And you said that you have some philosophical concerns with Ethereum that would need to be corrected in the next bull cycle. Can you talk about that?

Yes. You have the issues that Ethereum has with the centralization of validators. A set of validators have to adhere to some domestic legal rules that go contrary to an open blockchain processing all the valid transactions. Then you haven't really accomplished much. And to the extent that there's some very transformative application that some particular entity doesn't like, and they're able to influence the way that blocks evaluated, then the Ethereum blockchain is worthless. But again, we're humans.

We don't really, we see it in front of us. We see, you know, there's three entities that control about 50 or 60% of the hashing rate and they're all subject to US rules and regulations. Okay, there's nothing wrong with that. People make a lot of money in Web2 that is predicated on a particular legal system. The issue is if we're really trying to build an open, transparent, global network, is one country having a larger state than others? Really accomplish that

goal? If so, then why don't you just go invest in a stock in the US or China or any of the other countries? Why even deal with having a third-year blockchain? It's expensive. It's slow. It has all these issues. I'd rather just go buy the NASDAQ. I'd probably make a better return.

I think that won't be clear to people until we see a real popular application that's at some point not able to be used because some entity says no, and the network has to decide what they're going to do. So I'm still long ether from now until the next cycle, but I hope to be out of ether before that happens back into Bitcoin. Well, before the market starts to actually question what's going on. It's funny because there's always that cycle, even the back. You would almost call yourself an Ethereum maximalist.

But in the back of your head, it's when am I going back to Bitcoin? Bitcoin maxis are going to love that, by the way. But it is true. Even on a longer time frame, it seems that it always comes back to Bitcoin one way or another in this market. Yeah, I mean, of course, Bitcoin's volatile, right? It goes down and it goes up. My whole thesis of my portfolio is I'm trying to save money in a constant form of energy.

Bitcoin is pure energy. I burn electricity to mine Bitcoin, and that is how I make Bitcoin. And so to me, Bitcoin is the purest form of energy ever created, and I want to save in energy. That's all I care about. You alluded to the fact that we're building a parallel global financial system, even a superior global financial system. How do we do that if every time we create a bridge, it gets hacked, exploited, every protocol seems to get drained? Seems like we've still got some major technological problems to solve ahead of us. Absolutely. I mean, no railroads didn't work the first time. Automobiles, planes, anything doesn't work the first time. It takes a while for the technology

to diffuse. Okay, maybe we've gotten a little bit corrupted because we think everything's a 90 second tiktok video and you know progress should happen immediately and not take time but you know we're only you know slightly more than a decade into the largest social and financial experiment we've probably ever done as humankind and to expect that it's all going to work perfectly and it's going to be this you know perfect solution for you know a tradify system that works for a large number of people it doesn't work for a larger number of people and you know in my view all we're doing is building a choice right you can go walk down to the branch and go visit your large too big too big to fill bank and put your money there that's fine or you can use the online wallet and transfer crypto each one says

pros and cons and depending on who you are in the situation in your life you'll choose one or the other um but at least with our system we're not forcing anyone to use it it's a pure voluntary participation economy and there are plenty of places in the world where people don't actually even have access to the system that exists anyways, and are going to be somewhat forced into defying crypto regardless. Exactly. I think that applies down to every single person who invests in trades in any single market. And you probably just described why people are so bad at trading, right? Because they would rather be right than be profitable. Yeah. Or they want to invest in the right things like with everyone else

because you don't want to feel, you don't want to be talking about, I don't know, nuclear waste facilities after Chernobyl at the cocktail party, right? So, when in actual sense,

it's probably the best time to invest in them because nobody else wants to touch them. So it's a similar sort of phenomenon, right? You know, all the people who believe these economist articles and baron's covers of like bitcoin going to zero and

they can you know wag their fingers at people at the cocktail party and and look you know look all smart and stuff and then you have the person in the corner cowering like i don't want to admit that you know i guess you know put a million dollars into bitcoin at you know 50 500 right it's that kind of fear you know we don. We fear the social rejection more than we want to make money. Damn, we're Chernobyl now. That's wild. Bitcoin is now... That would make a good podcast title as well. But I mean, you have pretty intimate knowledge, I think, of the way that people trade and interact with markets, obviously, from running an exchange and creating one for so long. I mean, do you think that that is the principal reason that people are willing to move their

stop loss or refuse to take profit? Is just that willingness to be right or that fear of being wrong? Because that's not even playing out in public. That's a very insular, personal thing, right? That's admitting you were wrong to yourself yourself not even at the cocktail party well i think the issue with lots of creators is that they are looking for the get rich quick button and that manifested itself in oh very let's you know very timely example um anchor is paying 20 interest i get zero at the bank hey if i if I put $10,000 and I compounded at 20% over a few years, look at how fast I'm going to double, triple, quadruple my money.

This thing's amazing. I'm putting everything in this because it's going to make me rich faster than even working my job. And we all know in the background, nothing ever is. There's no easy button in life. There is no get rich quick there's outliers and they're trumpeted in the media and made it and you know put forward to make you think that you should be doing some you know not smart activity but at the end of the day there is no easy button life is hard hard work pays off it takes time there's no there's no easy solution and a lot

of traders think that if i apply leverage and you know i trade well or i do this and do that i don't sit back and be disciplined about my craft that all of a sudden i'm going to be driving going from a toyota corolla to a lambo and weak and i think it doesn't happen like that and so i think that's the issue is a lack of patience the lack of dedication to a craft like i always like tell people hey you want to be a good a day trader? Okay, you can have your phone on all day. You can be looking at your screen all day. You need to know every single flow in the market, the timing, when the miners sell, which exchanges go from where, what is the open interest of a particular product, how the different time zones trade. These are all the things, the details that you have to understand if you want to be a speculator.

Most people think, no, I'm just going to sit down on the computer. I read some online magazine or something about trading, and I'm going to click a few buttons. I'm going to make more money than if I did a 40-hour-a-week job. And this is not the case. So traders should approach it as a 100-hour-a-week job. It's like, I quit my 40-hour-a-week job to become a trader for a better life. And then you're literally at a screen like 100 hours a week. But what you just described, I would say 99% of people who trade with leverage on crypto exchanges have never even heard of 50%

of the concepts that you just said. They know support and resistance on a chart and probably know what MACD and RSI are, maybe. So they're not doing the requisite work, which means it's inevitable that they're going to lose money right yeah you have to do the work it doesn't matter like anyone that you admire in any sort of pursuit had done what is it the 10 000 hour theory right they've done the work right if you're a trader are you have you read all of the canon of traders do you know where these products came from like the the fundamental stuff behind them. Obviously, there's some completely speculative stuff, but as with everything, there's always

a predecessor of which you've iterated upon. And if you don't understand that, then how are you going to understand why this is different or not different than the past? And so I think most people just don't want to put in the work and therefore they get the results like everyone else, which is over time you lose money. And you created these high leverage products in crypto. Do you think that there's, I mean, obviously people should be able to do whatever they want, but do you think that there's a necessity for 100x leverage in crypto on volatile assets? Or is that something you just offered it because there was demand for it? I'd say most people don't even use that much leverage, thankfully.

But at the end of the day, the one good thing about leverage and we're seeing this now is that you don't have to keep that much money on the exchange. And so if you use it correctly, it's almost as if it's a short-term option. Okay. I can put this hundred bucks of a trade on. I know that the maximum I can lose is this. I know that my maximum exposure to the exchange is Y, and I'm comfortable with that.

And so I can put this trade on knowing, going into it, what my loss is, and I can keep the rest of my funds in cold storage and whatnot. So yes, some people like to make these sensationalist arguments about the high leverage, but in a crypto environment where you have exchanges like FTX going bankrupt in two days, then it doesn't make

sense to limit your exposure. And I'm always out there saying, hey, an exchange is for trading on. It's not your wallet. It's not there to hold your funds. Face the trade. Do what you need to do. Get your money off. Use the technology that's supposed to be used. This is about financial freedom. It's not about trusting centralized entities with your crypto. So leverage is effectively about counterparty risk. And of course, people, you said sensationalize the 100x leverage. But if your stop loss on your trade was going to be less than 1% away from your entry, it literally doesn't matter how much leverage you use.

Exactly. Yeah, I think people obviously complicate that. And now I think we're seeing a return, at least during this phase, I'm not confident it will last, in the ethos of not your keys, not your coins, and people really taking their coins off of exchanges, these massive outflows.

Do you think that that will last? And do you think that exchanges actually should even be viewed at all or be allowed to be your bank or your custodian? Or do you think that exchanges actually should even be viewed at all or be allowed to be your bank or your custodian? Or do you think there should be some Chinese walls there that really separate those roles and take the coins off the exchange in the first place? I mean, I guess the whole point of this ecosystem is for you to be an adult, right? And so the exchange is not there to tell you what you should or shouldn't be doing with your funds. The exchange is there to say, if you deposit one Bitcoin, that one Bitcoin is there.

You can use it as margin. The exchange is not going to go out and buy stuff with it. As Sam Bankerspreet famously said and then deleted, FTX doesn't even invest their client deposits in U.S. treasuries. Okay. Whatever. Yeah. So you shouldn't be doing that. Well,

if you have Bitcoin, you just stay in a wallet. And that's it. I mean, you know, obviously, some exchanges have done like proof of reserves and proof of liabilities, those sorts of things. And the beauty of the transparency of like cryptographic assets is that we can do these things in real time. It's not as if I need to trust a statement from some too big to fail bank on their quarterly financial statement as to what they did over the last three months that they goal-seeked on the last day of the recording, which we know they do. They call it window dressing. It's a concept that exists all the time, right? And so I think there is this transparency of the blockchain if we choose to look at

it, if we choose to demand it from the exchanges. But as you pointed out, usually what happens is, you know, for three to six months, everybody's clamoring for these things. And then as the market stabilizes and, you know, starts going up again, we forget all about that. And it's all about like, what's the new product? You know, how can I get more leverage? How can I get more free money? Where can I borrow money to get along this market? And all the other concerns go out the window. So I hope that people take this to heart and use a ledger, use another one of these

hardware wallets and keep the majority of their funds in cold storage and their control. But history has proven me otherwise. The cares of the average person change quite quickly as soon as they forget about this. People are making the same mistakes for literally hundreds of years and repeating cycles. So I don't think it's going to change much this time. But we do have cycles, obviously. And we can arguably say that we're at the very depths of a bearish cycle here in the crypto market. What do you think comes next? I'm not asking for price predictions tied to time, but in general, I mean, do you think that we remain somewhat correlated to the stock market? Do you think it's all about money printing and stimulus? Or do you think that Bitcoin can once

again, decorrelate and rise in the face of a global economic crisis? Where do you stand on what's coming? So I'd say next year sometime, I believe that the Fed is going to have to pivot. And that's mainly due to the fact that I believe that the treasury market and probably the investment-grade corporate bond market are going to become dysfunctional. What do I mean by that? You have a bunch of supply with no buyers. The Fed's not buying, the Treasury is not buying, they're actually issuing paper. All large foreign non-US governments are mostly net sellers of Treasuries. So that would be Japan and China. If you see accelerating more deals of Middle Eastern countries selling their oil not in dollars

that also leads to less recycling of dollars less purchases of treasuries and yet at the same time you have all-time high issuances of debt because again you know the baby boomers in the u.s are aging they have entitlements social security Medicare. You have increased spending on defense. Who knows what this Russian-Ukraine conflict is going to lead to. Even if the war ended today, I still believe that the defense industry is going to be pushing for more preparedness in the future wars, which means more spending, more government borrowing. And then you possibly have a recession. The three-month, 10-year spread that a lot of economists believe is the true recession indicator has turned negative, which basically means that the treasury market is telling us that there's going to be a recession next year. So what does the government do in a recessionary environment? They need to issue more money to provide that social safety net.

Now, obviously, most countries can't do this. The U.S. can't because it prints the global reserve currency. sessionary environment, they need to issue more money to provide that social safety net. Now, obviously, most countries can't do this. The U.S. can't because it prints the global reserve currency. But they're the ones who are going to determine global dollar liquidity, which is what matters. So I think sometime next year, the politics of the treasury market and the corporate bond market are going to dictate that the Fed, at a minimum, pauses at a maximum, starts adding dollars back into the market and that's going to obviously be positive for all risk assets especially bitcoin bitcoin is the last free market in the world and so therefore it should um pre-trade that happening you'll see bitcoin

rise before the s&p does and and i think that's we stay correlated for this cycle and then the next cycle i believe is you know generational collapse and something hopefully not as bad as the 1930s, but depression-like. Because if the Fed has to resume printing within a year of the largest sovereign debt bubble in the history of human civilization, then the next time there's a crisis, it's going to be the big one, the one where we actually have really, really high nominal rates on a lot of these large government bond markets. And then the question is, can Bitcoin outperform with a 10-year percent treasury and really high inflation? That's what we're going to do.

Because inflation moves in waves. Okay, yes, we could go from 7.5% and then the CPI down to 3%, but the next wave up is going to be 10%, 12%. That's what happened in the 70s. It's not this linear relationship. It's not this simple system. We don't know to understand what inflation is, but everyone experiences it differently,

and it definitely isn't over once you've already crossed this Rubicon. So I think that Bitcoin and dollar markets are correlated up 2024, 2025. Then we move massively lower. And then the question is, can Bitcoin perform in a very, very high nominal rate and high inflationary environment? And that's the real test of this asset. Because then if it just goes down another 95%, like every other asset, when you have interest inflation of 10% to 20%, then have you really done anything? Has this technology really proven anything? So I think that's the test.

Can they get inflation back down to targets 2%, 3% before they're forced to pivot? Seems like that's highly unlikely. Maybe. I don't know. Highly unlikely. I mean, the forces that are structural, the underinvestment in energy has been happening for almost 30 years.

You don't all of a sudden reverse it in a year. You don't all of a sudden like, oh, we're going to transition to green economy and starting this song and dance like 15, 20 years ago and think that you're all of a sudden going to get oil just going to come out of the ground and you're going to recover capex spending back to the levels to to have enough demand enough oil for for the increasing demand you don't you know

destroy some of the most you know productive farmland in the world and you know in eastern europe and then all of a sudden three years years later, global crop yields are back to where they were. It's just fallacy thinking. People don't do the math. They don't think longer than 90 seconds on TikTok videos. And that's where we're in this situation. And the politicians follow suit. And so I think that's sort of my prognosis.

And it's an open question of whether or not Bitcoin can be that asset in a true systematic reset, which I believe is coming, but not in probably the next five years. You talked about defense spending earlier. Did you see the recent story that the defense department failed their, I believe, fifth consecutive audit, basically every audit they've ever had, and were only able to account for like 39% of their assets. Basically, there's trillions of dollars missing from the balance sheet of the Defense Department, and they continue to raise their investments. It's insane. And every other country is going to do the same thing. I mean, maybe they want, I don't know the audits of other countries, but at the end of the day, everybody's spending more

on defense. And so there's only's only there's only so many humans to produce so many goods and so again the government will crowd out all across the world and it's not just the u.s phenomenon it's in every country phenomenon everybody is restoring production to add resiliency to those supply chains everybody wants to be prepared for you know you know a global conflict hopefully we don't have one. And therefore everybody's trying to stimulate at the same time. And it just isn't gonna work. Yeah, that's a vicious and dangerous cycle for sure.

You talked about before taking 10,000 hours to become a master of something. It seems like you've spent 10,000 hours writing your blog because every time I read one, I'm like, damn, I'm like 35 minutes in and I'm still reading this thing. What inspires you before we go to write these long form blog posts, largely on the crypto market, but obviously on other things? And is that something that we can look forward to continuing to do? Yeah, there's a very, I like global macro. I manage my own money

because I like to, it's fun. And at the end of the day, I'm writing about stuff that I'm asking myself these questions. And if I could put out a very coherent, long-form essay and explain a point of view and it makes sense, then okay. That idea that I have for my portfolio makes sense. The positioning that I have for my asset allocation makes sense. There's been times that I've been writing an essay on an idea. I'll get done and I'll be like, oh, this doesn't sound so good. Like I shouldn't have that trade on. And then I'll go and I'll liquidate everything and I'll bend the article.

But that's like, it's very cathartic for me. I enjoy it. And then also I enjoy the fact that people enjoy reading them and to get the opinion out there. And obviously, you know, you want to be like a virus for the Lord Satoshi and bring forth the message of the good word for the people. Well, you're doing a great job of it. Where can everybody follow you after this?

And then check out, of course, your blog and everything you're doing. Sure. I'm on Twitter at CryptoHaze. And my medium is, again, at CryptoHaze as well. And articles come out a few times a month, depending on what's going on. And I appreciate the feedback that people give as well. And articles come out a few times a month, depending on what's going on. And I hope and I appreciate the feedback that people give as well. Yeah, I love the fact that it's sort of like due diligence for your own ideas that you're sort of vomited out on paper. I do the same thing and then actually makes you think through the process. So it's interesting for us to be able to share the

thought process you're going through. And I hope that you definitely continue to do it, man. Thank you so much for taking the time to do this interview. Really appreciate it. Incredible insight. Thank you.