Unchained - Arthur Hayes on Why Bitcoin Is Money and ETH Is a Shitcoin He Loves - Ep. 587

Starting point is 00:00:00 I think that this is sort of, 2004 is going to set up to be the choppy period where it's time to accumulate before you get the blow off top in 2025 and to the 2007. Hi, everyone. Welcome to Unchained. You're an Ohio resource for all things crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto years ago, and as a senior editor of Forbes,

Starting point is 00:00:25 was the first Main Tree Media Reporter to cover Cryptocurrency full-time. This is the December 29th, 2020, episode of Unchained. This episode is brought to you by Uniswap. From their self-custodied wallet to zero gas swaps, Uniswap is building products for safe and seamless swapping across DFI. Visit app.uniswap.org to get started. Arbitrim's leading layer-to-scaling solution offers you ultra-cheap and lightning-fast transactions, all with security rooted on Ethereum.

Starting point is 00:00:55 Visit Arbitrim.io today. VaultCraft is your no-code defy toolkit for customizing non-custodial automated yield products on any EVM chain. Join the referral program today and start earning rewards. Learn more at volcraft.io. Just a quick note before we start. In the year-in-review show Tuesday at Minute 24, I misspoke and said the word Coinbase when I had meant to say Binance. The corrected language is, in June, the SEC came back in full force. On a Monday, it sued Binance for mishandling customer funds, lying to regulators, and selling

Starting point is 00:01:32 unregistered securities. The next day, it sued Coinbase for operating its trading platform as an unregistered securities exchange, broker, and clearinghouse. Apologies for misspeaking. And now on to the show. Today's guest is Arthur Hayes, CIO of Mailstrom. Welcome, Arthur. Hello, thanks for having me.

Starting point is 00:01:52 Thanks for joining for the last episode of the year. We're at a very interesting moment in the intersection of what's happening on both a macro level as well as in crypto. And I've heard you talk in recent interviews about the banking sector in the U.S. being in a bad place, pretty much for the same reason that Silvergate and SVB went under possibly signature. You've also talked about how you think that there's going to be a lot of money printing that's going to happen fairly soon. and not just the U.S., but even like in other jurisdictions. And at the same time, obviously, we're looking at spot Bitcoin ETFs about to launch in the U.S. So how do you think all these different factors will come together next year?

Starting point is 00:02:37 So as I've written in a number of my essay, I think one pretty good one was double happiness about this massive amount of money printing that needs to happen between now and say like 2006, 2007, is that the gates are closing to what a friend of mine, David Dredge, the context strategies calls is Sharp World. Basically, this fake accounting construct that we have in the financial and economic world, where you follow all these rules and all these accounting rules and make up all these numbers and claim that you're making money, but in an economic sense, and we deflate everything either by the Fed's balance sheet or Global Center Banking Balance Sheets,

Starting point is 00:03:18 or the price of energy like hydrocarbons, most people have lost money in real terms investing in just about every financial asset. And people are starting to recognize that. That's why crypto is up so much in the best performing asset since 2008, essentially when we had the global financial crisis. And the great thing about this particular episode of Fiat the basement and governments have been doing this even before Rome, which is printing fake money, planning it out as if it means something. And when you get into trouble, you just print more of it.

Starting point is 00:03:52 We're not doing anything new. We have computers that do it now in ones and zeros, but it's, it's literally the same thing. But for the first time ever, the people have a way out. We have Bitcoin. We have this new financial system, which can run a whole, you know, stock, spons, tokens, whatever do you want to call it. We can run all this stuff on a decentralized network ourselves. so we can take our capital and move it out of Tradfi and into Defi, into Bitcoin, into other different types of primitives and tokens and whatnot. So for the first time we have an escape hatch. And now that people are recognizing that, oh, shit, all this capital is just not going to sit

Starting point is 00:04:32 there in the banking system and be ripe to be stolen from by governments who need to inflate away this debt. We have an exit. And so now it's time to convince people that things like a Bitcoin ETF in the West and whatever they're going to call it over in the Chinese financial system is the way to escape, but you're not really escaping, just giving your money to somebody else who's in the, the tri-d-fey system. So that's sort of this push and pull that's going on right now.

Starting point is 00:04:58 And obviously we're starting to see the price of Bitcoin react positively. You know, since the FTX debacle in November of 20, November of last year, Bitcoin has went from 16,000 to, was it now, 45,000, 44,000, whatever it is, right? And all the while, the banks are supposedly not printing, but they are printing money. If you actually look at how much money is going into the banking system or interest payments on government debt, it's very stimulative. And that's what Bitcoin is telling us. And now Bitcoin, I guess, tech stocks have magnificent seven in the United States.

Starting point is 00:05:34 And those tech stocks are on a tear because liquidity is there for the right type of thing. So I think that this is sort of, 2004 is going to set up to be. the choppy period where it's time to accumulate before you get the blow off top in 2025 and the 2007. That's really how I'm approaching the world right now. And so, you know, that's expressed like in a price term way. You say you're expecting kind of a blow off top at that point. So I don't know what you're saying there. Are you saying that you think that's when the bubble's going to burn the crypt? You know, because we've had these cycles, right, every four years in crypto, we tend to have these bull markets. And then there's kind of like

Starting point is 00:06:13 the like long bear market that takes like two years to play out or whatever. So are you saying that you think that that's going to happen again? Or are you saying that well, okay, actually, so let me give you the alternative. And I just want to reference your essay where you wrote about the punishment that Binance and CZ received. And there was a very interesting section here where you talk about, like you basically compare the punishment that finance and Cizzi, you know, Chang Peng Xia, the former CEO got, versus like what some big banks and their executives have gotten for like basically bigger infractions. And then you say, what does this absurdity tell us about our beliefs? And then you say it tells me crypto is one of the most important political financial and technological developments in civilized human history that, you know, that you guys are all creating this parallel financial. system, blah, blah, blah. And, you know, then you talk about how this is the first time where people can, you know, own what you call this new era of, the bedrock of a new area of a digital human society. So when I was reading that, I was feeling like, I feel like Arthur is saying

Starting point is 00:07:28 there's like some monumental thing happening that will be in the history books. And so I guess this is a two-part question. Sorry, it's a very long question. I'm asking. First of all, So what is that vision of like where this is going historically and then how quickly do you think that will happen? Do you think it's going to happen like in a couple of years? I think we're at the unwind of the post-World War II arrangement of the global economic political system, which is U.S. on top. Everybody else services the U.S. in some way, shape, or form. And the chart that I like to show, and I think I've put in a few essays, if you look at the net international investment position, of all the major economies in the world.

Starting point is 00:08:12 You basically see the U.S. is at, I think, a minus three trillion on balance. And then China, Japan, and Germany represents that three trillion. So what do we create after World War II? The U.S. said, hey, do what we say and we'll let you sell stuff to us. And we'll loan you money. Obviously, they did the Marshall Plan in Europe, and Japan was essentially an American colony for a bit after the war. and China was allowed to join the WTO in 2000. To play by our rules, we will open up the biggest consumer market for you to sell stuff to,

Starting point is 00:08:47 and we will deindustrialize our manufacturing base that put us in power, essentially, to let you sell up stuff. And that was the arrangement, and then we can see that in the chart. That is creating issues that are very systemic, and I think that arrangement is going to change. So I know what the new arrangement is going to be. I don't. about the entire financial system that we have had since World War II is predicated on that relationship and it's breaking down. And we're seeing that in the various skirmishes around the

Starting point is 00:09:18 world and periphery portions of the American Empire. We're seeing that in a resurgent China economically. We're seeing that in the BRICS Plus. We're getting together and saying, why are we invoicing our goods between each other in dollars? Shouldn't we just use our own currencies or gold? So we're seeing all these people challenging this order because it doesn't make sense. sense for them anymore. And so we also have this thing called crypto, which is a neutral asset, which nobody controls. No one government is the sponsor of crypto. It's controlled by us all globally, collectively. And that is also going to benefit as well as we move away from this U.S. centric economic and political model that we've had for the past 80 years. So I think we're coming

Starting point is 00:10:00 to ahead this time because the Fed and other central banks, every single financial crisis, essentially started to inflate another bubble. The last bubble and the most important is the government bond markets, which have been inflated since COVID times. And now we're starting to see that breakdown. We're starting to see the correlation between stocks and bonds flip, where people are now starting to be concerned about, okay, well, how much money do all these large governments have to rent in order to make good on these promises they made to the people that they control? And it doesn't make any sense. It's unsustainable at, you know, 360 percent debt to global GDP. You're at over 100 percent, the debt's growing faster than you can service it unless we find some new energy miracle.

Starting point is 00:10:41 It's mathematically going to fail. And the investing class is starting to realize that right now because you've seen a 30-year U.S. Treasury bond is down 50 percent in price terms from August of 2020 until today. That's absolutely a bloodbath. And so as people start to contextualize that and realize that this 60, 40 portfolio, or risk parity or all these things they believed about the volatility of reducing and return enhancing aspects of government bonds is, it doesn't work anymore in a new global environment that is inflationary and not U.S. led.

Starting point is 00:11:19 Then all this capital needs to find a new home. Obviously, some people are going to choose gold, but there's a lot of people who are younger like, well, I don't believe in goal, but I believe in my smartphone and what I can do on the computer. This makes more sense to me. this being crypto. Yeah. Yeah.

Starting point is 00:11:35 I mean, it is very fascinating. I do agree that a lot of kind of the financial markers are saying that something new is happening. But I just want to hear you talk a little bit more like, what do you think that's going to look like? You know, I know you know that probably you've probably heard at least that bologis, Spring of Austin talks about like this concept of this nation state. We have these dows. And yet at the same time, like the nether. notion of just these governments that are tied to these physical jurisdictions. Like, that's a very

Starting point is 00:12:07 real thing. I feel like that's going to be a hard thing to change. So I just wonder, you know, do you just see these two financial systems existing alongside each other? Like, just talk a little bit more about what you think that will look like, let's say, yeah, five, ten years from now. I think the game-changing aspect is artificial intelligence or AI. What are these economic and political things that we are creating going to do out in the wild. And we have no idea, right? I have posted some theories about why I believe that in the AI wants to centralize money and decentralized compute power and storage and all that kind of stuff. Right. But we have, we're adding essentially a new organism to our human universe. You know, it's a silicon-based

Starting point is 00:12:54 organism, but it still has its own things that we like to do to survive and it's going to coexist with us politically and economically and it's going to completely change the ways in which governments and people interact because now we can do something much cheaper and faster using an AI. We don't need a lot of people doing all these jobs, these analog jobs that we've created in the last industrial evolution in the past 200 years. So I don't know what the feature is going to look like, but I don't think it's going to be just a, okay, well, you're based in, you know, this piece of land that is called X, therefore you must do this. Well, okay, well, can I guess use this other non-state thing, this AI, to do all these things

Starting point is 00:13:38 I'd like to do? And this AI cannot be controlled by any one government and is going to take resources and knowledge anywhere it can to grow and fulfill whatever the message was initialized to do. So I think that's the spanner in the works. And whether that's a network state or what have you, we're not going to go back to the concept of the nation state, which is basically. this idea we came up with in, you know, really the 19th century about how we want to organize ourselves politically. Now we have this new organism that we've created. It has a different idea of

Starting point is 00:14:10 what politics means. So human and computer politics is going to be something that's going to completely change how we are governed. Super interesting. So we're going to talk about that a little bit more later. But I do want to also ask then a little bit more about the spot Bitcoin ETFs that are going to launch. And so I know, obviously, you are a crypto-OG. And yet, I was curious, if you were a normie and you were thinking of buying Bitcoin for the first time next month when the CTS launch, would you buy a Bitcoin ETF or would you buy Bitcoin? So would you advise somebody in that position? So I think people need to think, what's your goal? Is my goal to buy a financial asset to make more fiat? or is my goal to save in an hardened energy currency that's outside of the system in a different financial network?

Starting point is 00:15:04 So choose one. If you want to trade and earn more fiat, great. A Bitcoin ETF is great. Depending on where your capital is house, maybe you have a bunch of fiat that's sitting in a retirement account or it's managed by somebody. And there's just no way for you to get that money out and buy physical Bitcoin. I get it. Cool. It's a trading vehicle.

Starting point is 00:15:23 It is not a store of value. It is not a new financial system. You aren't escaping the system. You're just trying to earn more filthy pieces of fiat. Cool. Use the ETA. If you want to actually have financial freedom and a store of value that maintains its purchasing power and energy, has it comes with its own financial system that is

Starting point is 00:15:43 outside of TradFi, then you must buy Bitcoin, withdraw it from the exchange and self-custody in your own wallet. There are the only two choices, but you have to think about what you're trying to Oh, okay. Interesting. I'm assuming that you personally, though, you don't custody your own. You probably, or maybe you don't want to talk about your setup. I don't talk about my setup. I should have guessed. I should have guessed. And then another question, so there's likely to be a whole plethora of issuers to choose from. There's going to be Black Rock, Art, Gray, Scale, Bitwise, Galaxy. I mean, there's so many. So for people who are looking to buy a spot Bitcoin ETF, like how would you think? about how they should choose. Total expense ratio on the website. They're going to tell you, okay, here's how much I'm charging you. They're all going to use the same exchanges and brokers and custodians. They all have the same systemic risks. It's really like, who has the cheapest

Starting point is 00:16:41 one at the end of the day? That's it. Well, okay. I mean, maybe it's predictable. So maybe it was not the best question. But how much do you expect to flow into the Bitcoin ETFs in the first year. I have no idea, but what I do expect is that if this happens, and I'm still on the fence of whether or not, I don't know. Some people are saying it's early January or whatever it is. There's some date next year that the ETF happens. So they're going to announce, okay, Bitcoin ATM was approved.

Starting point is 00:17:09 It starts trading on, you know, maybe a week or two later. I don't know how quickly these things happen. And the price is going to go fuck a banana. It's going to go up so much because people think that all of a sudden, as soon as the ETF open, There's going to be this rush of, you know, creations into all these people who wanted to buy Bitcoin for the last, I don't know, over a decade or all of a sudden, you're going to rush into the DTS. And if BlackRock it on these guys are going to be having to get lifts offers everywhere and buy all this Bitcoin, that's not going to happen. Money was going to flow in, but it's not going to flow into the extent that people expected to initially at least. And so I think it's a by the rumor or sell the fact kind of situation if you're a short term freeder.

Starting point is 00:17:49 over the long term, you know, if we really are witnessing a mindset shift of the 60-40 portfolio, which is, I believe it's 60% equities, 40% bonds, whichever one it is, if that is really dead and investment managers start to believe that and people are still being taught that in school and, you know, schools like where I went to school Wharton and, you know, Columbia Business School and Chicago and all these places, that's said to be the thing that are taught to kids and investment managers, then we're going to see a lot trillions and trillions of dollars worth of bonds that are no longer going to be owned, that money is going to flow into crypto. And it'll be, you know, flow into one of these ETS because as an investment manager, again, you're trying to

Starting point is 00:18:35 earn more fiat, not trying to support a new financial system. So you're going to use one of these derivatives to get your exposure. So we're talking a little bit over a year after the FTCX subbacle. and obviously we had the conviction of Sam Pinkfreyed. That whole thing obviously was a huge black eye for the industry. And yet, during the period that Sam, you know, was a billionaire and all this stuff, there were a lot of people in Crypto who kind of got taken in by him. And you wrote a very thought-provoking essay about him called White Boy. Highly recommend to everybody who, if anybody's not read it.

Starting point is 00:19:13 But I wondered, like, what was the main takeaway you'd want the industry to have about FTCX? or SBF? Or like, what lessons would you want the industry to have learned from that? Well, I mean, number one, SBF and FTF is a centralized thing. It failed because of too much leverage and rising interest rates. That has happened in every single financial crisis ever. That's literally always the cause. And crypto survived. Bitcoin blocks are still produced. Ethereum blocks are still produced. We still had D-Fi primitives that worked without fail. So our ecosystem worked perfectly. It was tested. There's no central bank that had to bail them out. There weren't, you know, the U.S. Treasury Secretary bending a knee to some politician

Starting point is 00:19:53 have begged for money to bailout hall as fucking old cronies on Wall Street. We didn't do any of that. Everybody took their pain. There's a lot of pain. And now we're much better for it. So I think it proved that what we are creating is a hardened financial system that reacts quickly to stress and can survive. So, yes, very sad that a lot of people lost a lot of money.

Starting point is 00:20:15 Maybe it'll get some of the back if, I guess, the FTXXE state. minus all the billions of legal fees have to pay to those blood-sucking lawyers, can recover some of those assets. But I think it proved that what we are building really does work. But for the industry itself, like, are there certain things that you'd want crypto people to have, like, learned in terms of a lesson? Stereotypes are usually lead to bad investment decisions. So if you're investing in something or somebody because that's what's always been done,

Starting point is 00:20:45 or you just innately believe this person because of whatever factor, just check yourself at the door and think, okay, let me actually do some analytical analysis of my own thought process of why I would trust this person. And if it's just because this type of person has always been trusted, you should have a red flag and make sure that what you're actually putting your money into makes sense. So there's another big debacle in crypto that hasn't fully resolved yet. It's also flown a little bit more under the radar. And that's, DCG. And just remind listeners about this whole thing, there are the parent company of bankrupt crypto lender Genesis, which is now suing DCG over money that the parent company borrowed from Genesis.

Starting point is 00:21:28 And meanwhile, we have gray scale, which is the other subsidiary, that is, you know, most likely going to have its gray scale Bitcoin trust turned into a spot Bitcoin ETF. And that trust already has $25 billion of value in it. So, you know, not a bad start. So what do you think will happen with whole DCG Genesis gray scale thing. I mean, it's it's a complete cluster fuck of, you know, Barry Silbert lending money, borrowing money between himself, you know, lawyers doing lawyer things. It's, you know, super complicated. And then obviously the Winkle Boss twins are owed something like, I don't know, $900 million from the earned program where they gave money to Genesis. And Genesis gave it to Sue and Kyle of three-year-olds and blew it all. So I don't know. I have no

Starting point is 00:22:13 idea what's going to happen. Obviously, the crown jewel is the Grayscale Trust because it mints like, I don't know, a few hundred million dollars of fees every year because of the massive management fees that he's able to charge. He being Barry Silbert. So I don't know, courts are going to do court things. Lawyers are going to do lawyer things. Going to pay a lot of money in fees and something will happen, but who cares? It doesn't matter. Oh, wow. Okay. And but what do you think, so you don't think that there will be any particular impact on either crypto or do you think that there's like a particular best outcome here. I don't know enough about the details of like who swing who and what they're asking for.

Starting point is 00:22:50 I mean, hopefully the Gemini customers get their money back. Maybe. I don't know. Probably not. Yeah, definitely they're the ones. Socialized company doing centralized things. They're always fucked up. Just stick with their coin.

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Starting point is 00:24:13 Propel your project and community forward by visiting arbitram.io today. Back to my conversation with Arthur. Not long before we started recording, you tweeted that you had dumped all your soul and bought ETH and you said that you expected it to go to $5,000. And weirdly, I also noticed that before when you had bought the soul, you said that you were embarrassed to have done so. So tell us about your thesis on Ethereum and Sol.

Starting point is 00:24:40 So I am a pseudo-ETH maxi, my thesis is the Ethereum network has the most amount of developer talent and energy surrounding it. It has a, let me see a very large market cap compared to other layer one, decentralized blockchains, decentralized compute blockchains. And I think that moat is insurmountable from others. Because whatever others do, they say, oh, there's this one part of what Ethereum does. I can do it better, faster, whatever it is. I'm going to launch your chain. And investors who have gotten in early have done very, very well. But on the first run-up.

Starting point is 00:25:16 But can these networks actually deliver and get as many people as possible to build on their chain versus Ethereum, which is different than saying there is a uniswap or a Dex on Eith, awesome product, EMM on Eith? I'm just going to launch on Solana, on Say, on Avalanche, on Pick Your Fokin'Lew, and I just going to copy and paste what I originally did on Ethereum. Now, that doesn't mean that there's not going to be some original primitives developed on these other change, but as the right now, the majority of the creativity starts in Ethereum, and this is copy-paced into these other chains,

Starting point is 00:25:53 and maybe these other chains are able to optimize one particular facet of the defy economy, but I don't think any of them have the whole package. So Solana, obviously, very good marketing. a lot of the actual applications built on top of it have very, very good UX, like the Phantom Wall and stuff like that. Very, very energized community and coming out of the whole SBF, FTX debacle, have sort of like re-energized this chain. And the thing is going from like $7. Now it's close to $100 or whatever it is right now. So it's a great momentum play.

Starting point is 00:26:29 And so I jumped on momentum play as a trader and try to hype it up because that's what I do. But at the end of the day, I bought Seoul as a trading vehicle. I'm going to sell it and take the profits and do something else. And maybe I'll re-buy if it corrects down, you know, $40 or $50 again and ride it up again. Because there is a lot of energy there. People really believe in this and you can't not trade it. I like these sort of things. That's a great thing about crypto.

Starting point is 00:26:56 It's so trend, momentum focused that if you just buy into that vertical chart, you can make some money. So one question, because I believe that there was a point in time when you were not a believer in Ethereum, like very early on. We're not even that early, but yeah, I think there was an essay like 2018 or so where you called it a shit coin. And then now you are definitely a true believer. So do you see... I mean, it's still a shit coin. It's not Bitcoin. Everything that's not Bitcoin.

Starting point is 00:27:27 Really? Oh, okay. I love shit coins, though. I stay with love. I make a lot of money training shit coins. I'm not going to sit here. that I don't trade shit coins. I love shit coins. I'm a shit coin trader. Okay. So you can see, you put it in the class of shit coins, but you're a believer in it. And I think you said you're

Starting point is 00:27:45 maxi. Yeah, in terms of decentralized compute power. I don't think Ethereum is money. So I know that wrinkles some in the Eith community. I believe that Bitcoin is the only real crypto money. Ethereum is the decentralized computer. And it's a commodity that runs this decentralized computer. And they're two distinct different things. I believe that in 2016, Ethereum community proved that they care about the computer more than they care about money when after the Dow hack, they roll back the blockchain to get people back their ETH because they cared more about their computer gaining attraction and use case versus ETH being money, which is fine.

Starting point is 00:28:23 You know, choose a vertical that you want to play in. It's fine that it's just a computer and not money. And so that's sort of my market taxology on these sort of things. But what about now where they have this new monetary policy and ETH is basically more deflationary, or it's deflationary, whereas Bitcoin is not? Yeah, I think if that got in the way, if ETH got too expensive and gas fees were too expensive, then they would do something that changed that because they care about usage. And so, yes, it's deflationary right now, but that can change. It was inflationary before and they changed it to deflationary. So they changed the monetary policy to suit their goals.

Starting point is 00:29:02 If they believe that's going to further the use of the computer, that's what the community is going to decide. If it needs to go back to inflationary again at some point in the future, I believe the community will decide to do that because it wants the EF EVM to be the most used of centralized computer versus being the hardest form of cryptographic money. I see. Okay. So you don't see anything about Solana that might make you change your mind. Not as of yet. But I'll trade the fuck out of it. Yeah, that community is definitely there.

Starting point is 00:29:32 they're very riled up right now. Something else that's happening, I'm sure you're very well aware, is that there's a ton of meme coins that are taking off. Obviously, Bonk is kind of the main one, but Pepe-Doge, I mean, you know, just there's some long name also. It ends in Enu. I don't even remember all of these. But anyway, they've been doing very well in recent weeks, and I know that you seem to be a

Starting point is 00:29:59 fan of them. So how do you see meme coins? kind of fitting into the whole crypto markets. So, I mean, it's a big fuck you to trashy, right? We're taking this printed money that these governments are churning out, right? So we're going to buy these fucking dog coins, and there's going to be people to make a lot of money on them. We're going to talk about all intelligently about what these things do when they don't

Starting point is 00:30:20 mute. But they're pieces of shit. It's fine. Everyone knows their pieces of shit, but it's fun. And when you've debased the human value of time and labor by printing all this money, this is the kind of shit that we do. So I think it's great that we actually. have a way to basically say, you know, we're going to get up in our pajamas and trade these fucking

Starting point is 00:30:37 dog coins and make a lot of money. And while some motherfuckers sitting in a suit in an office, like crunching away at some spreadsheet, right? So I think it's funny. And I think that's the ethos that these things bring to the table. Like, yes, you could have something super serious like Bitcoin, but not changing the way we do money. Or we could trade fucking dog coins and dog with hat and all this fun stuff. So I love it. It's fun. It's all part of the whole movement of of taking this thing called finance, demystifying it, making it fun, and hopefully making some money out of it. And do you think they have either any staying power or is there anything beyond just the fact

Starting point is 00:31:16 that they're fun? I mean, that's a big thing. Culture is a big deal. I think it's part of the culture. And there will be some of these coins that stick around for a very long time because it's integral to the culture that we call crypto. So I'm sure you know that there. is a controversy in the Bitcoin world about ordnals and BRC 20s, you know, these meme coins,

Starting point is 00:31:40 that some kind of Bitcoin maxis basically say are taking advantage of what they are calling a vulnerability in the Bitcoin code. They're saying that these transactions are spam. And because you are a believer in Bitcoin is money, I wondered what, but you are also a fan of beamcoins. I wondered what your take was on this controversy. We need people to pay for the Bitcoin block space to do whatever they want to do with it. If there's no one paying fees, then the miners don't keep their machines on. It's that simple. It's not up to any one person to say what is the right and the wrong way to put this data into the blockchain.

Starting point is 00:32:16 That's not our job here. We present this ecosystem. We present a means of time stamping and mutable piece of data. It's up to the world what they want to put in there. So I think it's a great thing that now human culture is going to fight its way into the Bitcoin blockchain and is going to pay for that purpose. So we're in probably a moment where I guess it seems like stable coins have kind of found that they're a niche. You know, they're one of the few applications of crypto that I really think has actually kind of found product market fit, you know, sometimes when I talk to mainstream people, they're like, what's Bitcoin used for or what's

Starting point is 00:33:02 crypto used for? And I can very easily point to that. You know, you have invested in a new kind of stable coin, Athena. And yet, you know, here we already have all these centralized stable coins. So where do you see that whole market going in terms of the centralized stable coins, the decentralized stable coins? And, you know, where do you think this will eventually go? So I'll use Tether as an example, and I don't have any ill will towards the people who founded Tether and I think they run a great business. However, Tether is great because, let's call it, the U.S. banking system refuses to offer a similar product. So you have the people who own Tether and it's a very small handful of people make something like, I don't know, a four or five billion U.S. dollars in free cash flow every year. And they do fuck all.

Starting point is 00:33:53 And good on them for creating this product. It's basically an interest rate plate. But they basically take dollars, they stuff it in a bank account, and then they go buy treasury bills, and they earn the spread. Now, why the fuck is the bank letting them do that? The person who's running that bank is a fucking moron, because you literally, I don't know very many banks who have that sort of profit margin doing the same thing. Because tether cannot exist, and tether in any of these other fiat stable coins, the way they're structured, the centralized ones, cannot exist without. a bank clearing and holding their money. Yet they make way more money per employee than a bank. That doesn't make any sense. So in my mind, at some point, you know, Jet Yellen or whoever's in

Starting point is 00:34:38 charge of the U.S. Fridgery is going to say, okay, Jamie and all the other Muppets who run these traffic banks, you are allowed to do a tether. And they're going to make, great, we're just going to offer a J.B. Morgan coin and it's going to be used everywhere around the world. It's not going to these questions about the legality or whether it's a security or whatever. It's, you know, it's fucking JP Morgan. They run the U.S.S. banking system, right? It'll be used all overrun the rule. It would be none of these trust issues. And overnight, Tether has no more business because you're going to use Tether or are you going to use the J.B. Morgan point. You're going to use a JPMorgan point. Tether has found a great niche because the large banks refuse to do this business.

Starting point is 00:35:15 I don't think it's refused. I'm sure there's probably some political angle of what I'm not allowed to do it. But that could change overnight and then there's no more tether, which is fine. will still have a stable coin. It'll still work the same way. It's just that these centralized companies in crypto will not be doing it anymore. And it won't be crypto people making this net interest margin will be the same banks. Because at the end of the day, they don't have any defensible business because they've relied on the banks to custody their funds and allow them to trade debt instruments. So with Athena, and this is, I posted this as an essay, I think knock a dollar or whatever, we can create a synthetic dollar using perpetual swaps and ETHES staking,

Starting point is 00:35:56 which is the Athena innovation. But instead of relying on a banking system that's hostile to crypto, we rely on, you know, restaking protocols like Lido or crypto-centralized exchanges. So we rely on each other to peg this asset versus relying on those you wish to disintermediate. So that's why I think from a fundamental perspective, something like, like Athena makes sense. Obviously, it's up to them to execute this. Something like Tether is great on the people who created it for fighting this part of the market that the U.S. banking system refused to service. But if you make $5 billion a year and free cash flow with like probably

Starting point is 00:36:34 like 10 employees, there's no fucking way that the bank is going to sit there and let you make that kind of money when you rely on the bank in itself of itself to custody your money. So that's sort of how I see the stable coin ecosystem. Yeah, no, I agree. It's going to be very interesting to see how that plays out. So I find your thoughts about this interesting because we started this conversation where we were talking about how you thought that crypto and AI would come together. And you've written about how you think Bitcoin will be the currency of choice for AI's. But that was a little bit curious to me because since most of the world, or not I shouldn't see most of the world, but since the dollar is the currency that is.

Starting point is 00:37:14 you know, that a lot of transactions are denominated. And I'm sure you very well know that the vast majority of stable coins also are pegged to the dollar. Why is it that you think Bitcoin will be the currency rather than something that's more dollar denominated for AI? So money is just energy transformed, right? Whatever dollar goal, Bitcoin, right? It's supposed to maintain the purchasing power of energy over time.

Starting point is 00:37:39 And we judge its effectiveness if it does so, right? if I have an AI, what's my chief concern? I need energy. I need to run a computer that has a copy of myself and allows me to learn and to do the thing I'm supposed to do, which is essentially electricity. So I need to choose the currency that best holds value, or from a fundamental perspective, is just energy. The dollar is not energy. It's a government construct and they pledge to allow you to buy energy in that currency. Gold is not energy. It's, you know, a collection of atoms that the universe had decided that this means gold. Bitcoin literally is just energy. You spend electricity to solve a cryptographic proof, and therefore there is Bitcoin. And so from a fund and lots of

Starting point is 00:38:26 perspective, Bitcoin is the purest form of monetary energy. And if I'm an AI, that's what I want. The second thing is, as an AI, I don't speak lawyer. I don't, you know, I don't hire like, lawyers to go and interface with the human system. I speak computer code. Bitcoin is computer code. So I can speak in a native language, the currency that I choose, and it is inherently electricity. Therefore, it's the best choice if I'm thinking of what I need to do as an economic unit, as an AI, to survive and to buy ourselves services purely an electronic and internet-enabled compute forward fashion. And on a technical level, I just think also about things like the fact that the block time in Bitcoin is so much slower than on other chain. So does that even factor it in in your

Starting point is 00:39:20 view at all or no? I don't think so. So you think like AIs will just, they'll exchange payment every 10 minutes rather than. Maybe there's lighting network. So I mean, this is all sorts of, maybe there's going to be some sort of layer twos. Who knows, right? It's what we? What are we like? 15 years in? 16 years. in, like the minuscule amount of time of what Bitcoin is, who knows what it's going to represent when you have another organism that cares about the direction of the network, organism being silicon-based thinking machines. Yeah, that is true, obviously.

Starting point is 00:39:54 We are very early in Bitcoin's days, and it's going to have its 15th birthday scene, which is super exciting. So you spend most your time in Asia, and I'm sure you're very well aware of that. a lot of movement and a lot of the, you know, crypto community has kind of moved over to Asia or a lot of activity. So I was wondering just how you're seeing, you know, now that we have these different jurisdictions that are instituting regulations for crypto in Asia, like, you know, how do you see the kind of crypto adoption or the crypto community evolving, you know, at this moment in time? I think people in Asia, just about everyone else in the world, apart from very, very wealthy asset holders, have all, everyone has the same problem.

Starting point is 00:40:41 Everyone's government is inflating away a massive pile of debt. There's different reasons why the debt was taken, like China's property, United States is, you know, bombing people in health care, right? So it depends on, you know, why the debt was taken out. There'll be different sort of solutions of, you know, extend and pretend. But at the end of the day, we all have the same problem. And so there also be different flavors of regulation to reflect the local political situation in a particular country. But at the end of the day, the goal is let's keep as much money sitting in the stratify system as possible and dissuade people in any way, shape, or form. I'm converting their depreciating fiat piece of paper into something like Bitcoin, which is outside of the system.

Starting point is 00:41:29 And I think that is, in essence, the goal of all, you know, global macroeconomic regulation with regards to crypto. Maybe it's not banning crypto per se, but it's just making it difficult and hard and annoying for you to send fiat to an exchange, buy Bitcoin, move it off the exchange, move it into your own wallet. And there was some concern that China would use blockchain technology or even its digital yuan to try to, pushed the U.S. dollar from its status as global reserve currency. And I wondered if you thought that there was some likelihood that that might happen. I think this is one of the biggest misconceptions is that China wants to be the reserve currency issuer. If you think about what America has become, probably since 1971, it's a deindustrialized financial ghost town, right? All the manufacturing firms left to Asia and China and other places. And which is a industrialized,

Starting point is 00:42:29 you have is hyper financialization of the economy, hyper asset inflation. You have, was it, in the top 10% of people in America own 60% of all assets? So you have a massive underclass of people who are very upset and, you know, gun violence, drug overdose, all these things are symptoms of the same thing. Is that what China really wants from a country in 1949 who essentially fought a civil war and had, you know, the greatly forward and all these sort of issues in the 60s and 70s? Did that the model that they want to emulate, and I don't think so. I think what they want to do is the U.S. dollar is a hindrance in that if they save it, they know they can be stolen, just like what happens to Russia and a lot of other countries with their reserves, which they thought were

Starting point is 00:43:12 assets, which are no longer. And so what they want to do is they want to use Ewan in trading with their major trading partners. That's the goal of the ECA&Y. It's if a tourist in China is going to Singapore, why spend a dollar derivative? Here, I'm just going to spend this electronic CNY, we're going to create the clearing mechanism so that can happen. Hey, I'm treating with Saudi Arabia. Why am I using the dollar? Why don't we just swap CNY? Hey, I also, I can make a nuclear reactor for you. This is China. I can build ships for you. I can build semiconductors for you. What do you want? I have the global manufacturing base. And if you need to save CNY, buy products for me, we don't need to use the dollar. Do I want to become the global currency issuer? Do I want to open up my capital account and have a financial crisis because of my over levered property. sector, absolutely not. I want to stay closed, but eliminate the dollar from any trade flows. I do not want to be the global reserve currency issuers. So I think the U.S. dollar will continue to be the Fiat global reserve currency, but less and less trade when it doesn't have to is going to be conducted in the dollar. But no country wants to be the American dollar issuer. Leave that to America

Starting point is 00:44:20 and all the issues that it causes. Okay. Yeah, that is a little bit different from what some other commentators are saying. So last question, you know, you have shifted, obviously, from the work that you were doing with Bitmex, where you founded this and then you were the CEO for a long time. And now you're the CIO of Maelstrom, which is your family office. So tell us a little bit about your like investment thesis or kind of different developments in crypto that you're interested in. So again, the thesis is crypto is the best expression of fiat debasement. You can buy stocks, you can buy real estate, you can buy gold, you can buy crypto. And I think the best way to save money in constant energy terms is to deploy capital into crypto. And that's basically what my family office is here to do. I have an investment professional named Akshat Vaidya,

Starting point is 00:45:14 who is, he runs the early stage book doing token deals, you know, that kind of stuff. I do most of the liquid trading, like my Solana pumping and dumping and other things like that. So it's basically a trading vehicle. I love trading and love financial markets. I find it a lot of fun. Obviously, some people, when they've made some money, employed with other people to do this, this is what I like to do. So I do it. And then it gives me some ideas to write about stuff, whether it's in macro or crypto or economics.

Starting point is 00:45:44 What's interesting in crypto? Was it just deep pin? That's another big narrative that's. using blockchains to incentivize these people to take over parts of physical infrastructure. Obviously, the staking ecosystem around ETH, I think, is going to only become more important. There's going to be so many different types of, like, with staking derivatives and ways to decentralize the actual action of staking and earning these yields. That's going to be super interesting. And then, you know, as we get this bull market going in, you know, late 24 or coming into early 25, once we've, you know, surpassed all-time high.

Starting point is 00:46:19 probably market cap of crypto, then it's time for the dog shit season where you just throw darts at the wall, make money, but make sure you understand that this is going to be a massive bubble and you need to get out at some point. So that's sort of how I look at the world. And yeah, I'm really enjoying basically working with a few individuals and trading. So do you think that in a few years we're going to have one of those bubbles and then the long bear market again? Absolutely. Oh, okay. So you're not, are you a believer in the supercyclation where at a certain point, we won't have that? Well, we are in a super cycle, right?

Starting point is 00:46:58 Bitcoin is moving higher lows, right, after each crisis. That is a super cycle. It's not like we're breaking this in, you know, FTX. We'll see. Are we going to break through 70,000 again? I think we all, we will by the end of 2024. But at the end of the day, that is what we are trying to do. And so, yes, of course, there's cycles.

Starting point is 00:47:19 But the cycle is on up into the right sort of situation. We are not in the secular decline as of yet. There will be some point I imagine in the future where the Bitcoin value of energy has reached a level which is too high and we'll have to have a major correction. But I don't think we're there yet. We have so much capital trapped in the Fiat triadfai system that needs to find a way to escape. And the crypto door is very, very small. And it won't fit everyone. A lot of people won't make it.

Starting point is 00:47:48 That is, I fully believe that. This isn't for everybody. Not everyone wants to have financial freedom. A lot of people are perfectly happy being a donkey and getting their ass kicked by Tadfi over and over and over again. And just complaining about it and not doing anything about it. So again, that's sort of how I see the world. All right. Well, I think it was our last interview.

Starting point is 00:48:10 I asked you a non-crypto question at the end. And I'd like to do that one more time. I'm a big fan of meditation. and you tweeted that actually in meditation, the Lord God or something. I forget you said the Lord gave you a message to sell your soul for Eath. So I'm just curious to hear about your meditation practice. Like, you know, what kind of meditation do you practice? Why do you do it?

Starting point is 00:48:33 Just tell us about it. So in the morning, I have a problem where I have very, very tight hips. So I have a whole sequence of poses that I do every day in the morning to help me get better that, especially since I ski, and I'm in the ski season, I ski every day of the week for like four to five hours a day. So it's very important that I stretch every morning. And so, you know, I'll be sitting there on my block, just letting thoughts comes through my mind, whatever it may be. I'm not trying to control what it is. I definitely am not at the point where I have like a blank mind and nothing is happening. I'm just, you know, sitting as an observer to whatever things that

Starting point is 00:49:08 want to pop into my consciousness at the time. And, you know, sometimes a trade I'll come into my mind. I'm like, oh, okay, yeah, I had this idea I'm going to, you know, get out of soul near $100, and then it got near $100. And so what do I do? Well, do I ignore that signal of what I said I was going to do or do I not, right? And depending on how you feel, then you'll change your mind or you won't change your mind, but it's these thoughts that comes through your head without sort of an active engagement that sort of will give you ideas about certain things.

Starting point is 00:49:37 So I like the practice. It's very good. You know, you put down your phone. You're able to, like, switch off for an hour, move your body. and, you know, the things come in your head. So it's, so it's it, is it like a spiritual thing or just a moment of quite? A health thing, yeah. Okay.

Starting point is 00:49:54 Okay. Well, you know, I agree that that's something really sacred in the day and super helpful. Anyway, Arthur, it's, you know, a pleasure, as always. Thank you so much for coming on Unchained. Awesome. Thank you. Thanks so much for joining us today. To learn more about Arthur and Mailstrom, check out the show notes for this episode.

Starting point is 00:50:14 Thanks for listening. Ontario.ca. Defi just got way easier with Valkraft, your no-code toolkit for building, deploying, and monetizing automated yield strategies in a few clicks. Forget spending months of R&D and capital when you can instantly launch your crypto fund with Valkraft on any EVM chain. From wallets and institutional service providers to non-DFID gens, anyone can use Valkraft to supercharge their crypto.

Starting point is 00:51:12 Join Valkraft's referral program. unite with the community, and supercharge your crypto. Details on vaultcraft.io. Welcome to this week's Crypto Roundup. In today's recap, we delve into the U.S. courts ruling against terror form labs, Barry Silbert stepping down from Grayscale's board, and the Salinas surge. We also cover India's action against offshore exchanges, the SEC's admission in a fraud case, and more. Thanks for tuning into the weekly news recap. I'm Megan Christensen, our producer here and unchanged. In a significant legal ruling, a U.S. court sided with the Securities and Exchange Commission against Terraform Labs and its CEO, Doquant. The court found Terraform Labs guilty of offering and

Starting point is 00:51:57 selling unregistered securities, specifically Luna and Muir tokens, violating the Securities Act. However, the court granted summary judgment for the defendants on certain claims related to security-based swaps. The decision comes amid allegations of a multi-billion dollar fraud by Terraform Labs, involving misrepresentations and untruths in their cryptocurrency offerings. The case is set to go to trial on January 29, 24. And Silbert exits Grayscale board amid regulatory tensions. This week, Barry Silbert, CEO of Digital Currency Group, made headlines by stepping down from the board of Grayscale, DCG's high-profile crypto-acid management firm, an issuer of the Grayscale Bitcoin Trust. This decision arrives amid a backdrop

Starting point is 00:52:43 of intense scrutiny, but DCG facing unresolved allegations that some have compared to the infamous Enron scandal. Though the claims are yet to be proven in court, the submitted evidence has raised significant concerns. Ram Alawalia, CEO of Alternative Investment Advisor, Lumida, commented on the issue, suggesting that Silbert's departure might be geared towards bolstering grayscale's prospects for an ETF approval. Al-Wallia noted, quote, there is resignation. was Sondenshine's X-Miss Gift, end quote, referring to Grayscale CEO Michael Sonnenshine. This shift in leadership is perceived as a potential move to grant Grayscale more independence amid the ongoing investigations by the SEC into DCG under Silbert's leadership.

Starting point is 00:53:31 Mount Gawks commences repayments with double reimbursement reports. The long-standing Mount Gawks saga took a new turn as the defunct exchange reportedly began reimbursing its creditors. notably, some payments were made through PayPal, marking a crucial step in resolving a case that has lingered since the platform's infamous collapse in 2014. However, in an unexpected twist, reports emerged from predators claiming they received double reimbursements from the Mount Gauks trustee. This surprising development adds a layer of complexity to the ongoing repayment process,

Starting point is 00:54:05 which aims to address the financial losses incurred by thousands of users following the exchange's failure. and Solana surges amid mobile setbacks expands stable coin reach. In what can be seen as a Christmas present for Solana believers, Seoul surpassed the $100 mark for the first time since April 2022, reaching a high of $123 on Monday. The surge reflects growing investor confidence and marks a notable recovery for the platform, which had previously faced several challenges, including multiple network outages and the collapse of major supporter FTX.

Starting point is 00:54:38 Even though Seoul is still 60% down from its all-time high, the token is up over 900% over the past year. Simultaneously, Solana Mobile encountered a hurdle, unable to fulfill all the orders for its crypto-integrated Android phone due to inventory management issues. The phone went through buying mania due to the possibility of receiving air drops of valuable meme coin bonk. In another development, Paxos announced plans to bring stable coin issuance to the Salada network, diversifying beyond its Ethereum-based operations. Ethereum Layer 2, token soar. This week, Optimism, a leading Ethereum-scaling solution, saw its governance token, OP, reached an all-time high of $4.12, although it's now trading at $380. This marks a significant year-over-year growth of over 330%. As a layer 2 blockchain,

Starting point is 00:55:34 optimism plays a crucial role in enhancing Ethereum's efficiency, with 5.65.5,000, billion dollars locked in smart contracts. Other major L2 solutions on Ethereum, such as Arbitrum, and Polygon, also saw their token surge in value, with Arb and Madik rising 35 and 30 percent, respectively over the last seven days. Simultaneously, Ethereum co-founder, Fatalic Buterin, proposed methods to simplify Ethereum's proof-of-stake mechanism. This includes maintaining 8,192 signatures per slot to reduce systematic complexity, ensuring easier participation in staking and bolstering network security. These proposals are part of Ethereum's ongoing efforts to enhance scalability and accessibility.

Starting point is 00:56:18 AirDrop Hunters and Staking Protocols Fuel Market Buzz. Over the past few weeks, we've seen an aggressive pursuit of new opportunities by AirDrop Hunters, as well as the impressive performance of liquid staking protocols. In a striking display of enthusiasm, Airdrop Hunters have already invested over $400 million into Manta's network Ethereum Layer 2 blockchain Manta Pacific, eagerly anticipating the distribution of a new token. In parallel, the recently announced Blast Network has already amassed an astonishing $1.1 billion in deposits, a significant achievement considering it's more than a month away from going live. Additionally, December saw Swell's liquid staking protocol attract over $125 million

Starting point is 00:57:03 in inflows. Simultaneously. this week, Egenlayer, a restaking protocol on Ethereum, crossed the $1 billion mark in total value locked. Scams, hacks, and rugpoles got away with $2 billion in 2023. A report by Security App DeFi claimed that crypto users lost nearly $2 billion to scams, hacks, and rugpoles in 2023, a figure roughly half of the previous year's losses. Ethereum experienced the brunt of the losses, with the best of the best of the best of the money. about $1.35 billion loss in 170 incidents, while the B&B chain and other networks suffered significant

Starting point is 00:57:43 exploits. Researchers of DFI attributed the reduction in losses this year to improve security protocols and increase market awareness. In one recent incident, Lovana, a perpetual swap protocol on the osmosis blockchain, fell victim to an exploit, resulting in a loss of over $1.1 million from its liquidity pools. The exploit took advantage of a congestion attack on the osmosis chain and vulnerabilities in Levana's systems. Also this week, Telecoin, a financial application developer on the Polygon blockchain, suffered an exploit leading to a 40% drop in its token price. This incident caused a drain of over $1.2 million from affected accounts. Telecoin identified the root cause as an issue with the proxy implementation of its wallet and polygon, affecting primarily

Starting point is 00:58:30 wallets that have never initiated transactions. In Hong Kong, advances crypto regulation was stated Tablecoin licensing proposals. This week, Hong Kong's financial regulators, including the Hong Kong Monetary Authority and the Financial Services and Treasury Bureau, proposed a mandatory licensing regime for Fiat-backed stablecoin issuers. The move aims to supervise stablecoin operations and guide prospective issuers in compliance. The proposal aligns with Hong Kong's ambition to become a regional crypto hub, having already recognized retail crypto trading as a regulated activity since June. Last week, Hong Kong also outlined the requirements for spot Bitcoin ETFs. Eddie U, head of the HKMA commented on the potential of stablecoins to serve as an interface

Starting point is 00:59:16 between traditional finance and crypto, suggesting further integration and emphasizing the importance of stability and digital payments. India targets offshore crypto exchanges with compliance notices. India's Financial Intelligence Unit issued compliance notices to nine prominent offshore crypto exchanges under the Prevention of Money Laundering Act. The targeted exchanges, including Binance, Ku Koukoyne, Kubei, Krakken, and others are accused of operating illegally in India without adhering to the PMLA provisions. The Indian government is also initiating steps to block the URLs of these entities. The action follows India's March mandate, requiring crypto businesses to register with the FIU and comply with anti-money laundering and counterterrorism

Starting point is 01:00:04 financing regulations. Despite the mandate, several offshore exchanges catering to Indian users reportedly have not registered, prompting this latest decisive action by the FIU. Donald Trump linked wallet sells for 2.4 million, ETH. A portfolio believed to be linked to former President Donald Trump reportedly sold off approximately 1,075 ETH, valued at around 2.4 million. According to Arkham Intelligence, this sell-off followed a period of the portfolio accumulating Ethereum through Trump-N-FT royalties, with the peak balance reaching $4 million. Arkham, which has been monitoring the specific blockchain data for months, initially identified these assets back in August based on financial disclosures filed by Trump.

Starting point is 01:00:50 SEC admits to missteps in crypto-fraud case against Debt Box. The SEC admitted to serious errors in its case. against crypto firm Debt Box. The SEC expressed, quote, deep regret, end quote, that inferences were represented as facts when it sought emergency measures, such as acid freezes, but argued that it didn't act in bad faith. Despite these admissions, the SEC has urged the court to not impose sanctions against it. The case involves Debt Box, allegedly defrauding investors of $49 million by misrepresenting investments. The SEC's response, includes mandatory training for its staff on accuracy.

Starting point is 01:01:33 And that's all. Thanks so much for joining us today. Unchained is produced by Laura Shin, with help from Kevin Fuchs, Matt Pilchard, Juan Aronovich, Megan Gavis, Nelson Wang, Shashank, and Margaret Korea. The weekly recap is written by Juan Aronovich and edited by Nelson Wang. Thanks for listening. Unchained is now a part of the Coin Desk Podcast Network. For the latest in digital assets, check. Look out markets daily seven days a week with new host, Noel Atchison. Follow the Coindesk

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Unchained - Arthur Hayes on Why Bitcoin Is Money and ETH Is a Shitcoin He Loves - Ep. 587

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