Dialogue Arthur Hayes: BTC will reach $100,000, and BTC should not fall into the situation of Ethereum

Guest: Arthur Hayes, Co-founder & former CEO of BitMEX

Host: Nic Puckrin, CEO of Coin Bureau

Compiled by: Deep Tide TechFlow

Key Takeaways

• In this episode of the podcast, Nic Puckrin once again invites seasoned expert Arthur Hayes from the cryptocurrency field to discuss current market dynamics and future investment opportunities. As the co-founder and former CEO of BitMEX, Arthur has profound and unique insights into the crypto market. He analyzes the impact of yen fluctuations on the market and the role of the U.S. Treasury in the political environment.

• During the show, Arthur elaborates on the impact of unwinding yen arbitrage trades on cryptocurrencies and predicts the price trends of Bitcoin and Ethereum. He also discusses how the upcoming U.S. elections may affect financial markets, emphasizing the importance of political factors in economic decision-making. Additionally, Arthur shares his views on Aptos and Solana, analyzing their potential in the Web 3.0 space.

• At the end of the show, Arthur offers predictions for the future market and discusses the development prospects of Bitcoin L2 (Layer 2 solutions). He calls for investors in the crypto industry to engage more actively in politics to ensure their interests are reflected in policy-making.

What’s Happening Now

• Nic Puckrin raises the current chaotic state of the market, particularly the fluctuations of the yen, the unwinding of arbitrage trades, and market concerns about recession. He reminds listeners to consult financial advisors when discussing investments.

• Arthur emphasizes that the movement of the yen is the most critical factor in the current market and mentions that he has previously written papers on the Japanese economy.

Japanese Economy and Monetary Policy

• Arthur explains the impact of the U.S. Treasury's quarterly refinancing announcements on market liquidity. He points out that due to tax revenues, the Treasury reduced the issuance of short-term government bonds in the second quarter, leading to a decline in market liquidity, which in turn affected the performance of cryptocurrencies. He believes that as the Treasury reissues government bonds in the second half of the year, market liquidity will gradually improve.

Unwinding Yen Arbitrage Trades

• Arthur provides a detailed analysis of how yen arbitrage trades operate, noting that the Bank of Japan (BOJ) supports this massive arbitrage trade by creating yen. This trade has reached a scale of $25 trillion, becoming one of the most significant trades globally. As the yen depreciates and inflation rises, public dissatisfaction with the government in Japan has intensified, forcing the BOJ to take measures to gradually normalize monetary policy.

Future Outlook

• Arthur believes that the unwinding of yen arbitrage trades is a structural process that is expected to continue. He holds a cautious view on the BOJ's future policies, believing they will not easily return to a negative interest rate environment. He also mentions that U.S. Treasury Secretary Yellen and Federal Reserve Chairman Powell may help the BOJ transition smoothly by printing money to mitigate market shocks.

Is the Treasury Involved in Politics?

The Political Nature of the Treasury

• In discussing the role of the Treasury, Nic mentions the influence of Treasury Secretary Yellen and her role in the upcoming U.S. elections.

• Arthur states that the Treasury has always been a political entity, but the current political climate makes its market operations before key election dates more apparent. He firmly believes that Yellen will do everything possible to support Vice President Harris's re-election chances.

Monetary Policy and Elections

• Arthur believes that the Treasury and the Federal Reserve may utilize already approved liquidity swap programs to provide dollars to the Bank of Japan (BOJ) to help maintain market stability. He describes a possible operation where the Treasury would repurchase U.S. government bonds and stocks at prices that do not affect the market, then provide dollars to banks and businesses, encouraging them not to sell these assets in the market.

Future Outlook

• Arthur points out that this operation could allow the yen to gradually appreciate without truly unwinding arbitrage trades while continuing to drive up the U.S. market, thus creating favorable conditions for the Democrats to win elections. He believes this strategy could stabilize the market and benefit the political landscape.

Cryptocurrencies and Yen Arbitrage Trades

The Relationship Between Yen Arbitrage Trades and Cryptocurrencies

• Arthur confirms that some funds and cryptocurrency investors indeed borrow yen to invest in cryptocurrencies, which is a common practice. He notes that many traditional hedge funds seek the lowest cost of capital, and if risk management allows, they will borrow yen and use those funds to purchase Bitcoin and other crypto assets.

Cryptocurrencies as Investment Assets

• Arthur mentions that with the influx of yen borrowing, liquidity in the cryptocurrency ecosystem has increased. He also notes that the price of Bitcoin denominated in yen has risen in recent days, indicating that this trading strategy is effective. If the BOJ continues to maintain a zero interest rate, borrowing yen to invest in Bitcoin will be a very attractive trade.

Market Liquidity and Risk Management

• Arthur further explains that during large-scale de-risking across the financial ecosystem, investors often sell more liquid assets, such as cryptocurrencies, rather than those with lower liquidity (like commercial real estate). He emphasizes that the liquidity of cryptocurrencies makes them the preferred asset for investors during market turmoil.

Ethereum's Liquidity Issues

• Nic mentions the recent redemption situation with Ethereum and asks whether it is related to the unwinding of yen arbitrage trades.

• Arthur believes this may indeed be related to some large traders exiting the market, especially in the current market environment, where many investors may choose to reduce their risk exposure, leading to liquidity changes.

Altcoins, Bitcoin, and Elections

Seasonality of the Crypto Market and Bitcoin's Performance

• When discussing the "bull market" in the crypto market, Nic raises the question of whether Bitcoin will return to its all-time high before the end of the year.

• Arthur believes it all depends on market conditions. He states that if the U.S. stock market falls more than 20%, it will attract significant attention from authorities, especially Treasury Secretary Yellen, as it may impact the upcoming elections.

The Stock Market's Impact on Voters

• Arthur points out that wealthy baby boomer voters play an important role in elections. If they experience significant losses in their stock investments, it may affect their voting behavior. He emphasizes that if a financial crisis occurs during the election period, voters may become dissatisfied with the incumbent government or even choose not to vote, which poses a potential risk for the Democrats.

Government Revenue and Capital Gains Tax

• Arthur also mentions that the U.S. government heavily relies on capital gains tax to support its fiscal revenue, especially in states like California, where the performance of tech stocks directly impacts the state's financial situation. Therefore, if a stock market decline leads to reduced capital gains tax revenue, the government's fiscal deficit will widen, forcing authorities to take action to stabilize the market.

Future Market Reactions

• Arthur predicts that if the S&P and Nasdaq indices drop 20% by Friday and the market experiences volatility over the weekend, some measures may be taken during the weekend. If the market crisis gradually eases in the short term without significant changes, it may take one to two months to wait for the fall market to regain confidence. As elections approach, the government may take more proactive measures to ensure that wealthy voters are satisfied with the market, thus influencing election outcomes.

The Relationship Between Cryptocurrencies and Politics

The Politicization of Cryptocurrencies

• Nic mentions that cryptocurrencies are becoming increasingly important in the political landscape of the U.S., even becoming a key factor in voter decisions. He cites Arthur's article, which describes a scene he witnessed at a party in Ibiza, drawing a parallel between how politicians seek crypto votes and how girls at the party attract attention.

Interaction Between Political Candidates and the Crypto Industry

• Arthur believes that if the market has overly high expectations for a candidate's victory, it could pose risks. He mentions that Trump performed exceptionally well in the debates, increasing his chances of winning voters. However, with Biden being replaced by Harris, Trump's chances may decline, which could affect confidence in the crypto market.

Strategies for the Crypto Industry

• Arthur points out that regardless of whether the Democrats or Republicans win, they will ultimately take measures to support their voters. However, the crypto industry should more actively demand political candidates to take action rather than waiting for them to fulfill promises after the elections. He suggests that crypto industry voters should require candidates to take specific actions before the election to gain their support, rather than hoping for them to act after being elected.

Views on the Future

• Arthur emphasizes that voters in the crypto industry need to clearly express their needs and leverage this in elections to influence candidates' policies. By doing so, the crypto industry can gain a more significant voice in politics, ensuring their interests are reflected in policy-making.

Cryptocurrencies to Watch and Their Narratives

Optimism for the Ordinals Project

• Arthur mentions his recently launched "Airheads" project and expresses a very optimistic view on Ordinals. He believes that as the Bitcoin market recovers, Bitcoin holders will become wealthier and seek digital assets that reflect cultural value. He emphasizes that ordinals, as Bitcoin's native digital artifacts, are fundamentally different from traditional NFTs, giving them unique appeal in the market.

Current Market Opportunities

• Arthur points out that the current low market sentiment is an excellent time to build unique art collections. He encourages investors to seek original artworks that resonate with them and use this opportunity to showcase the potential of ordinal technology.

Focus on Exchange Tokens

• When discussing tradable altcoins, Arthur mentions some undervalued protocols that can provide real returns for traders. He does not specify the projects but emphasizes the importance of looking for protocols that can offer stable or other cryptocurrency returns. He notes that many projects' valuations do not reflect their actual value, especially during a general market sell-off.

The Potential of Aptos

• Arthur also mentions his role as an advisor for Aptos and expresses optimism about the project's collaboration with traditional financial institutions. He believes that Aptos's applications in the Web 3.0 space will drive its growth and predicts significant market position changes for Aptos in the next two to three years.

Future Outlook

• Arthur states that he and his team are writing a comprehensive model detailing Aptos's potential and its collaboration with large financial institutions. He will share more information at the conference in Korea in September, looking forward to revealing more during the events between Korea and Singapore.

Aptos vs. Solana

Technology and Market Acceptance

• In discussing Aptos and Solana, Arthur emphasizes that while both use the Move programming language, he believes that technology itself is not the key factor. He points out that what ultimately determines the success of a cryptocurrency is the actual usage and demand from users, rather than technical metrics (such as transactions per second). He believes that financial institutions, when transitioning to Web 3.0, focus on how to operate on public blockchains rather than technical details.

Market Positioning of Aptos

• Arthur mentions that the Aptos team actively collaborates with traditional financial institutions to provide solutions so that these institutions can smoothly transition to on-chain operations. He believes that this collaboration will drive the growth of Aptos's transaction volume and network fees. He emphasizes that while technology may influence the decision-making process, ordinary traders should focus on the relationships with these financial institutions and how they utilize the platform.

Competition with Ethereum

• When discussing the competition between Aptos and Ethereum, Arthur points out that while Ethereum dominates the market in the issuance of RWA (real-world assets), financial institutions primarily look at the required functionalities when choosing a blockchain. For example, how KYC (Know Your Customer) operates on-chain may influence institutional choices. If Aptos can provide a better user experience in certain aspects, institutions may be more inclined to choose Aptos.

Areas to Avoid in Crypto

Avoiding Leverage Trading

• When discussing what to avoid in crypto investments, Arthur first emphasizes the risks of leverage trading. He points out that unless investors can monitor the market continuously and manage their positions at all times, they should not use leverage. Many investors may suffer significant losses during market volatility, especially if they fail to monitor their positions in a timely manner. He warns that short-term market fluctuations do not necessarily indicate a decline in a project's long-term value.

Mindset for Investment Decisions

• Arthur mentions that when facing losses, investors should consider whether to redirect their funds into more promising projects rather than simply waiting to break even. He believes that holding underperforming assets may lead to opportunity cost losses. For instance, if an investor incurs losses on one project but there are other projects that may surge in the coming months, timely portfolio adjustments may be a wiser choice.

Paying Attention to Token Issuance Timing and Market Performance

• Arthur points out that investors should pay attention to the timing of token issuance and market performance, rather than just the industry or narrative they belong to. He states that many tokens are issued at high market capitalizations but lack user bases and growth potential, which will challenge them during market recoveries. He advises investors to focus on new projects that may perform better in the current market environment, even if they have underperformed in past market cycles.

Avoiding Overvalued Projects

• Arthur specifically mentions that projects that reached overvalued levels during the 2021 cycle, if currently lacking corresponding users and growth indicators, may face significant risks. Investors in these projects should consider gradually exiting and reallocating funds into better-performing emerging projects.

Predictions

Bitcoin Price Prediction

• When discussing the future of Bitcoin, Arthur provides a rough target price, predicting that Bitcoin will reach $100,000. He mentions that the price may fluctuate within each $5,000 range and emphasizes that market changes may be influenced by various factors, including economic conditions and policy changes.

Political and Economic Impact

• Arthur notes that the current political situation in the U.S. may affect the market, especially in the upcoming elections. He believes that Vice President Harris is a slight favorite candidate, but if a financial crisis occurs before the elections, Trump's chances will increase. He emphasizes that market performance (such as the S&P 500 index) and economic indicators (such as oil prices) will be important references for judging election outcomes.

Supporting the Bitcoin Ecosystem

• Arthur discusses his support for Bitcoin and explains his involvement in the "Maelstrom" open-source funding initiative. He states that Bitcoin's success is directly related to his wealth, so he hopes to enhance the Bitcoin ecosystem by funding research and projects. He believes that investing in Bitcoin's future is the responsibility of every holder to prevent large financial institutions (like Blackstone and Vanguard) from controlling Bitcoin's dominance.

How to Participate in the Funding Initiative

• Arthur provides information on how to participate in the Maelstrom funding initiative. He mentions that interested individuals can apply for funding through the official website, and all proposals will be evaluated by Jonathan Beer, with notifications to grantees around September. He encourages everyone to participate actively to promote further development of Bitcoin.

Bitcoin L2

The Potential of Bitcoin L2

• When discussing the sustainability of Bitcoin, Arthur expresses optimism about the development of Bitcoin L2 (Layer 2 solutions). He believes that L2 technology will bring more value to Bitcoin, especially as miner rewards gradually decrease and transaction fees need to be balanced.

• Arthur mentions that he is serving as an advisor for an L2 project called Mezzo and believes that these technologies will enable smart contracts and decentralized finance (DeFi) on Bitcoin.

Security and Usability

• Arthur emphasizes that while some core developers are cautious about L2 solutions, he believes that security is the top priority for the network. He points out that although some criticize Ordinals as garbage and spam on the blockchain, this "garbage" actually pays transaction fees, thus supporting the network's operation. He believes similar methods should be created to allow DeFi applications to exist on-chain and pay fees for their usage.

Avoiding the Fate of Ethereum

• Arthur warns that Bitcoin should not fall into the same trap as Ethereum. He mentions that Ethereum sacrificed its monetary attributes by hard-forking to save the project during the 2016 DAO hack incident. He believes that Ethereum's positioning is decentralized computing rather than currency, and this contradiction poses challenges for its development.