Market Correction Nearing ‘Exhausting Point (Uncut) 03-03-2025

Market Correction Nearing ‘Exhausting Point’: Arthur Hayes On $1 Million Bitcoin Path

Trump and every other major political force around the world is preaching localism, nationalism, my country first. We’re going to, we’re not going to rely on a global supply chain of products that is inflationary. So they’re going to have to print the money because they don’t have any of it.

That’s how we get to a million dollar Bitcoin. It’s, let’s increase the bank lending so that they build the new factories. Let’s sequester savings and do yield curve control to fix the government buys while we inflate the supply of credit.

This is on the horizon before the end of the decade. The largest crypto hack of all time happened last week on the 21st of February, crypto exchange Bybit was hacked up to $1.5 billion in crypto was stolen. The hack occurred as the company was making a routine transfer ether from a cold to a hot wallet.

The price of ether dropped about 4% immediately after the incident. My next guest argues that to negate the Bybit hack, the Ethereum network should be rolled back. We’ll be discussing this and the outlook for not just ETH and Bitcoin, but the entire crypto industry with our next guest, Arthur Hayes, CIO and co-founder of Maelstrom, early stage investment funds, and also the co-founder of BitMEX, a major crypto exchange and derivative platform.

BitMEX hit the $1 trillion annual trading volume in 2021. And he’s also the inventor and early adopter of a perpetual swap instrument. So thank you for the opportunity to come on the show and educate us, Arthur.

Good to have you. Thanks for having me. Let’s start by talking about what happened.

This is your tweet, Arthur. You’ve been making rounds on the internet following the Bybit exchange hack. Vitalik Buterin, will you advocate to roll back the chain to help Bybit officials? First of all, has Vitalik gotten back to you, Arthur? I don’t believe so.

That was, as you see, almost a thousand replies. So when I’m on the toilet, I look at my Twitter replies just to have a laugh. And I didn’t really see any response from Vitalik, nor did I expect one.

All right. Well, tell us about the logic behind this tweet. So why do you think the ETH network should be rolled back? So I’m half joking, but not really.

And obviously, I’ve been around in crypto since 2013. And I remember quite vividly back in 2016, I think it was, when the DAO hack happened. I was on a plane back from Shanghai, and I get a ping from another exchange owner.

I said, hey, can you hop on this chat? We’re all talking about the ETH rollback due to the DAO incident. And so there was this like, I don’t know what platform it was on, but all the major exchange owners were all in there, and Vitalik’s in there, and he’s trying to argue like why we need to stop trading, and I’ll do all these things because a smart contract on their network. And obviously, as we know, eventually, they roll it back, and there’s a bit of nuance in terms of exactly how that was done, soft, hard fork, whatever, it doesn’t really matter.

And at the end of the day, it kind of invalidated this notion that ETH is immutable money. And I don’t think there’s a problem with that. But a lot of ETH people like to claim Ethereum is both money and a decentralized compute network.

And I was just poking fun at the community a bit like, hey, guys, look, there is this large hack that happened, largest financial heist of all time, I think it was, on Bybit. Obviously, the percentage of networking ETH, it was much smaller than the DAO hack was back in 2016, but obviously, it’s a large amount of money. And just to sort of put that idea in people’s heads about the slippery slope of sort of advocating for these things, I’ve asked Vitalik as he seemed to be stepping up more as a figurehead for the Ethereum community as the price has languished over the past 18 months.

What do you think about this? And sort of a jocular sort of marriage. Do I think they’re going to roll back the network? I don’t think so. But I think that the conversation, the opinions that you see on Twitter and from other luminaries in the field are quite instructive as to how the Ethereum community views what they are creating.

And then you can juxtapose that with some of the other major layer ones. And I think that most people don’t actually care about decentralization when it comes to these compute platforms. Otherwise, they wouldn’t use BNB or BASE or some of these other ones that are essentially just a centralized compute federated network from a centralized exchange.

And they’ve been quite successful because they know where they care about decentralization. They just want a faster and easier way to conduct finance over the internet versus going through a shitty bank. Yeah.

Well, let’s talk about the conversation that you’ve seen so far. What does the ETH and actually the larger crypto community think about this idea of a rollback? On the one hand, you’re right. Ethereum is supposed to be immutable.

So rolling that back would negate the immutability aspect. On the other hand, perhaps it would help the Bybit network, perhaps not. So where do you stand on this debate? Obviously, I don’t think they can roll it back.

But again, I think most people are in that camp. And you didn’t really see a big industry pushback of trying to pressure the Vitalik and Ethereum Foundation to use their social and political cloud in the ecosystem to do such a thing. And it’s obviously a lot more complicated today, given the amount of other second order DeFi applications that would be affected by such an action.

So again, it was more just a conversation started for good people to understand what exactly do you own? And how do other supposedly luminaries in the Ethereum ecosystem view what is Ethereum at a more philosophical level? And things like this challenge people’s thinking and it makes people think. And that’s all I really wanted to accomplish with that tweet. Yeah, that’s an excellent point.

What is Ethereum at a philosophical level? Because it involves not just Ethereum chain itself, it’s got layer twos, it’s got stable coins built on top of it, meme coins, it’s got bridges, host of other functions and smart applications. Is a rollback even feasible at this point, technically speaking? Oh, technically, of course, it’s feasible. Whether or not it causes irreparable harm to all the other parts of the ecosystem, that’s an open question.

I want to move on to Bitcoin now. So you had talked about, this is an article about you, Arthur Hayes predicts 100k Bitcoin by the end of the year. So that was the right call.

And you also talked about what’s next. 2025 could see a million dollars. Is that still in the cards? He says your former BitMEX co-founder expects the LN to inject at least $301 billion and a maximum of 1.05 trillion between now and year end.

Can you just comment on what you said here and how that’s going to… When did I write this? What was the date on that article? This was August 14th, 2024. Okay. So again, I think if, and this is probably heretical to a lot of Bitcoin people, especially those in America.

If the Democrats had won the election, yes, they probably would have kept shitting on crypto companies. And that’s obviously not good for a lot of people in the United States. However, they will continue printing a lot more money faster than what Donald Trump and the Republicans are doing.

I don’t think we’re going to end up in the same place. But if you take what the Department of Government Efficiency, Elon Musk, and the Medec Doge department advisory thing is doing, looking at all the ridiculous things that government agencies are spending, there’s obviously a large amount of fraud embedded in the spending patterns of the US government and that was turbocharged after the COVID debacle. And you can see that Democrats, at least in the United States, had no intention of reining that back.

If anything, they were going to go even harder at spending more and more money, printing money. And you had the treasury doing it, and you had the Federal Reserve enabling it as well. And so I believe, this is in August, and at that point, it was about a 50-50, at least in my mind, a coin tosses of who would win the election.

But the Democrats being the party in power, they could use a relevant government agencies to try to inject more liquidity, pump their markets, and get people feeling good on election days, and they would go and vote for the candidate Kamala Harris. I don’t know if Joe Biden was still in the race at that point. But in any event, I think we’ve obviously had sort of the Trump pump, and then the realization that the money is not going to be forthcoming as quickly as it would have been if it had been a Democrat in power.

Because not only would they have the treasury under their control, they would also have the Federal Reserve because Jerome Powell and some of the Fed governors have been very vocal about their distaste for Donald Trump. And now all of a sudden, Jerome Powell has found his hawkish inflation fighting credentials when he was cutting rates in September of 2024 for the election when the US economy was doing just fine and inflation was bottoming, if not reaccelerating. So I think it’s a very curious stance that the federal chairman has now all of a sudden because Donald Trump is in office.

All that is to say that I think the Democrats would have printed more money faster, and the Bitcoin price would be higher than it is today if Kamala Harris is in office. So just to sum up, if I understand it correctly, are you suggesting, Arthur, and correct me if I’m wrong, that ironically, even though Trump’s more pro-crypto policies could be bullish long-term, his pro-growth stance may put a pause with Fed easing, and so therefore liquidity is not injected as quickly, and therefore we’re not going to get a bull market as quickly? Correct. Interesting.

Well, this week’s been bad for risk assets, Bitcoin included. It’s now below 90,000. It’s now around 85,000 as we speak.

And it’s just got a lot of people in the Bitcoin community worried. Are we looking at a further decline right now? Is it just following the stock market at this point, or are there other narratives pushing Bitcoin around? So I think Bitcoin is leading the stock market. Obviously, just had Nvidia earnings a few hours ago.

They were good. We’ll see if the market wanted more out of them in terms of what they were expecting in terms of growth and margins and revenue and all that kind of stuff. But at the end of the day, I think Bitcoin leads the stock market.

And so what Bitcoin is telling us is, hey, the US government is not printing as much money as we thought they would when Trump got in office. The treasury general account has not declined that materially yet. Obviously, there’s a debt ceiling dynamics.

It’s an open question whether Donald Trump can get his first spending bill passed. I know it’s passed the preliminary house committee, and now we’ll have to go for a vote in the House and the Senate. And it’ll be interesting to see if the recalculated Republicans would like to claim that they care about fiscal responsibility, pipe up and sort of torpedo this bill, and then Donald Trump can’t spend any money.

So you have Elon Musk and Doge funding all the fraud in the US government spending. How big that is, we don’t know. It could be as high as $1 or $2 trillion.

It could be low as $200 billion. Again, if that money is basically not spent, that’s cash that’s not getting into the hands of people in the American economy, whether they deserve it or not is not the point. They buy stuff with it, whether it’s financial assets, whether it’s a new car, a washing machine, go on a vacation, whatever.

They spend money, there’s a money multiplier on it. And that money, if it’s not being spent, then that reduces liquidity and Bitcoin will suffer, and so will the stock market. I know your listeners and viewers are quite attuned to the geopolitics and economics.

The US government is about 25% of nominal GDP in the United States. So the outperformance of the US economy over the past two to three years is primarily predicated on the US government spending money. And so if the US government is not going to spend as much money, because either Donald Trump cannot because he can’t get a spending bill passed, or Elon is cutting waste out of the government and not replacing it with new spending, then that’s negatively impact risk assets, negatively impact US GDP.

And therefore, I think Bitcoin is telling us that there is a severe stock market correction on the horizon, unless, of course, that spending re-accelerates. So that’s sort of where I’m at in this sort of mindset. And we’re at $85,000, could we go to $75,000? Possibly, but I think we’re nearing sort of the exhaustion point of this corrective pattern before we sort of go sideways for a bit and go higher.

An interesting development happened a couple of weeks ago, actually about a month ago, Arthur, which is DeepSeek kind of spooked the US tech market. A big sell off in the NASDAQ following the release of DeepSeek that week. And as you know, Bitcoin actually went down alongside the rest of the stock market.

Could you see kind of side events, if you want to call it, things that have nothing to do with crypto actually draining liquidity and risk assets and thus pulling down crypto? Is that a risk for you? I mean, who knows? At the end of the day, it’s… Again, I guess look at the liquidity at the end of the day, that’s my sort of North Star. And China’s not printing money because they’re sort of holding back their bazooka to see what sort of trade agreement they come to with the US. The BOJ said they’re going to start tapering purchases of bonds.

We’ll see if that’s actually the case. But Dow again is strengthening, which is liquidity negatives globally. And then you have the United States as sort of like a way to see the Fed is antagonistic towards Trump.

So they’re not going to help them out by lowering the price of money or increasing the quantity. And then you have sort of this spending, whether he’s going to get a best spending bill passed or whether Elon is going to cut enough money out of the government budget and they’re not going to replace it with new spending. Mm-hmm.

Okay. I want to talk about your $1 million outlook now that Trump is in office, the Democrats aren’t. What could potentially take Bitcoin 10X to $1 million, which is the next big round number that people are looking forward to? So at the end of the day, Trump and every other major political force around the world is preaching localism, nationalism, my country first.

We’re not going to rely on a global supply chain of products because pandemic happened or we’re in a fight with the other side. Therefore, we need to build things locally. And obviously everyone replicates the same productive capacity that is inflationary.

And it requires a lot of money because everyone essentially outsourced their productive capacity to China, which is extremely efficient at it. But now I’m going to rebuild it in my more expensive, less populated country, mostly in the United States and Western Europe. So this requires a huge amount of capital and the private savings market doesn’t have the money.

It’s all the foreigners who have the money. And the foreigners, China, Japan, Saudi Arabia, oil exporters, obviously don’t want to basically fund people that hate them or consider them strategic competitors or whatever euphemism you want to call it to rebuild their infrastructure. So that savings is not going to be provided to the US and Western Europe.

So they’re going to have to print the money because they don’t have any of it, the private savers. And so I think circularly, regardless of who is in an office, this move towards my own supply chain, my own production in my own country, my own sphere influence and sort of trading market is going to lead to money printing. And so that’s how we get to a million dollar Bitcoin.

Let’s increase the bank lending so that they build the new factories. Let’s sequester savings and deal curve control, whether outright or surreptitiously to fix the yield of government bonds while we inflate the supply of credit. So that’s how we get to a million dollar Bitcoin.

How fast we get there, I don’t know, but I do think that this is on the horizon before the end of the decade. In that scenario that you just described, Arthur, that particular scenario, what happens to the rest of the crypto markets? Will the altcoins follow or will Bitcoin dominance just skyrocket? I think the altcoins will follow, I think, but investors are getting a lot more specific about what they are investing in. We had different cycles of applications on these decentralized networks or these app chains.

And so we want to see user growth. We want to see revenue. We want to see tokenomics that benefit us as the token relative to early investors.

And so every single cycle we get a little bit more specific. And obviously only the best in class application accrues value. And it’s much harder for just your random shitcoin to 100x just because it has the right buzzword in the name.

So again, it’s going to require much more effort on the part of investors to choose an application that actually has real fundamentals. It’s not just going to be, oh, I guess you sprayed a bunch of money and guess what? My worst performing token was only up 10x, best one was up 1000x. I guess that was 2017, 2020.

That’s not happening again. What’s Maelstrom looking at right now? Let’s talk about Maelstrom. Speaking of other projects, what opportunities in the crypto space kind of trends are you following right now? So right now I think we’ve slowed down investing a lot because valuations got quite expensive.

And we have very tight limits on what we will pay for a particular project to trigger their fully diluted valuation in the early stages. And obviously as the bull market happens, project founders are able to elucidate capital from other less rigorous funds. And so we don’t want to participate in that.

And so what we’ve been doing is basically using our liquid capital to trade things that are interesting to us. So right now I’m looking at things that, at least in the altcoin space, have a very high float relative to their total supplies. So not a big VC overhang, have paying clients, have billions of dollars of TVL and are trading below the price at which they were in before the Trump election.

So I think the Trump pump is going to get completely erased. We’re going to start a new one. We’re going to start asking questions.

Okay, what are the actual policies of the crypto of Trump? And how are they going to be mirrored around the world in other jurisdictions? What is the liquidity situation? Are they going to pass these bills? Are they going to spend the money that they claim they’re going to spend? How is China going to react? How is Japan going to react? How is Europe going to react? So we’re going to start being a little bit more rigorous in our thinking versus, oh, Trump’s getting elected, so everyone’s going to make money, right? That was November until early January of this year. We’re going to completely reset and then start asking the hard questions again. And so I want to be buying things that are at or below that November 4th-ish sort of price.

Any developing trends that you might see as good opportunities? I mean, Gamify, for example, was hot a couple of years ago. I don’t know if it still is. Are NFTs making a comeback? Are you looking at meme coins and Layer 1s that they’re being built on? Stuff like that.

Yes. I mean, meme coins, I think. I was looking at some statistics recently from PumpFun.

I think meme coins are going to be very subdued for a while. People have made a lot of money. Very few people made a lot of money.

Most people lost a lot of money, billions of dollars. And that obviously put a lot of volume on the Solana network. It’s going to be interesting to see if Solana’s fundamental transaction metrics can survive a dead meme coin market.

And obviously, that opens up the space for a lot of other Layer 1s, especially ones that are either on the path to a limit, become a higher float coin, or have already other coins out there in circulation. I’m not going to name any names right now because we’re still acquiring things. But I think that’s a thing that you want to look at as an investor, because I think that retail is done with these high FTV, low float coins, where they’re just getting dumped on by Silicon Valley VCs.

They’re done with that. So they want to see coins where the community is being brought along with the founders on a wealth generation journey. And I’m going to support that.

And it’s probably going to be cheaper in price and FTV level, and easier for it to TideX than the thing that launches at a $5 to $10 billion FTV. And then how do you TideX that? That’ll put you in the top two coin cryptocurrencies, which isn’t going to happen. So I think the quality of the project is kind of irrelevant.

It’s just the price is wrong on most of these things because of the internal dynamics and how they funded themselves from idea generation to token generation of it. Okay. Speaking of meme coins, I’m going to get your reaction to meme coins in politics.

So as you know, Xavier Millet, for example, was involved in a scandal with Libra. Let’s just take a listen to what he said. He was, he, he, he defended himself in this clip.

Take a listen. We’ll react together. I acted in good faith.

Somebody approaches me and proposes to create an instrument to fund projects in Argentina. That’s interesting to me. Now it’s true in wanting to help those Argentines.

I was slapped in the face, but did the state lose anything? Nothing. I just want to get reacting to that. He rugged his followers.

I mean, there’s more to cut. There’s some other great quotes in that interview. Whereas what is, uh, I, I didn’t promote it.

I just shared it. He said that in Spanish when he was talking about his, uh, his, the, what the tweets that he put out and then subsequently, uh, deleted. Now, again, he’s a president of a major country.

He’s a public figure. He didn’t get there by, you know, shuffling off responsibility for his public actions on, onto other people. Now, whether or not you, this is that illegal or not as a point, the point is that he was willing to help some outfit use the Argentinian people and the other economy to pump some coin.

And then when it turned out that it was a piece of shit, he sort of distances himself from it. Even though he wasn’t hacked, it would be different if he said, Oh, I got hacked. And these guys put this stuff on my Twitter profile and my Instagram.

No, I met these guys. I did no due diligence or they do enough due diligence as a president of Argentina, again, major economy. And I just parroted these things at all.

They up and a bunch of people lost billions of dollars and millions of dollars, whatever it is. Oh, it’s not my fault. I think that’s complete bullshit.

Now, whether or not the Argentinian people hold him to, to the fire for rugging them, that’s up to them at the end of the day. Do I think that this is invalidates my thesis on political meme coins being a, a force for change and how politics is funded? No, it just means that politicians are going to be accountable for their financial actions, right? If it was in, if this was some shady stock deal, we probably would never have found out about it, but it’s on the blockchain. It’s public.

We see it. And those who have the power to hold them accountable should do it. If they feel that you may run it.

Well, I mean, this begs the question, how is this fundamentally different than the Trump coin? I’m not saying Trump rugged his followers. I’m just saying it, you know, went down a lot after it went up. So, you know, is there a difference here? Yeah.

The price isn’t the thing it’s he put up a tweet and then it turned out that the project was, and then he didn’t, he unendorsed it because I guess it wasn’t really what he thought it was. He didn’t actually do any due diligence on the person who, you know, sold this idea. And then people invested in this or not invested, whatever you gambled, whatever you want to call on this meme coin.

And then he says, Oh no, no, sorry, guys. I didn’t do enough DD. I put this on my public profile.

There’s millions of people in the world and react to, um, don’t, you know, not, not my bad. It’s like saying, I’m going to launch a nuke at a country based on some, you know, evidence. And I just took it back down on Twitter.

Sorry guys. I, you know, I shouldn’t have said that press release, right? Come on, man. You’re the president of a country.

This is what you’re supposed to do. Get information from the bottom up. You’ve, you’ve, you’ve read it and then you make a policy decision.

So I think versus Trump, which is, I endorsed this, the price, I still endorse it. It’s not like he said, Oh, the price went down 80, 95%. Oh, I didn’t mean to do that.

That coin, that it wasn’t my own Trump. No, Trump stood by it for good or for bad, whatever you think. That’s my coin, right? That’s not what Millie did.

All right. Well, broadly speaking, then do you support the idea of politicians launching their own meme coin generalization? Of course, where do you stand on this? Yes. I think it’s a great thing because I think it’s transparency.

If L campaigns are funded by people using meme coins, then it’s a very transparent mechanism to know, okay, who’s the supply, all these sorts of things. It’s a transparent mechanism to say, okay, how are they funding their campaign? It’s a great engagement tool. If this is the way you’re going to fund your campaign by getting money from everyone around the world or in your particular jurisdiction to support you, because they think you’re going to become more popular in the future.

It’s much better than taking a shady deal in a back room from some large corporation or some lobbyists, which is how most things are done these days and campaign finance around the world. So it’s transparency. It doesn’t mean that people are going to make money.

No, it’s a market, right? It goes up, it goes down, based on your acumen in terms of a trader, but at least it’s transparent. Moving on to the Bitcoin Strategic Reserve, which is one of Trump’s, were on Trump’s wishlists, hasn’t been signed into an executive order yet, but you wrote about this issue on Medium. You wrote about this on the 6th of February, you published this article, it’s called The Genie.

I think you were referencing Trump as the genie. You said the genies are not good or bad, they just grant wishes. Why is this particular wish for your article not necessarily good for Bitcoin in the long term? Well, number one, the big point I make is what can be bought can be sold.

And if it’s in politics, politicians buy and sell things for political reasons, not for financial ones. It’s not like, maybe Trump’s sons own a bunch of Bitcoin and they’re going to make some money. But at the end of the day, if the United States government has like a $10 trillion unrealized P&L, it doesn’t really go into anyone’s pocket, but it can help you get reelected.

And so if I’m sitting on, so when I buy it, there’s somebody in charge when I buy it, and then the politicians change, maybe a Democrat gets in or a Democrat of Congress or president in the next four years, and they say, oh, I’ve got this, I got a bunch of Bitcoin and it’s worth money. And guess what? I need to give goodies out to the people who voted for me and to the corporations or whatever. However, I need to spend this money.

Politics is about spending money to your supporters and get votes. So I just sell it. So all of a sudden, what everyone thought was a great idea when they were buying becomes this sort of democracy, I can’t pronounce the fucking name, the Greek guy with the sword, over the market.

And you’re worried, oh, will they sell all this Bitcoin that they bought? So yeah, it’s a short term sort of price appreciation because they bought some Bitcoin, but long-term now you’re just afraid of when they’re going to sell it, how they’re going to sell it. And it’s just become a political nightmare you can’t really predict. And so I said, well, if you want sort of Bitcoin to be strategically important to the United States and its goal of, okay, keeping the dollar hegemony, well, instead of maybe you’re using gold or US treasuries as a reserve asset, how about we construct a system where Bitcoin is neutral reserve asset.

And then the trading currency is the US dollar. And that’s what I went into this post about explaining my idea about how they could construct this. And I think that would be a lot more long-term positive for Bitcoin because now you have people settling trade in Bitcoin, people saving their national surplus in Bitcoin and people using it as a currency for global trade, which obviously has much bigger bid on the price.

And we know that because look at the US treasuries, the amount of treasury debt has gone up, I think it’s something like 8% CAGR over the last 30 years or something insane. But people still buy it because you have to, you need to save in a dollar yielding instrument because of the way the system is constructed, which is allowed US to essentially print all this money and buy stuff from the rest of the world. Yeah.

Well, you did write that, let’s assume that Trump is able to create a Bitcoin strategic reserve, the government buys more 1 million Bitcoin as suggested by Loomis, boom, the price goes nuts. So you’re saying that the short-term result of a Bitcoin strategic reserve is still bullish for Bitcoin and it hasn’t been priced in yet fully? Correct. So they actually have to buy it.

It’s one thing to sit on the campaign trail, it’s another thing to buy a million Bitcoin. It’s not that difficult. I mean, not that easy, right? I think the US government has about 200,000 Bitcoin already, so they’d have to buy another 800,000 Bitcoin.

I think the Loomis’ bill calls to do it over the next five years, it’d be quite difficult to do so, given the amount of Bitcoin on exchange and who’s going to sell to them and all those sorts of things. Well, this part of the article is pretty interesting. You read about the dollar system reserve assets over time, right? You’ve got the Bretton Woods system of gold, you’ve got the petrol dollar of oil, and then you’ve got FX reserves of global exporters.

And then here you have 2025 question mark Bitcoin gold. I mean, how does Bitcoin fit into the global strategic reserve narrative? So I think that Trump and JD Vance and all these, Rubio, they’re very clear that the current arrangement doesn’t work for America first, their vision of what the American empire should be. And basically what they need to do is they want to preserve the dollar being the currency of choice for trade globally.

However, they want to remove the treasury as the dollar reserve asset. And without getting into the weeds, the de-industrialization of the United States, the export of finance is a direct result of the way the financial system is set up. And it’s really, it’s almost an accounting identity.

So to change the situation, people should not be saving in US treasuries. They need to find a new asset. And most likely it needs to be gold.

I’m arguing for them to use Bitcoin. Depending on which one you choose, there’s going to be a massive price increase in that asset relative to the dollar. So the dollar gets devalued, US treasuries get devalued against gold or against Bitcoin in this new system that they’re trying to construct.

And that allows US to de-industrialize and bring back the tennis contractors back in the US, build more bullets and weapons and all that kind of stuff. So that’s sort of the impetus for the idea. Interesting.

Here you write, the world will no longer accept savings in treasuries. That is why a neutral reserve asset must be selected. Just on the topic of treasuries, there’s an idea out there, Arthur, that the advent or mass adoption of stable coins worldwide, especially US dollar backed stable coins that aren’t algo stable coins, they’re collateralized stable coins, will need treasuries.

That will actually be the biggest driver of treasuries adoption in the next 10 years. What do you agree? Disagree? They don’t need treasuries. That’s a way to earn extra yield, right? Depends on how they’re, you know, obviously tethered to shares, none of it’s that interest income with its users.

Circle tries to do some funny things with Coinbase to share that yield. But technically speaking, you see the bank account in dollars, right? And then they charge, you know, a fee to create and redeem. They’ll actually need to invest in treasuries.

It’s profitable for them to invest in treasuries, but they don’t need to invest in treasuries. Okay. Interesting.

Let’s wrap up on one more subject before I let you go, Arthur. Great talk. You’re well known for inventing the perpetual swap.

Where did you, tell us about how that came, that idea came around, the inspiration. I know you were a derivatives trader before your foray into crypto. Maybe you drew some inspiration from your time as a trader.

Tell us how that happened. So the number one thing I always tell founders, you’re asking me about that is, you know, me and my co-founders and early employees, we listened to our customers. So we, we answered the three of us, my other two co-founders answered every single support to get ourselves for very, very many years.

And, you know, we sort of the technology and the platform evolved to reduce the amount of time we spent asking questions of customers. So we could actually do other things. And so one of the perennial questions that we got back in 2016, 2015, when we just started the platform was people didn’t understand futures contracts.

They arrived in and they say, Hey, I had this position. And all of a sudden it went away. You guys are scamming me or something, right? They didn’t understand expiry date or Hey, the futures contract is trading a hundred dollars more than this block contract.

Something’s up. You guys are me around. They didn’t understand covered interest rate parity.

So we thought to ourselves, okay, we’ve got this problem. We have all these. And then the other thing was, Oh, BitMEX is not very liquid because we had all these different expires of futures contracts daily, weekly, monthly, quarterly, all these different things.

Right. And they all had liquidity spread out amongst them. So how do we put liquidity all in one place? How do we have a contract that never expires? And how do we have something that the derivative price, the same price of the spot to mimic some margin trading? So we thought, put our heads together and sort of, we came up with this never expiring swap.

And the first one that we came up with was pretty analogous to the, I forgot who created the instrument, but essentially you look at a reference interest rate, dollars and Bitcoin, Bitfinex at the time. And then you have this swap where cash flows are exchanged between buyer and seller. And the thing we found, and this is during 2016 when the market was sort of coming out of a bear market and ripping was ripping on the upside, was that Bitfinex wanted to keep the interest rates very low on their borrowing and lending platform to encourage people to borrow money because, so they’re using their own treasury to suppress the interest rates and give more dollars out for people to trade.

So the rate of Bitfinex is not representing how explosive the market was. And so we always had our virtual swap trading at a premium to the spot price, even though we had this interest rate component, which exchanged cash flows in an AR basis. So the real innovation in the swap was, I said, okay, guys, how about we look at the past eight hours, see what the primary discount was, tell the market what we’re going to charge them in the next eight hours to make up for that difference.

And so it was sort of a self-correcting mechanism. If everyone thought that the price was going up and the thing traded at a massive premium in the past eight hours, then we charge the longs more, give the shorts more money. So we entice the other side to come into the equation in the next eight hours.

And sort of this self-restating premium discount index, in addition to a never expiring swap, was sort of the real innovation behind the perpetual swap. And we rolled that out after a few months in 2016. And that sort of started what we all know today as the perpetual swap, which practically hasn’t changed in any exchange from our original design.

How do you think it influenced the liquidity profile of exchanges worldwide? I mean, obviously it grew liquidity massively because it made it very easy to trade. You don’t have to understand a disparate amount of futures contracts expiries. And so the perpetual swap is the most traded crypto product ever.

And futures contracts with expiry dates are way less liquid than the perpetual swap, even though before the perpetual swap, the most liquid were quarterly futures contracts on OKCoin. So the perpetual swap came along a bit less. We sort of took over the market and then everyone else copied that product as their flagship derivative product.

And now you have perpetual swaps on every single altcoin of any size. You have so many decentralized exchanges launching perps and there’s all sorts of different flavors of what a perp is, what a decentralized exchange is, based on this original design that we created back in May of 2016. Do you think it’s still, not likely, but it’s still easy to arbitrage coins across exchanges in different jurisdictions now than it was a couple of years ago? I know that’s what Alameda, Sam Beckman Free was claiming he was doing.

Is that still, is the market still conducive to that kind of thing right now? Absolutely. And then you can look at Athena, which is another project that I’m an advisor on or Mailchimp’s advisor on. They created a synthetic dollar stable coin, which is essentially long crypto plus short perpetual swap, something that’s traded written about for 10 years.

They took that idea and ran with it. And they’re the third largest stable coin with something like $6 billion in circulating supply. And so obviously this trade exists.

It earns you more revenue on a yield basis for dollars or synthetic dollars than treasuries, but you’re taking counterparty risk. As we discussed in the beginning of this podcast, the buyback hack is the example of why people don’t put dollars into the system because they’re afraid of, if I put dollars into one of these exchanges and something happens, do I get those dollars back? So therefore there’s a big premium for speculators to pay to essentially get synthetic dollars to go long crypto with leverage. And Athena and people who do basis arbitrage, this is what they’re capturing.

Now, when I started back in 2013, that was a 200% for random trade when I started doing it. Now it’s a 6 to 40% for random trade, depending on how the market is trading. Arthur, great talking to you, man.

Appreciate you coming on. Where can we find you? Where can we follow you, follow your work right now? So on X, I’m at CryptoHaze, Substack, CryptoHaze and CryptoHaze.com should be launching soon. That’s my blog content.

And so the real time sort of tweets and reposts that I’m doing about crypto and other broader geopolitics in financial markets. Excellent. We’ll put the links down below, so make sure to follow Arthur there.

Thanks very much, Arthur. Appreciate it. Good to meet you and we’ll speak again soon.

Take care. Thanks for having me. Thank you for watching.

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