 The average person will get completely destroyed by this inflation. If you want to have above-average results, then you're going to have to put above-average effort into thinking about your financial future. Arthur Hayes is among the most controversial figures in the crypto space. After founding BitMEX, the world's first crypto derivative exchange in 2014, he became the first African-American crypto-billionaire. Last year, Hayes pleaded guilty to facilitating money laundering in the U.S. Now he's running an investment fund that focuses on fixing what he considers to be the problems plaguing the crypto industry. In this interview, Hayes breaks down his investment thesis on crypto, explains how Bitcoin could reach $1 million in the current cycle, and why the catalyst is likely to come from outside the industry. I'm Giovanni. On this show, we challenge the ideas that shape the world of crypto. In each episode, we assess a crypto narrative, a macroeconomic outlook, or a potentially disruptive technology. Only the most solid ideas will make it to the other side. So Arthur, at the end of last year, your family office set up a new investment fund called Maelstrom, the goal of which is fixing the problems that have been plaguing the crypto industry. So what are those problems according to you? The concrete problem in 2022 was that we got away from what we're actually trying to build here, which are decentralized companies, well, not companies, protocols, projects, obviously infrastructure to solve financial and social and political problems. And that's hard to do. Building Bitcoin is extremely successful, but it took a very long time and it was very difficult. And it's still a project in flux, whereas it's less difficult to build a centralized company around an individual who is celebrated as very good in the respective field. And you have, you know, Zambik Burdfrid, you have Kyle and Sue with your arrows, Barry Silver, that Genesis, I can't pronounce his name, Celsius. I see all these individuals, these large in-life personalities that have these companies, and people are like, oh, yes, this is crypto. I believe in this guy. I'm going to invest in their company. I'm going to use their products. They're going to keep my money safe. And at the end of the day, you know, too much leverage and a downtrending market destroyed all these businesses because they were centralized. They didn't actually, you know, they didn't build robust businesses that could withstand all parts of the cycle. They took a lot of leverage. Some of them are outright fraudsters. But at the end of the day, we placed our trust in these companies and these individuals, and that trust was misplaced. And a lot of people lost a lot of money as the market turned. Right. But the decentralized solution still worked. Bitcoin still worked. Ethereum still worked. Your primitives such as Uniswap, Pomp, Pound, Ivey, all worked flawlessly. And so this was, while the problem was placing trust in such-sized institutions, the solutions were right there before us. Maybe the token prices were down 95%, but that doesn't matter. This, the actual technology still worked. We still have solutions that solve these problems. And down in this, you know, protracted bear market and hopefully exiting that period, we're able to invest at very, very good prices in things that actually are doing decentralization. Okay, that's interesting. But now let's zoom out for a bit. If you had to point out at the main macro thesis that is, let's say, motivating your belief that cryptocurrencies will eventually replace or at least offer a viable alternative to the current fiat system, what that would be? At a higher level, the general concept is, if we believe that traditional financial system has too much debt and thus it must inflate away the problems, and if you're left in this system, your capital is going to get destroyed over time, but the cost of energy is a cost of energy, then this portion of crypto needs to at least preserve the cost of energy. And, you know, everybody has a different standard of living that they'd like to maintain that standard of living cost energy, places you like to eat, places you like to travel, where you like to live, all that requires a certain amount of energy and everyone has a different sort of preference, marginal utility curve energy. So my old goal with all of my investing and is to preserve capital so that I can consume the same amount of energy or whatever energy amount that I would like from now on into the future. Now, if you hold all your assets of the fiat world, you're almost guaranteed not to keep up the pace of energy. At a macro level, there's so much debt in the world that unless we find, you know, a completely new source of energy that's like, you know, multi factors times more efficient, and we deploy these new forms of energy into the entire world in like the next two years, there is no way to pay back this debt. And so the point is to find assets outside of the traditional financial system that are going to least maintain purchasing power, you know, in hydrocarbon terms, the average person will get completely destroyed by this inflation. And if you want to be the average person, then be the average person. If you want to have above average results, then you're going to have to put above average effort into thinking about your financial future. So recently, you also said that whether a decentralized product is going to be widely adopted by the masses will depend on factors that are outside crypto. So what are these factors are you talking about? Well, I think, you know, we just had one, we had one in March in the United States, we had a bank run, the second largest bank failure in I think US financial history was the Silicon Valley Bigger signature bank, one of them. So people learned overnight, well, certain people did, the Silvergate depositors learned all about, you know, deposit insurance, limits, you know, what is covered or what's not covered. You know, the next two banks that failed, you know, a few days later, the depositors were about to learn these lessons. And then you know, people were, you know, there's images on the internet of people queuing up banks in the US and like, oh, fuck, what happened? What's going to happen to my deposit? I thought the system was completely safe. Oh, now I kind of understand what some of these people were talking about, about, you know, diversifying my finances and where I should actually care about the institution, go where I put my money and understand their business model and what they're actually doing. But no, you know, the US government in its own interest decided that, okay, we let that one bank fail, let's cover these two banks in terms of, you know, depositors and, you know, guaranteed all the deposits, right? They're not really going to learn that lesson because, you know, the politicians see that this is not the best outcome for them. So they're going to get guaranteed all those deposits. Now, whether or not that currency buys the same amount of energy, that's the question that people should be asking. And very few ask themselves that really are going to actually armless, intellectually honest about their investments and whether or not they're actually generating a return that keeps their standard of living constant. I don't think many will learn that lesson until there's, you know, inflation hitting them in the face when they go to the store and, you know, they see that their, their grocery bill goes up 5% or 10%, you know, year on year or even month on month or day on day, whatever it doesn't really matter. So now I would like to touch upon the regulatory situation in the US. So we have been witnessing in the last couple of months an unprecedented the crackdown on crypto in the US. What do you think is the rationale behind this sort of policy approach? Well, again, I think people need to make sure they don't take the wrong lesson from, from this. And I think right now I was focusing, oh, the US is cracking on the crypto. This politician is saying that this regulatory agent is saying that. And what they need to recognize is what is the problem that the United States financial system has? And does that problem manifest itself in other systems and other jurisdictions? Okay, what's, what's the problem of the US says they have too much debt, they have a following working age population. And, you know, they have no new forms of energy that they're sort of inventing to make things more productive. That's just about true for every major economy in the world. And so what do governments do when they have too much debt and not a way to earn it? And there's a lot of it. If you can convince the population that they don't need to own this crypto thing, that it's perfectly fine to get boiled like a frog with your capital in, in my particular jurisdiction, then you don't have a lot of capital fleeing to crypto fleeing to any other sort of asset that they can't tax via inflation. They don't want you to go anywhere. They want your capital to sit there and they'll make a very pleasant, pleasant journey to lose 20, 30, 40, 50, 60% of your purchasing power over a period of time such that the debt load is effectively lowered and the finances are healthier. So Arthur, now I would like to discuss your price predictions for Bitcoin. So you recently said that you expect the price of Bitcoin to reach $1 million in this cycle. So can you guide us through this prediction? So I think, you know, we're going to chop around for a bit, probably the summer, you know, maybe we go down to $25,000, maybe we go down to $20,000, whatever. It doesn't really matter. What really matters is like, how is this bacon crisis in the US progressing? I think sometime in later this year, we're going to see another few banks almost by the dust, and then it's going to be explicitly clear that the entire banking system is backstopped by the Fed plus Treasury. And once they do it, then all their other sycophants at all the other central banks can now follow, right? They can now do the same thing. Oh, the Fed is in a quantitative tightening and going back to such a cutting rate. We can too, because we all have the same problems. We don't want to go through the same sort of, you know, market dislocations that they have. So now that they've done it. Oh, it's great. Powell is doing it. You know, Christian Lagar can do it. You either the BoJ can do it. PBOC can start pumping money too. Everybody's got the same problem. And now the preeminent central bank has declared an uncle and said, okay, you know what, this banking is bad. We need to lower rates to fix our banking system to, you know, get the yield curve to be normalized again, which is short jump rates lower than long term rates. And that's going to be the mother of all bull markets of asset. Bitcoin and crypto is going to participate. And then that's going to go, I think sometime 25, 26. Yeah, could Bitcoin go to a million? Absolutely. Right? There's how many hundreds of trillions of dollars of debt in the world, right? If you basically have said, we're going to back up all of it. And we go lower and allow the market to price what they think the long-term rate of yield should be in, you know, the major economic blocks of the world, then, you know, this guy's a limit on where Bitcoin a very, very small asset of the door is very small. Awesome. Thanks, Arthur, for talking to us. And I hope to see you soon on our show. Awesome. All right. Great.