Arthur Hayes: The Bitcoin Liquidity Wave Is Here

26:00that can print a bunch of money and buy stuff, right? I've seen most of the people listening to this podcast, you are going to be fine. Things might be more expensive. You might be upset about that. But it's not going to be like in the Philippines and Bangladesh and parts of Africa where people are literally going to starve to death because there's just not enough to go around at that price and their countries cannot print money. They have no sovereign savings, right? Nobody trusts them that they're going to buy their bond because they're going to pay them back later with tax revenue. Those people are going to starve.

26:28This isn't, you know, this is an academic discussion for us about inflation and scarcity and hardship. But for a lot of people around the world, they're going to starve to death. But nobody, BBC doesn't cover the starving people in Burkini Faso more so than maybe a blip on, you know, the morning news. Nobody cares, right? It's just not, there's only so much suffering the population can take before you go back to your TikTok and start scrolling your favorite cat video. So it's that issue that's going to happen. And that's unfortunate, but that's just human nature. How long do you think we have until it gets that dire?

27:01I mean, if you're listening to some of the commodity exports, we're at the tipping point of that in certain countries. I live in mostly Southeast Asia and you're hearing work from home in places like the Philippines and Thailand. If you look at India, the Indian rupee is about to take out 100, all time low for the Indian currency. So in a sense, you have a perfect storm of things hitting a lot of these economies, right? A lot of these economies are back office processing centers for advanced economies. It's the call center people. It's this, you know, intermittent labor that's doing, you know, tasks that are cheaper to have a human do than automate.

27:42and if you have an AI that can do that better and you say, okay, well, no, you no longer have access to cheap commodities because you are just on the receiving end of whatever is able to get out of the strait. But, you know, Europeans, Americans, Japanese, Koreans, they've just bought everything that they can on the spot market to make sure their population is insulated. Then you no longer have a job and you no longer have commodities. And so that's just a recipe for maximum social unrest in those type of places. And so if this persists much longer and the deficit of production, you know, we go over that cliff, whatever that is, you know, pick your favorite commodity analyst.

28:18Some people say it's in June, July, August, somewhere around there. You know, you're going to have heads in a spike. Politicians are going to die in a lot of these places. There's going to be mass social protests in places like that because they have no job and they have no food. Damn. I mean, that's so bleak. And like you started this at the very start of this interview talking about like AI job losses. And whenever I have talked about that, I'm always thinking about like the places I live. Like I spend a lot of time in America. I live in Australia. I'm from the UK. Like I'm not necessarily thinking of like the global south that much when I'm talking about that.

28:51But you're right. Like they're going to be displaced because like the only person I've ever hired from who's from the Philippines was I had an assistant for a while. And like I got rid of that assistant because AI is now doing that job essentially. And there's going to be so many people in that bracket. it. If you take it back to like the US or like any Western nation, like how disruptive do you think AI will be in the short term, say like the next five years? Do you think we're going to see huge job losses? I mean, I call like 20, 30 percent. But again, I think it's going to be concentrated on the knowledge workers, the white collar professionals.

29:23And so while if you think about it, at least in the United States, for example, and probably parts of our view, you had massive dislocation of blue-collar workers starting in, you know, the 1990s until the present day. And only probably until recently did they have a voice in, you know, Donald Trump, maybe a little bit Biden, you know, pick your right-of-center politician in Europe and in Australia talking about the concerns of these blue-collar workers who, you know, lost their jobs due to the chinification of global markets and the labor force. But the white collar workers have the organs of power.

30:04They own, they have the media. Nobody cares about blue collar workers in the advanced economy. It's all about what are rich white collar workers doing, whether from culture, whether from spending habits. And this is what the news cycle is really about. And so this issue is going to be amplified to levels that we're, that we were unaccustomed to when you think about what happened from in the last past 40 years as China entered the global economy and sort of depressed wages for a lot of this work. So I think it's going to seem like it's a lot larger than it is just because these are the folks who the New York Times writes about and cares about.

30:41But at the end of the day, I think it's, you know, we're talking probably 10 to 20 percent, I think, is the amount of knowledge workers, at least in this particular wave, that are going to lose their jobs due to AI. I think that's the easiest, lowest hanging fruit for a lot of companies. If you take a look at the job loss, it's usually in the 10 to 30 % range of workforce when you talk about a tech company announcing AI rationalization and say, okay, we're going to let go of a certain amount of workers. But I mean, even on, like, if you compare it to that blue collar layoffs because of China, like, that was bleak.

31:09Like, that was essentially, like, I think Luke Grohman calls it the economy of despair because all these people who lost their jobs in the Rust Belt in the US, like, then comes like the opioid epidemic, which I think those two things are certainly related to a degree and it's like tons of people die and if that goes to the coasts like it's it's kind of scary but i think that the coasts at least the political system is very responsive to the folks on the coast they they are the technocrats that are in the government agencies that are in the ngos that are in the policy think tanks that give the um architecture for policy and the excuse for what you're going to do as a politician you know i didn't come up with this idea the xyz ngos staff by all the Ivy League people.

31:50They came up with this idea and I just implemented it, right? And so I think these people have a voice in the government. They always have. And we're going to see something like UBI or government handouts or progressive taxation on AI companies. Like whatever the solution is, I think because these are the folks losing their jobs and they're the ones that the politicians have cared about in the past, they're going to get something out of the system that your factory worker did not when they lost their job due to China. Yeah, this is something I've been thinking a lot about, because if you say roughly 10%, 20%, whatever it is, in the grand scheme of things, it can sound like a relatively small number.

32:28But these people don't own their homes outright. They don't own their cars outright. They have credit card debt. And that's a big enough percentage to kind of bring the system to its knees. and what does a government do in response to that? And I don't think UBI is a good idea, but I think it's the only thing that can happen to sort of save the financial system if we do lose 10 % of workers across the country. Yeah, and I think if you want to think about what this is going to look like, start to listen to some of the, I can't pronounce her name correctly, AOC. She's a woman, congressperson from New York.

33:01I think she's going to be the Democratic nominee for the president in 2028. Listen to some of her rhetoric, and I disagree with almost everything of it, but it sounds good. She talks about, you know, the billionaire class not earning what they've made. I think she's going to get onto this AI affordability narrative. You know, there's bipartisan efforts in a lot of the United States to say we don't want any more data centers. Yeah. And so if you think about the types of folks that buy into her rhetoric, it's highly educated people on the coast. These are the folks most at risk of losing their jobs, at least in this wave, due to AI.

33:34I think she's going to be the personification of that. And the Democratic Party, those who are successful in their bid to become the leaders of that party going forward are going to lean into this affordability due to AI, this we want to return the economy to humans, to, you know, human labor, whatever that means in sort of a white color perspective. and people like her are going to get a lot of, you know, formerly wealthy urban workers are going to latch on to that message. That'd be very, very powerful. And again, they have the organs of the media of all these, this apparatus of NGOs and whatnot.

34:16And I think that's going to be a counter move to sort of the Trump business person. We're going to optimize everything. Don't worry about it. There's going to be this utopia. in the next five, 10 years, and we're all going to have this abundance. Maybe, maybe not, who knows? But that's going to be the counter message to that. And that message is going to get aped in other advanced Western economies around the world. Oh, okay, there's another way to counter the far right or the tech bros and the AI bros taking everyone's jobs. Let's lean into this type of message that AOC and folks like her are putting out there.

34:50And so as with people are aping Trump in a lot of Western economies, I think people are going to ape AOC and the counter message to that situation. The thing that keeps me up at night is the idea of a critical error with my Bitcoin cold storage. And this is where AnchorWatch comes in. With AnchorWatch, your Bitcoin is insured with your own A-plus rated Lloyds of London insurance policy. And all Bitcoin is held in their time-locked multi-sig vaults. So you have the peace of mind knowing your Bitcoin is insured while not giving up custody. So whether you're worried about inheritance planning, wrench attacks, natural disasters, or just your own silly mistakes, you're protected by AnchorWatch.

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37:49And I can see the world where people start attacking data centers, trying to take these things down. It's one of those things that whenever you talk about the near future, it's very hard. I think AI will be hugely important for the world, but the social unrest that's going to come alongside it is going to be real. It's kind of terrifying. Yeah. I mean, I think there's always something terrifying going on in our society. So yeah, maybe it's true. Yeah, that's true. But like if I guess everything we've spoke about there on the macro side, while it kind of seems flippant to say is going to be good for Bitcoin, it's probably going to be good for Bitcoin.

38:27Like, do you think this next bull market is going to be like unlike others? No, it's the same. It's the same ingredients. There's money printing. Why we are printing money, you can debate the cause. But at the end of the day, globally, not just, you know, advanced Western economies, everyone's going to try to print money. So one of my favorite derivative traders, and I'm an LP in his fund, David Dredge, calls it the hunger games. Everybody's got the same problem. I've got to print this money to placate some particular part of my population. But there's only so much capital, investable capital to go around.

39:03There's only one United States that can issue bonds. And they're going to cram it in everyone's throat. And you've got to kind of find your crack to issue your debt. So it's the hunger games of debt issuance. But at the end of the day, the aggregate amount of fiat will be higher than it is today. And that is what powers a fixed supply asset like Bitcoin. I had David on the podcast a few months ago. He's awesome. But the funny thing about the last Bitcoin bull market was it wasn't the hottest trade in the world. And previous cycles, I think it has been. But this one was so dominated by initially AI stocks and I guess throughout AI stocks, but then also gold.

39:40Do you think Bitcoin can reclaim that sort of hottest trade? I mean, I think AI stocks was, you know, some of the supply suppliers and maybe not NVIDIA and TSMC because they're such a massive entities, right? NVIDIA is bigger than most countries in the world in terms of its market cap. But I do think, you know, there's going to be the sandists of the world that went up 50 Yikes in a year, right? There's going to be another critical choke point identified in this flow chain of, you know, AI economy. And these stocks are going to do really, really well. and so yes if you are a stock picker in sort of the ai supply chain i think that you will vastly outperform bitcoin but again it's not it's not very easy you know i've dabble at it in my stock portfolio which is a fraction of the size of my crypto portfolio but at the end if you're talking about a big asset with a very simple narrative is there more fiat tomorrow than today therefore i go up that i think that is bitcoin that is the beta if anything you should be performing better than than bitcoin whether it's an ai stock or real estate whatever your performance benchmark has to be bitcoin because it's a liquidity addition that's driving the majority of your returns and so if you can't beat bitcoin then you shouldn't be investing in that um because even in bitcoin last cycle it was like the treasury companies got the hype it wasn't necessarily buying spot Bitcoin and holding it in self-custody.

41:08True, but look at NACA. It's down 99.99%. Most of these treasury companies are terrible investments. Yeah. I mean, NACA is brutal. That chart is not nice to look at. Poor David Bailey. He's not poor. He certainly is not poor. Unfortunate David Bailey then. So going forward, what do you think the next bull market will look like for bitcoin because like 126k top like will we reclaim that quickly do you think how how high do you think it can go so right now i think it's we're almost at the policy panic and this is like the event that we all have been waiting for you know what does a policy panic look like a policy panic looks like the um bank term funding program in 2023 when three banks failed in two weeks right and overnight Yellen and Powell essentially nationalized the entire US banking system right it's what you call a policy panic whatever it was yeah a policy panic looks like April 10th 2025 when Trump and Besant sort of backed off the tariffs the maximal maximalist tariffs almost immediately declared the 90 day ceasefire with China and all that sort of stuff and then stocks and things ripped and so right now we have this Iran war situation this back and forth between trump and the irgc and you know i hope you don't trade tweets because you'd be up ways down sideways you wouldn't know which way you're going if you so if you start if you're basing your trading activity off of you know what either side said on a minute by minute basis but the thing to watch is right now they're 10 years at i don't know 4.67 4.68 percent the move index has rallied from like you know 60s and i think that's like 85 86 i haven't looked at my Bloomberg charts this morning.

42:58But we're in that trajectory. Volatility is increasing. The nominal level of debt is increasing. This scare of a sovereign debt meltdown in the United States and Great Britain and Japan and a lot of places is ever present and growing. And so if we get the move in next 130 over the next days or weeks, we're ripe for a policy panic. Now, before that we're probably going to get some dislocation in the market, right? We'll see Nvidia results in it. If they're not good and the market doesn't like them, it could be like bad news bears for a lot of AI stocks for a while until the liquidity printer really gets going again.

43:37But at the end of the day, this is the recipe for a policy panic. What does that mean? I don't know. You know, there's a lot of tools at the disposal of Trump. Trump could literally just pull those ships out and say, I'm done. I ran war. We won. Goodbye. Sail it off, right? I'm going to focus on affordability and whatnot, you know, in the election and Iran doesn't even register anymore, right? There's all sorts of things they can do. But if we want to have that explosive bull market and Bitcoin and other crypto assets, we need a policy panic. And I think we're almost there. But that doesn't mean that Bitcoin goes up.

44:11It could go from 75 to 70 ,000 if the 10-year starts like ripping towards 5 % in a volatile fashion. But this is the recipe. We're almost at that point where you get this massive panic due to bond market fundamentals and volatility, and you get a massive policy response in the United States and other places around the world, and then that's it. They're done. They've got the excuse to do what they've always wanted to do, and now it's just a massive printing exercise for a year or two, and that's what carries Bitcoin through$126 ,000 to whatever level it's going to get to on the upside before we come to our senses again and it goes down.

44:52How many more of these sort of panics do you think fiat can take? Like, because from 2007 to COVID, like the amount of money printing is like 2007 is not even on the chart. That was probably like a week of printing during COVID or something stupid like that. Like how many more of these can it take? Like when will we get to the last fiat cycle? Or do you think, again, this is more sustainable than people will give it credit for? I mean, I think fractional reserve banking has been around for hundreds of years. Like the Bank of England was the first episode of Quantitative Easing to save the, what's it, I forgot which company it was.

45:25One of the ones that was doing slavery and drug dealing in the Near East. It wasn't like the East Indian Company or something, was it? Yes, yeah, exactly. They were about to fail. I think it was something like 18-something, whatever it was. And the Bank of England conducted the first episode of Quantitative Easing to save what was the biggest and hottest stock at the time. Everybody, middle-class English person owned the stock. and, you know, there were some issues, some impropriety, and the stock crashed, and Bank of England had to come in and print money and prop it up, right? First instance of quantitative easing.

45:54We've been doing this for hundreds of years. We can do it for longer. The only thing that really stops this train is AI. Because if you have an energetic economy, which is completely different in terms of its structure of how knowledge is produced and consumed, then the whole edifice of fresh and reserved banking doesn't need to be there anymore. And I think that's what sort of brings in a change in the monetary system. What that change means, I don't know, but it's not going to be like it has been for the past two or three hundred years. I think that is the thing that stops fractional reserve banking and gets us to a different system.

46:29Not saying it's better or worse, it's different. When we do get to that sort of agentic economy, do you think that the AI agents will choose Bitcoin as money? Or do you think, because I mean, they're not going to have a Chase Bank account. Like, do you think stable coins will win that race or Bitcoin or something else? So, I mean, I have a theory on this, and I think the AI agents want, at the end of the day, what do AI agents eat? They eat raw compute. They don't eat tokens. Tokens is just a layer above that. And yes, Bitcoin represents electricity at the end of the day. That's what the derivative of Bitcoin is on a kilowatt hour and what work that can do.

47:06And AI cares about, you know, floating port operations per second, per period of latency. That is their currency. So I think that, yes, Bitcoin is probably the best approximation of that right now. There will be a AI commodity token that represents floating port operations per second closer than a token does. And that is what is going to be the currency of the AI economy. We don't have that yet. But I think that, if I think about it in a theoretical perspective, I think that is what is coming for the AI economy. And then we'll price everything else off of that. You know, AI still might use Bitcoin because maybe they need to interface with a human and the human wants Bitcoin, doesn't want this other currency.

47:48But I think there is a space for that type of currency. It will be cryptographic in nature. It will be on a public blockchain. It will not be a US dollar stable coin, in my opinion. Yeah, I mean, on the crypto side, because I just pay attention to Bitcoin, but i know that you you sort of trade other stuff um the the kind of narrative in bitcoin circles is that the the crypto trade kind of died in the last cycle in the sense that like because ai took so much hype and don't get me wrong it definitely took hype away from bitcoin as well but it looked like from the outside that sort of the crypto world got a little crushed with that and they weren't you know again like you weren't really getting the meme stock pumps all that sort of stuff like do you look at that the crypto ecosystem as being slightly dead no because i I think Hyperliquid was the best performing shitcoin of the last cycle of a particular size, right?

48:38And I think the Hyperliquid team did what they needed to do. And the most important thing they did was they built a successful product. A lot of people build successful products. The problem with most crypto projects, and I say this to a lot of the companies that I advise, is you do not give any of the economic value created at the protocol level back to the token holders. and in fact you create a situation where you have a bunch of early investors who for no fault of their own in their own profit maximization and their own fiduciary duties must dump their tokens into the market and depress the price and so when you list your tge that's the maximum price your token's ever going to receive because not only do you not give any value back to the token holder you have a bunch of investors you have to sell because they need dpi for their investors their LPs.

49:21And so this is why tokens are down only. Hyperliquid said, okay, well, we're not going to have a massive VCO overhang. Yes, we have a big team overhang, but Jeff and the team do need to get paid for the value they've created. But we're going to take 97 % of the revenues and going to buy back our own token. And we're a very profitable protocol. As we know, trading fees from exchanges, it's the perfect killer app for crypto. So that's why it's done so well. but for you know for various reasons most teams choose not to copy that model whether it's they need to you know get an investment from a large vc fund and this is just not the way in which a large vc fund wants you to operate i've gotten that pushback from a lot of projects well you know we have such and such brand name vc and i you know and i said yeah we should just unlock all our tokens or whatever and they no no no we can't do that oh i'm like okay well then good luck your coaching is going to zero oh no we can't give the money back to the to the token holders because of you know whatever reason okay great i understand don't care i'm not if i'm not getting any money i'm not i'm not gonna own your token don't only right and so but hyperliquid completely different situation and that's why it's performed so well and so i think after this experiment we've been running with different ways of capital formation in the crypto capital market since really 2017 in the ico bull we as shitcoin investors have gotten a lot more mature and a lot more demanding You can't just put a white paper on the internet and get our money.

50:46You can't just have a bunch of, you know, yeah, you raised$100 million pre-seed round and you got all the coolest and baddest investors in the game on a cap table. That no longer is enough. I actually want to get some value as a token holder. And that's why Hyperliquid's done so well. And that's why the majority of these shit coins have not done well because they didn't do that. Their value and their, you know, Pomponomics is based on old ways of doing things. And we as crypto investors have matured. And finally, we care about cash flows coming to us as token holders, however that happens. Was BitMEX the first, like, did you create the perpetual future?

51:28Yes. So is it pretty cool to see like this stuff happening now? And even like Strategy doing their perpetual preferreds. Like, is it cool to see the thing that you created becoming like serious financial tools? I think it's great. You know, I'm super proud. I think everyone at BitMEX who worked on this thing back in 2016 should be proud of the movement that we created, that we have, you know, centralized exchanges who are in bed with the regulators running scared because a team of 11 people are able to outcompete them and build a better product. i mean and that's also like the bullish side of ai is that we're going to see small teams completely disrupt huge industry and that is like that that's the cool side of ai like i i think is an incredibly powerful tool i think it's going to there's going to be loads of social disruption that comes from it but like on the other side of it the the creativity and the new things we're going to have in the world is awesome like i will see a billion dollar one person company at some point yeah i think it's really cool that you know obviously it served a purpose but we have a lot of extremely intelligent people doing bullshit work.

52:32And I think bullshit work, at least in my context, is my accountants, my lawyers, all these types of service professionals that charge you a lot of money, that do fuck all work and have this whole edifice of a system that is incomprehensible by design. So you have to pay them$2 ,000 an hour. We should liberate them from these shitty jobs and bring that intelligence back to doing something useful for humanity rather than parsing a tax code or some legal structure. We could have an AI do all these things and we have all this other human intelligence and creativity to do other things. And I think that is the techno-optimist side of things.

53:11And yes, unfortunately, when you lose your job, that's not what you think about when you were making a few million dollars as a parasitic lawyer and now that's no longer needed. But I think from a general stance of like the advancement of humanity as a species, we're liberating very smart people from, I think, net destructive employment. Yeah, it's kind of like an existential crisis for a decent chunk of the population who think, you know, you go to college, you get the degree, you become a lawyer, that's a job for life. Like, even if you lose a job at one firm, there's always going to be other opportunities.

53:41And then it's like, maybe they're all gone. It's going to be so interesting to see how people like that react to it. Because again, like, are you going to get a 40 year old accountant or a 40-year-old lawyer who's like in middle management of their firm retraining to do like AI tech work? I don't think so. Like, I don't know what those people do. They agitate politically and they get a handout. That's what they do. Again, I'm not saying that's the wrong thing to do, right? If we're creating all this abundance at a civilizational level, surely it shouldn't be that everyone who got displaced is now living as a pauper on the street, right?

54:14Essentially, it's all our data, our interactions as humans across the world that created these AIs. Now, Google and Facebook might say, oh, but you signed that term of service saying that all that data is mine. But if we repudiate that and say, fuck that contract, like you guys have made, you know, so much money based on humanity as a construct. Therefore, we demand a chunk of that. And I think that is the, that's the message. If you want to run for political office in an advanced Western economy, that is the message that humans created Google. There's no LLM without human data inputs, whether that's public source data, whether that's theft of data, whether that's walled gardens, that's humans.

54:58That's humans with each other creating this data that has given these companies the ability to create these godlike intelligences. And therefore, we demand our recompense for that. I think that is a winning political message from now going forward. Yeah, I totally agree. And like, just from a personal perspective, there's no way that I think the 40 year old lawyer who can't retrain losing his job is any reason to slow down on this. Fuck them. Like, it's going to be an adapt or die type situation, I think. Arthur, this has been fucking awesome. Is there anything, especially on the macro side that we've not talked about that you've been thinking about a lot?

55:32No, I think it's people just trust the process. The money will be printed. The things might get up or down. But at the end of the day, until you see politicians campaigning on austerity, don't worry about money not being printed. But use a safe amount of leverage if you use leverage because it's going to get choppy. But at the end of the day, the trend is up. Yeah, we're not all Arthur Hayes. I think most people are best at buying Bitcoin, holding it, DCAing. That's what I do. But Bitcoin is a trade. Buy Bitcoin and avoid all this chaos. I guess that's the message. Yeah, exactly. Love it. Well, thank you so much, man.

56:11I appreciate you getting up early to do this. Hopefully we can do it again at some point. We'll have to try and do it in person again next time. Yes. Thank you. Awesome. Thank you, mate.