Arthur Hayes: The Bitcoin Liquidity Wave Is Here

The violence, all this stuff, it only gets worse. The value of energy, of money, has been so perverted and debased by politicians and governments. Part of that's the fault of the people themselves. Like, the question with this kind of thing is always, like, where are they going to get the money from? Do you think this is just countries around the world are going to have to print money to do this? Yes, because I don't think people want to pay more taxes.

It's one thing to say, here's a problem, let's tax you more for it. And they're like, well, what the fuck? I've been paying billions and trillions of dollars of taxes over the last decades. And now you're saying I got to pay more taxes because you made all these investment decisions that didn't do anything for our national security or for our security of food and fertilizer and commodities. Fuck that. You're out of power. Give me the next guy who says I'm not going to pay any taxes.

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. Arthur Hayes, it is good to have you back on the show, man. The last time we recorded was in Miami while Pete was still at the wheel. But it's been a while. How have you been? Excellent. You know, well, markets go up, markets go down. I'm still here, surviving. Markets go up, markets go down.

But I read your piece recently, and you said that the bull market started when the U.S. bombed Iran. So do you think the bottom is in now and we're back in a bull market for Bitcoin?

Yes, I do. And I think that there is an AI fear for deflation. And I still think that that particular scenario is playing out. Workers are getting fired. You know, people are adjusting to what it means when you have the highest earning workers on average, at least in an advanced economy like the United States.

you know the bottom 10 20 percent of them are going to lose their jobs and a lot of these tech companies and um sort of businesses that are optimizing for a cost structure that doesn't need these type of knowledge workers i think that's continuing to happen and that's going to be a drag on the credit situation but the war has catalyzed governments around the world especially you know united states and china that they need to spend more on defense which now includes ai

because AI has been roped into national security in both countries. And countries need to rebuild redundancies in their supply chains for commodities and electricity and all these sorts of things. And that's starting in the United States. China has been doing this self-sufficiency drive in earnest since 2018 when Trump started the first trade war with China.

And the rest of the world is waking up to the fact that they need to invest in their own defense, in their own supply chains because you can't have, you know, you can't have your fertilizer, your oil, all these things coming through this one particular choke point in the Persian Gulf. It's not like the Persian Gulf has changed in any way, shape, or form since we have been civilized humans for however many hundreds of thousands of years. There's always been a Persian Gulf choke point.

It's just people have ignored it because it was convenient to do so and it was cheaper. But now there's no other option. Regardless of what you believe in terms of the right or wrongness of this particular war, Or if you're still in the Philippines and you no longer have energy because you didn't feel like diversifying your supply chain, well, you might be losing your seat at the table in terms of a politician because you didn't make these choices.

And so, Cartier's going to start investing in this stuff, and that's highly inflationary.

Why do you think that the world has overlooked that single choke point? Because is this really to do with the American hegemony? So like if you're Europe and I mean, Europe don't rely on gas or oil through that straight, but like Asia do. Is it because they know that like the U.S. are going to be keeping things in line and keeping things going? And now that trust has broken down. That's why we're seeing the problems with that choke point.

yeah I mean if you put yourself in the politician's shoes you could say okay well I can believe in the system that's been in place since the end of World War II where essentially the United States guarantees free navigation for those for most countries around the world and you can move your stuff and it doesn't cost you anything extra and that's you know doesn't really cost you anything extra in terms of budget outweighs or you can invest in building your own refineries or invest

in maybe building the capacity to accept crude oil or different commodities from other parts of the world or have trading ties with random countries in South America so that you can get your commodities from somewhere else that doesn't flow through the choke point, and that costs you extra money. And now you've got to find this money. Either you tax your people more, you inflate, or whatever you have to do to get that money and make those choices.

Those are hard political choices to make, saying, hey, we need to spend more money, given that there's this cheaper option right here and we can just use, you know, suppliers in the Gulf. And we assume that everything is going to work out okay. And I think that's the shattering of that assumption. Regardless of whether or not in two weeks' time Trump and the IRGC come to some sort of deal and the strait is reopened or not, it doesn't matter.

If you are a politician and you have experienced this last eight or nine weeks of disruption, you can't go back to that same illusion. And that's the point where people have to rethink Think about how their supply chains work for all these different commodities. So in some ways, is it a little bit like when the U.S. froze Russian treasuries in like, even if they unfroze them, they still like that has now set a precedent. And we know that that can happen again.

So instead of having to rely on this, we're going to see countries build out, you know, nuclear energy or refineries or whatever it is and start spending in their own country rather than just relying on these things that have existed since World War II. Exactly. The assumption has been shattered. And again, we can go back to similar sort of volumes to the straight, but you can't, you know, now you have the ability, the political capital say, hey, look, look what happened in the last nine months.

You know, we had to go work from home. We had to, you know, curtail flights. And wouldn't it be better if we had our own sort of more redundant supply chain? We should have multiple suppliers of these things, or we should build out our domestic refining capabilities so that our citizens aren't stranded on this island in the middle of nowhere. like Australia had to do with going to Singapore to beg for jet fuel and other refined products

because China said, you know, we were going to keep all this stuff for ourselves. So I think

that political discussion can happen. And there's a willingness to suffer the inflation, at least from a political standpoint, to rebuild your supply chain so that you aren't held hostage by a decision between, you know, Trump and the IRGC. But like the question with this kind of thing is always like, where are they going to get the money from? Do you think this is just countries around the world are going to have to print money to do this. Yes, because I don't think people want to

pay more taxes at the end of the day, right? It's one thing to say, here's a problem. Let's tax you more for it. People are, well, I've been paying all these taxes, regardless of what the tax rate is around the world. And where'd it go? I don't know, maybe the politicians stole it. Maybe they did Green New Deal or some other nonsense. And they're like, well, what the fuck? I've been

paying billions and trillions of dollars of taxes over the last decades. And now you're saying I to pay more taxes because you made all these investment decisions that, you know, didn't do anything for our national security or for our security of food and fertilizer and commodities.

Fuck that. You're out of power. Give me the next guy who says I'm not going to pay taxes. And so I think that people are not for that type of tax, the overt tax, then they'll just do the covert tax, the inflationary tax, the printing the money, the, you know, the banking system printing the money or the central banks printing the money. It's funny, like even as a Bitcoiner, I understand the sort of insidious nature of inflation.

But in Australia recently, they've brought in or they're bringing in a new capital gains tax. And I'm like, I would much rather just deal with the inflation rather than pay a huge capital gains tax whenever I sell an asset. Like in some ways, it's the least painful option, even though I know it's still bad. Does that make sense? Yeah, I mean, I guess that's because you own an asset which you believe is going to perform well in this scenario.

I think most people, you know, they're not crypto investors. They barely own any stocks. They probably don't even own their own residence. And, you know, yeah, an extra tax is like, fuck, I can't afford, you know, a pound of beef at the supermarket. Right. It's it's kind of that way. So, well, OK, fine, I'll just deal with the inflation thing that's going to happen in the back end. Or it gets so apathetic they don't even notice.

Is there any like which of the countries that will come out of this? Well, is it basically just the energy rich countries that are going to be strong on the other side of this? Yeah, I mean, countries that are self-sufficient in terms of capital and resources.

will do well. And that's a very short list. Not even the United States is going to do well. Yes, Americans are not going to starve because of whatever happens in the street of Hormuz, but that doesn't mean that inflation is going to continue decimating the social fabric of America and inequality that this is going to sponsor is going to continue to decimate the social fabric

of America. There's going to be lots of American losers, if you will, but again, and they're not going to be starving like Bangladeshis. So you think that that sort of K-shaped economy is only going to get worse? Yeah, I think that is a feature of this particular, you know, if you want to call it late-stage capitalism or whatever you want to call it, that's not going anywhere. You're not seeing it, you know.

I think that's going to be a catalyzing feature for opposition to Donald Trump and the Team Red Republicans. Whether or not the Team Blue Democrats are going to succeed in that message, we're going to see. But, you know, if you take a look at Trump's polling numbers and what is he getting killed on, it's affordability. It's inflation. Same thing that Biden got killed on. This is what ends the run of the Republicans. So Trump's going to have to come up with an answer for this.

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It's one of those funny things as a Bitcoiner, like, you can see, like, I can believe what you're saying like i can see this coming um and on the other side of it i'm like well it's going to be a ton of liquidity it's probably going to be good for bitcoin but it's like it's also terrible for the world and i don't want to see it happen even though i know that i'm probably on the right side of the trade when it does um do you think that like this next bull run for bitcoin is going

to be all about liquidity because if like there's always a narrative right and like in in the 2020 2021 sort of bull market it was all about stimulus after covid and then we had like the institutional wave and we had ETFs in 24, 25. Like, do you think this is all about liquidity or is it always all about liquidity? I mean, if you listen to anything I write or on stage, I'm always saying it's always

about liquidity. We put a different wrap on it. We have to put a narrative on it. You know, me and every other commentator out there, because people don't really understand how banks and factory reserve systems work. But at the end of the day, it's all about liquidity. And the politicians have to tell it something different every time too, because, you know, they don't want people understanding that when they talk about all these esoteric programs or these acronyms,

and they're really saying, we're going to print some more money and spend it on something. And there's going to be more losers and winners in this scenario. But please don't understand that that means inflation It means something other than that So and I know that you do talk about liquidity all the time Do you think Bitcoin does need liquidity to go up Because in the 2025 bull run like the Fed was

drawing down its balance sheet almost the entire time, but Bitcoin still performed pretty well. It obviously didn't do as well as sort of tech stocks and gold, but it still did well. Well, I think that's a hangover from the two and a half trillion that was injected in the economy from the decline of the reverse repo program in the US. So yeah, so Powell had rates at five and a half short end or whatever from 2022 to certainly 2024 when they started cutting rates.

But at the same time, due to the way that the U.S. Treasury was issuing short term debt, more so than long term debt, that actually drew two and a half trillion dollars of liquidity into the financial markets. And that's why you had a rally in stocks, Bitcoin, real estate. Everything was going up, even though you had short end rates, the highest they've been since the 1980s. Okay. Can you explain that to me? Because I don't know if I fully understand.

Is that because the short-term debt is more money-like in the economy than long-duration debt? So basically, due to the COVID stimulus program, you had however many trillions of dollars were printed. And a lot of people basically shoved that into the banking system and money market funds. They said, OK, I've got all this money. I don't need it to spend anything. Let me just earn the 5.5%. in a money market fund, which is higher than what I get at a commercial bank, at least in the United States.

And so the money market funds had all this money. And what they can do is they can park that money at the Federal Reserve and they can earn a rate, which is pretty much commiserate with the Fed Fund's effective rate. There's a bit of nuance around that, but essentially the Fed guarantees, if you give us money into this facility, we give you a rate. And they have to do this to be able to pin or manipulate short-term rates at the level that they want them to be at.

So the money market funds have $2.5 trillion and invested with the Fed. And this is very good for money market funds. They get a rate, everyone's happy, right? So at the same time in 2022, end of 2022, the Fed's raising rates. And again, there's another affordability issue, but the U.S. economy needs assets to go up. Rich people need capital gains taxes to pay taxes. You know, rich people pay most of the taxes in the United States. And, you know, they fund all the politicians.

And so Biden and Yellen at the time came up with a scheme where, okay, we need to juice the markets. We can't reduce rates. We can't do quantitative easing because everybody's hip to that. That's inflationary. Well, you've got this inert money, $2.5 trillion sitting on the Fed balance sheet. How do we get that off the Fed balance sheet and into the global U.S. dollar money markets? Okay, well, I know that these money market funds will keep the money at the Fed because

the rate that the Fed pays them is higher than the rate that the U.S. Treasury is offering on a short-term treasury bill. So a bill is anything less than one year in maturity. So if I increase the supply of something, the price goes down, yield goes up. So Yellen said, okay, instead of issuing more long-term debt, 10-year bonds, something like that, I'm going to issue a fuck ton of short-term treasury bills.

and if the bills rate goes above this reverse repo program rate, then a money market fund who is profit maximizing will say, okay, I'm going to take my money off the Fed and I'm going to put it in the U.S. Treasury. Now your credit profile of default doesn't change. You're still, the U.S. government's still paying you money. It's a different arm of the U.S. government, but the U.S. government's still paying you money.

But when I put money into a Treasury bill, now that gets rehypothecated through the financial system and that's added liquidity to the overall system. And so you had essentially, as the U.S. Treasury issued more and more treasury bills starting in late 2022, you had the money market funds pulling money out of the Federal Reserve reverse repo program. You can chart this on Bloomberg or any other, you know, you can go on the FRED system. It's an open source data system.

You can see this phenomenon. And you're going to see this program go from about two and a half trillion dollars till the start of, you know, 2025 down to zero.

and you can chart bitcoin gold stocks real estate everything goes up because you injected two and a half trillion dollars of stimulus into the global markets even with rates at the levels that they were at and so that was the way in which you know the 2022 bottom to 2025 high was powered was this particular phenomenon and i remember i know that percent was making a big deal about how yellen had been issuing everything at the short end and then he came in and kind of just

did the same thing. Is that just because there's no sort of demand for long-term debt? Yes. Nobody wants to own 10-year treasury bonds. Obviously, Besant was correct in what he was saying. Hey, short-term rates are low by historical standards. Yellen, you're an idiot. Why didn't you issue a bunch of 10-year, 20-year, 30-year bonds? But the problem is the liquidity at that long end is there is no liquidity.

So all the while the Fed is supposedly doing quantitative tightening, which they were, the balance sheet was falling, the Fed never sold anything longer than a 10-year bond. In fact, they actually bought this debt. So at the same time the Fed balance sheet overall is decreasing, the Fed knows at the long end of the U.S. trading market is so fucked that they need to do quantitative easing on the back end of the curve. And obviously, you know, Yellen and Hunter Staffers are not idiots.

They knew this too. They knew I can't increase the issuance at the long end. I'm going to lose control of that. So the only answer is short term bills. That's what everybody wants. Everybody wants a cash like instrument guaranteed by the government. And so I'm going to issue debt there. And I know I have a lot of takers for that particular tenor of debt. And so that's what she did.

And when Besson gets in the seat and he's got the same directive from above, hey, I need lower cost of debt because I have my set of programs that I want to fund. doesn't necessarily mean the same ones that the Democrats want to find. But again, the Republicans print money just as much as the Democrats do. Trump has the same message to the Treasury Secretary, make my shit as affordable as possible. So we have to do the same policies as Yellen.

And this goes into my, you know, discussion about Kevin Warsh. Everyone's like, oh, he's a hawk. Yeah, he's a hawk when he doesn't have to be a hawk, when he's just spouting off his mouth. Put him in the seat. Put him in policy with all the constraints that that comes from and the director from above, which is make sure the treasury market's functioning, make sure that I can fund these wars and this industrialization effort. Okay, what are you going to do, Warsh?

He's going to do the same thing, Paul, whether it's just hold rates, print money. He is not going to sell bonds and materially reduce the side of the Fed's balance sheet because he can't. He's got all the institutional constraints upon him as he sits in this chair. And so it doesn't matter the political party, what they said before, when they get in the seat and they see the state of the finances and the directive from above hasn't changed. It's I've got to fund this stuff.

The actions are the same. But I mean, he is in such a tricky spot now coming in because like he's obviously got a ton of pressure from Trump and the administration to cut rates. But with this war going on, like I don't see how he can. Do you think he will? Maybe I think what they're going to try to do is hold rates as long as they can. They're not going to increase them. They're not going to decrease them.

And you see if by luck of the draw, they can get through this without the 10 years spiking to like, you know, five and a half, 6%. We'll see. I think the thing to watch is the volatility index, the move index, as my friends in the bond market say, the nominal level of rates is not the point. It's how fast you move up or down. So it's a volatility increases that is super bad for the treasury market. And that's what's going to elicit a policy response.

So is the 10 year the one that we need to be paying attention to? Because I know the 30 year now is like well above 5%. In the UK, it's like nearly 6%, I think. In the US, it's over 5%. And they're like the highest levels. I think in the UK, it's the highest level since the late 90s. In the US, since just before the financial crisis. Like that signaling that is that, well, is that signaling that there's something wrong here?

I mean, I think the reason why we look at the 10 years, because so many other financial products are priced off of that. Your mortgages, at least in the United States, your mortgage is priced off a 10-year bond, car loans, asset-backed securities, corporate loans. it's the most liquid part of the curve. And so therefore, all type of corporate and consumer debt is priced off of that level.

So as that level increases, then that transmits down to the everyday person and the type of things that they care about in terms of credit. And so that's why it's super important in terms of to maintain control of that particular part of the curve. I don't think particularly Besant cares if the 30-year trade is at 10%, if the 10-year stays behaved at four and a half or whatever it is right now.

do you think there's in the near future like say in the next four or five years do you think we'll see yield curve control in like a big western nation i think we'll see yield curve control i don't think it'll be called yield curve control there'll be something more opaque um and we'll see what it what they call it but in effect it will be yield curve control but it's like the the kind of question is it all roads lead back to the money printer really is where we're going with this.

Yes, until the population and economy says, okay, I'm going to accept the leader who's going to come in and tell me that I have to make sacrifices in my standard of living, whether that's higher taxes or less government services, for things that happened even probably before I was born. And I have no personal, I didn't make any decision to spend on these things, but somebody before me spent all this money on stuff, doesn't matter what it was, and now I have to suffer.

and I have to pay for it. We're humans. That just isn't going to happen. That is not a winning political strategy. Yes, Argentina and Miele are kind of doing this, but Argentina has been fucked for the last 100 years, and the population finally said, okay, we're going to try something different. That's not the case in the United States and a lot of advanced Western European economies. Yeah, getting the majority of the population to vote in a party that are saying,

we're going to do real austerity, it's just not going to happen. Which is kind of like, what does happen then do we just have continued societal decline is that like i want to go from this right now the this angst this you know the violence all this stuff it only gets worse because people the other we all know the underlying cause but nobody wants to admit what it is and fix it they're just going to say oh it's whatever other issue they want to blame why you're upset

about, but it's really because the value of energy of money has been so perverted and debased by politicians and governments. Part of that's the fault of the people themselves, that this is why you feel like you're going nowhere in your life. And you choose religion, or I hate the immigrants, or I hate people with a different accent than me, or I hate the AI, or I hate all these other things,

but the real thing, which is why you're angry. And that's what all these different political parties are getting you to focus on something else other than it's really about inflation and your value as a human and what you produce as evidenced by what the price of money is.

Yeah, it's always like just easier to blame a scapegoat than gets the root cause of the problem because the root cause of the problem isn't always easy to understand. Like when I got into Bitcoin, that's the first time I really understood the problem with money. And like that was by chance, you know, like 10 years ago, I looked at this weird internet money and then ended up here. It's like not everyone's necessarily going to go down that rabbit hole. Yeah, that's unfortunate. But

again, that's I guess that's just the state of society. Yeah. Do you think we sometimes overstate the importance of like, or the resilience of the market? Like, you know, when oil traded like above 100, got to 125, $130, whatever it got to, people were sort of calling for this being like catastrophic, the economy, things are going to start breaking and things were kind of okay. Like, do you think we the market is more resilient than we give it credit for?

Yes, in many places, in most places, right? If you think about, you know, oil at $200, right? The United States is going to be fine. Things will be a little bit more expensive. Europeans, for the most part, are going to be fine, right? They could backtrack and go back and buy oil from Russia. They could, people, the euros are the second largest used currency in the world. They can print a bunch of money and buy stuff, right?

I'm saying 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, you know, 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.

This 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?

I mean if you listening to some of the commodity exports you know we at the tipping point of that in certain countries right If you live in mostly Southeast Asia and you hearing you know work from home in places like the Philippines and Thailand If you look at India right the rupee the Indian rupee is about to take out 100 like 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. And if you have an AI that can do that better and you say, OK, 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.

Some 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 um in places like that because they have no job and they have no food damn i mean that's so bleak and and like you started this at the very start this interview talking about like ai job losses and 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 i'm not necessarily thinking of like the global south that much when and talk about that, but you're right. Like they're going to be displaced because like the, the only person I've ever hired from, he was from the Philippines was I had an assistant for a while. And like, I got rid of that system because AI is now doing that job essentially. And there's going to be so many people in that bracket. Um, if you take it back to like the U S 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, 20, 30%, but again, I think it's going to be concentrated on the knowledge workers, the white-collar professionals. And 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 the 1990s

until the present day. And only probably until recently did they have a voice in Donald Trump, maybe a little bit Biden, you know, pick your right of center politician in Europe and Australia, talking about the concerns of these blue collar workers who, you know, lost their jobs due to the chinification of global markets and labor force. But the white collar workers have the organs of power. They 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 were under custom to when you think about what happened from in the last past four 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. But at the end of the day, I think it's, you know, we're talking probably 10 to 20%, 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, and usually in the 10 to 30% range of workforce, when you talk about a tech company announcing AI rationalization, they 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 layoff because of China, like that was bleak. Like 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 are the technocrats that are in the government agencies, that are in the NGOs, that are in the policy think tanks that give the 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 staffed by all the Ivy League people, they 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 using 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 like, you know, 10, 20 percent, whatever it is, it can sound, you know, in the grand scheme of things, it can sound like a relatively small number, but 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. I 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 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. And I 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, and I think that's going to be a counter movement 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 you know the tech bros and the ai bro is taking everyone's jobs let's lean into this type of message that aoc and folks like her are putting out there and so as with you know people are aping trump in a lot of um western economies i think people are going to ape aoc and the counter message to to that situation the thing that keeps me up at night is the idea of a critical

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Yeah, and I can totally see like the pushback against data centers. If it does get to the point where 10, 20% of people losing their jobs, there's going to be huge social unrest. And I can see the world where people start like attacking data centers, trying to take these things down.

It's one of those things that whenever you talk about the near future, this is very hard like i think ai will be hugely important for the world but like the social unrest is going to come alongside it is going to be real um 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 um i guess everything we've spoke about there on the macro side while it kind of

seems flippant to say it's going to be good for bitcoin it's probably going to be good for bitcoin Like, 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.

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. There'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 sort of 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 like AI stocks and I guess throughout

AI stocks, but then also gold. Do you think Bitcoin can reclaim that sort of hottest trade? I mean, I think AI stocks was some of the 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 Sandisk of the world that went up 50x 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 from Bitcoin. But again, it's not very easy. I've dabbled at it in my stonk 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 then I think that is Bitcoin That is the beta If anything you should be performing better than Bitcoin whether it an AI stock or real estate or 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.

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. True, but look at NACA. It's down 99.99%. Like 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.

But so like 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 high do you think it can go? So right now, I think it's 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 bank term funding program in 2023 when three banks failed in two weeks, right?

And overnight, Yellen and Powell essentially nationalized the entire U.S. 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 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. So 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, the 10-year is at, I don't know, 4.67, 4.68%. The move index has rallied from, like, you know, 60s to 90s, like 85, 86. I haven't looked at my Bloomberg charts this morning. But 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 right for a policy panic. Now, before that, we're probably gonna get some dislocation in the market, right? we'll see in media 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 liquidity printer really gets going again. But 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. Iran 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 in 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. It could go from 75 to 70,000 if the 10-year starts 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, you know, 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 that goes down. How 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, uh was it the i forgot which company it was one of the ones that was doing slavery and drug dealing in the in the nears wasn't like the east india company or something was it yes yeah exactly they were about to fail i think it was like something like 18 something whatever it was and the bank of england conducted the first episode of quantitative easing to save what was you know

the biggest and hottest stock uh at the time everybody uh middle class uh english person owned the stock and you know there were some issues some impropriety and the stock crashed and the Bank of England had to come in and print money and prop it up, right? First instance of quantitative easing. We'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. That saying it's better or worse is 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 a layer above that and yes bitcoin bitcoin represents electricity at the end of the thing that's what the derivative of bitcoin is on a kilowatt hour and what work that can do and ai cares about you know floating port operations per second or 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 point 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 it is still might use bitcoin because you know maybe they need to interface with a human and the human wants bitcoin doesn't want this other currency but 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 u.s dollar stable coin in my opinion yeah i mean on the

crypto side because i like i'm i just pay attention to bitcoin but i know that you you sort of trade other stuff. The kind of narrative in Bitcoin circles is that 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 think Hyperliquid was the best performing shitcoin of the last cycle of a particular size, right? And 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, 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. 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. And so this is why tokens are down only. Hyperliquid said, okay, well, we're not going to have a massive VC 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, I'm 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 various reasons, most teams choose not to copy that model, whether it's they need to 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 said, no, no, no, we can't do that. Oh, I'm like, okay,

well, good luck. Your coaching is going to zero. Oh no, we can't give the money back 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 going to own your token. Don 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.

You can't just have a bunch of, I know you, yeah, you raised a hundred million dollar 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? Yes. So is it pretty cool to see like this stuff happening now? And even like strategy doing their perpetual preferreds and 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 out-compete 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 it's 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.

We have a lot of extremely intelligent people doing bullshit work. And 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.

And 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. And 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? Essentially, it's all our data. our interactions as humans across us the world that created these AIs. Now, Google and Facebook might say, yo, 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'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 is 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. That'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 just from a personal perspective, there's no way that I think the 40-year-old lawyer who can't retrain losing his job has any reason to slow down on this. Fuck them. It 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 not talked about that you been thinking about a lot No I think it 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 buying Bitcoin, holding it, DCAing. That's what I do. But Bitcoin is a trade. Like buy Bitcoin and avoid all this chaos. I guess that's the message.

Yeah, exactly. Love it. Well, thank you so much, man. I 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. you