In this podcast, Nic Puckrin once again invited Arthur Hayes, a veteran expert in the cryptocurrency field, to discuss the current market dynamics and future investment opportunities. As the co-founder and former CEO of BitMEX, Arthur has deep and unique insights into the crypto market. In the show, he analyzed the impact of the volatility of the yen on the market and the role of the US Treasury in the political environment.
In the show, Arthur discussed in detail the impact of the unwinding of the yen carry trade on cryptocurrencies and predicted the price trend of Bitcoin and Ethereum. He also discussed how the upcoming US election may affect the financial markets, emphasizing the importance of political factors in economic decision-making. In addition, Arthur also shared his views on Aptos and Solana, analyzing their potential in the field of Web 3.0.
At the end of the show, Arthur presented his predictions for the future market and discussed the development prospects of Bitcoin L2 (second layer solution). He called on investors in the crypto industry to be more politically active to ensure that their interests are reflected in policy making.
Nic Puckrin raised the current market chaos, especially the volatility of the yen, the unwinding of carry trades, and market concerns about recession. He reminded the audience to consult a financial advisor when discussing investments.
Arthur emphasized that the movement of the yen is the most important factor in the current market and mentioned that he had written a paper on the Japanese economy.
Japanese Economy and Monetary Policy
Arthur explained the impact of the US Treasury's quarterly refunding announcement on market liquidity. He pointed out that the Ministry of Finance reduced the issuance of short-term treasury bonds in the second quarter due to tax revenue, which led to a decline in market liquidity, which in turn affected the performance of cryptocurrencies. He believes that as the Ministry of Finance re-issues treasury bonds in the second half of the year, market liquidity will gradually improve.
Unwinding of the Yen Carry Trade
Arthur analyzed the operating mechanism of the yen carry trade in detail, pointing out that the Bank of Japan (BOJ) supports this huge carry trade by creating yen. The scale of this trade has reached 25 trillion US dollars, making it one of the most important trades in the world. With the depreciation of the yen and the emergence of inflation, the Japanese people began to become more dissatisfied with the government, and the BOJ was forced to take measures to gradually normalize monetary policy.
Future Outlook
Arthur believes that the unwinding of the yen carry trade is a structural process that is expected to continue. He is cautious about the future policies of the BOJ and believes that they will not easily return to negative interest rates. He also mentioned that U.S. Treasury Secretary Yellen and Federal Reserve Chairman Powell may help the BOJ transition smoothly and mitigate the impact on the market by printing money.
When discussing the role of the Treasury, Nic mentioned the influence of Treasury Secretary Yellen and her role in the upcoming U.S. election.
Arthur said that the Treasury Department has always been a political entity, but the current political climate has made its market operations before the key election date more obvious. He firmly believes that Yellen will do everything possible to support Vice President Harris' re-election chances.
Monetary Policy and Elections
Arthur believes that the Treasury and the Federal Reserve may use the approved liquidity swap program to provide dollars to the Bank of Japan (BOJ) to help maintain market stability. He described a possible operation in which the Treasury would buy back U.S. Treasury bonds and stocks at a price that would not affect the market, and then provide dollars to banks and companies to encourage them not to sell these assets in the market.
Future Outlook
Arthur pointed out that this operation could allow the yen to gradually appreciate without actually unwinding the carry trade, while continuing to drive the rise in the U.S. market, creating favorable conditions for the Democratic Party to win the election. He believes that this strategy may keep the market stable and bring benefits to the political world.
Crypto-JPY Carry Trade
Arthur confirmed that there are indeed some funds and cryptocurrency investors who invest in cryptocurrencies by borrowing yen, which is a common practice. He pointed out that many traditional hedge funds seek the lowest cost of funds, and if risk management allows, they will borrow yen and use these funds to buy crypto assets such as Bitcoin.
Cryptocurrency as an investment asset
Arthur mentioned that with the inflow of yen borrowing, the liquidity of funds in the cryptocurrency ecosystem has increased. He also pointed out that the price of Bitcoin in yen has risen a few days ago, which shows that this trading strategy is effective. If the Bank of Japan continues to maintain zero interest rates, then borrowing yen and investing in Bitcoin will be a very attractive trade.
Market Liquidity and Risk Management
Arthur further explained that when there is a large-scale de-risking across the entire financial ecosystem, investors tend to sell more liquid assets, such as cryptocurrencies, rather than those with less liquidity (such as commercial real estate). He emphasized that the liquidity of cryptocurrencies makes it the asset of choice for investors during market turmoil.
Ethereum's Liquidity Issue
Nic mentioned the recent redemption of Ethereum and asked if this was related to the unwinding of the yen carry trade.
Arthur believes that this may indeed be related to some large traders exiting the market, especially in the current market environment, many investors may choose to reduce their risk exposure, resulting in liquidity changes.
Seasonality in Crypto Markets and Bitcoin Performance
Talking about the “bull run” in crypto markets, Nic raised the question of whether Bitcoin will recover to its all-time high by the end of the year.
Arthur believes that it all depends on the state of the market. He said that if the US stock market falls by more than 20%, this will attract great attention from the authorities, especially Treasury Secretary Yellen, because it may affect the upcoming election.
The impact of the stock market on voters
Arthur pointed out that wealthy baby boomer voters play an important role in the election. If they suffer significant losses in their stock investments, it may affect their voting behavior. He stressed that if a financial crisis occurs during the election, voters may be dissatisfied with the current government and even choose not to vote, which is a potential risk for the Democratic Party.
Government Revenue and Capital Gains Tax
Arthur also mentioned that the US government relies heavily on capital gains taxes to support its fiscal revenue, especially in states like California, where the performance of technology stocks directly affects the state's fiscal situation. Therefore, if the stock market falls and capital gains tax revenue decreases, the government's fiscal deficit will widen, which will force the authorities to take action to stabilize the market.
Future Market Reaction
Arthur predicts that if the S&P and Nasdaq indexes fall 20% by Friday and the market fluctuates over the weekend, some measures may be taken over the weekend. If the market crisis gradually subsides in the short term and the situation does not change much, it may be necessary to wait one to two months until the market regains confidence in the fall. As the election approaches, the government may take more active measures to ensure that wealthy voters are satisfied with the market, thereby influencing the election results.
Nic mentioned that cryptocurrency has become increasingly important in the political environment in the United States and has even become a key factor in voters' votes. He cited an article by Arthur, which mentioned a scene he saw at a party in Ibiza, and compared how politicians fight for crypto votes with girls who attract attention at a party.
Political candidates' interaction with the crypto industry
Arthur believes that if the market has too high expectations for a candidate's victory, it may bring risks. He mentioned that Trump's performance in the debate was very good, which increased his chances of winning voters. But with Biden replaced by Harris, Trump's chances of winning may decline, which may affect the confidence of the crypto market.
Strategies for the Crypto Industry
Arthur noted that while both the Democratic and Republican parties will eventually take steps to support their voters, the crypto industry should be more proactive in asking political candidates to take action rather than expecting them to deliver on their promises after the election. He suggested that voters in the crypto industry should ask candidates to take specific steps before election day to gain their support rather than expecting them to do something after the candidates are elected.
Views on the Future
Arthur stressed that voters in the crypto industry need to clearly express their needs and use this to influence candidates' policies in the election. In this way, the crypto industry can gain a greater voice in politics and ensure that their interests are reflected in policy making.
Arthur mentioned his recently launched "Airheads" project and was very optimistic about Ordinals. He believes that as the Bitcoin market recovers, Bitcoin holders will become richer and will seek some digital assets that can embody cultural values. He emphasized that ordinals, as digital artifacts native to Bitcoin, are fundamentally different from traditional NFTs, which makes them uniquely attractive in the market.
Opportunities in the current market
Arthur pointed out that the current low market sentiment is an excellent time to build a unique art collection. He encouraged investors to find original works of art that resonate with them and use this opportunity to demonstrate the potential of ordinals technology.
Focus on Exchange Tokens
When it comes to tradable alternative coins, Arthur mentioned some undervalued protocols that are able to provide real returns to traders. He did not name specific projects, but stressed the importance of finding protocols that can provide stable or other cryptocurrency returns. He mentioned that the valuations of many projects do not reflect their actual value, especially in the general market sell-off.
The Potential of Aptos
Arthur also mentioned his role as an advisor to Aptos and expressed optimism about the project's cooperation with traditional financial institutions. He believes that Aptos's application in the Web 3.0 field will drive its growth and predicts that Aptos will achieve important changes in market position in the next two to three years.
Future Outlook
Arthur said that he and the team are writing a comprehensive model that details the potential of Aptos and the details of cooperation with large financial institutions. He will share more information at the Korea conference in September and looks forward to revealing more at events between South Korea and Singapore.
When discussing Aptos and Solana, Arthur emphasized that although both use the Move programming language, he does not think that technology itself is the key factor. He pointed out that it is the actual usage and needs of users, rather than technical indicators (such as transactions per second) that ultimately determine the success of cryptocurrencies. He believes that financial institutions are focusing on how to actually operate on public blockchains when moving to Web 3.0, rather than technical details.
Aptos's Market Positioning
Arthur mentioned that the Aptos team actively cooperates with traditional financial institutions to provide solutions so that these institutions can smoothly switch to on-chain operations. He believes that this cooperation will drive the growth of Aptos' transaction volume and network fees. He emphasized that although technology may affect the decision-making process, for ordinary traders, the focus should be on the partnership with these financial institutions and how they use the platform.
Competition with Ethereum
When it comes to Aptos' competition with Ethereum, Arthur pointed out that although Ethereum has a dominant market position in the issuance of RWA (real world assets), when financial institutions choose blockchain, they mainly look at the functions they need. For example, how KYC (know your customer) works on the chain may affect the choice of institutions. If Aptos can provide a better user experience in some aspects, then institutions may be more inclined to choose Aptos.
Crypto Areas to Avoid
When talking about crypto investments to avoid, Arthur first emphasized the risks of leveraged trading. He pointed out that leverage should not be used unless investors can pay attention to the market throughout the process and manage their positions at any time. Many investors may suffer heavy losses when the market fluctuates, especially if they fail to monitor their positions in a timely manner. He reminded that short-term market fluctuations do not necessarily mean that the long-term value of a project will decline.
Mindset for investment decisions
Arthur mentioned that when facing losses, investors should consider whether to transfer funds to more promising projects instead of simply waiting for a return. He believes that holding poorly performing assets may result in the loss of opportunity costs. For example, if an investor loses money on a project, but at the same time there are other projects that may rise sharply in the next few months, it may be a wiser choice to adjust the portfolio in time.
Focus on the timing and market performance of tokens
Arthur pointed out that investors should pay attention to the timing and market performance of tokens, not just the industry or narrative to which they belong. He said that many tokens were issued at high market capitalizations but lacked a user base and growth potential, which will make them challenging when the market recovers. He suggested that investors focus on new projects that have performed poorly in past market cycles but may perform better in the current market environment.
Avoid overvalued projects
Arthur specifically mentioned that projects that reached high valuations in the 2021 cycle may face greater risks if they lack corresponding users and growth indicators at present. Investors in these projects should consider gradually exiting and investing their funds in emerging projects that perform better.
Bitcoin Price Prediction
While discussing the future of Bitcoin, Arthur gave a rough target price, predicting that Bitcoin will reach $100,000. He mentioned that the price may fluctuate in each $5,000 range, and emphasized that changes in the market may be affected by a variety of factors, including the economic situation and policy changes.
Political and Economic Influence
Arthur mentioned that the current political situation in the United States may affect the market, especially in the upcoming election. He believes that Vice President Harris is a slightly popular candidate, but if a financial crisis occurs before the election, Trump's chances will increase. He stressed that the performance of the market (such as the S&P 500 index) and economic indicators (such as oil prices) will be important references for judging the results of the election.
Supporting the Bitcoin Ecosystem
Arthur talked about his support for Bitcoin and explained why he participated in the "Maelstrom" open source funding program. He said that the success of Bitcoin is directly related to his wealth, so he hopes to enhance the Bitcoin ecosystem by funding research and projects. He believes that it is the responsibility of every holder to invest in the future of Bitcoin to prevent large financial institutions (such as Blackstone and Vanguard Group) from controlling Bitcoin's dominance.
How to participate in the funding program
Arthur provided information on how to participate in the Maelstrom funding program. He mentioned that those who are interested can apply for funding through the official website, and all proposals will be evaluated by Jonathan Beer and the grantees will be notified around September. He encouraged everyone to actively participate to promote the further development of Bitcoin.
The Potential of Bitcoin L2
Speaking about the sustainability of Bitcoin, Arthur is optimistic about the development of Bitcoin L2 (second layer solutions). He believes that L2 technology will bring more value to Bitcoin, especially as miner rewards gradually decrease and transaction fees need to be balanced.
Arthur mentioned that he is serving as an advisor to an L2 project called Mezzo and believes that these technologies will enable smart contracts and decentralized finance (DeFi) on Bitcoin.
Security and Usability
Arthur emphasized that while some core developers are cautious about L2 solutions, he believes that security is the top priority for the network. He pointed out that although some people have criticized Ordinals as garbage and spam on the blockchain, this "junk" actually pays transaction fees, thereby supporting the operation of the network. He believes that similar ways should be created to allow DeFi applications to exist on-chain and pay for their use.
Avoid becoming Ethereum
Arthur warned that Bitcoin should not fall into the situation of Ethereum. He mentioned that when Ethereum dealt with the DAO hack in 2016, it hard forked to save the project and sacrificed its properties as a currency. He believes that Ethereum is positioned as decentralized computing, not currency, so the contradiction between the two makes its development challenging.
I wanted to create authentic digital art, which I defined as demonstrating a new way to express human creativity. I instructed the Oyl team to create an art series that could only be done using Ordinals technology. The creatives at Oyl came up with the Airheads concept.
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