Compilation | Wu Talks Blockchain

In this interview, Arthur Hayes, Chief Investment Officer of Maelstrom and former CEO of BitMEX, shared his views on the cryptocurrency space, discussing the influence of South Korea, potential regulatory changes under the Trump administration, and the evolving dynamics of global financial markets. Hayes emphasized the significance of South Korea as an important cryptocurrency market, noting that its active trading culture and technological acceptance are crucial supports. He also explored investment strategies, meme coins, and macroeconomic trends that could shape the cryptocurrency landscape, predicting that the bull market will continue driven by global inflation policies. Despite being skeptical about the U.S. government directly adopting Bitcoin reserves, Hayes believes that the transition to digital assets is inevitable.

Original link:

https://x.com/CryptoHayes/status/1863537733718999350

Hikaru: Arthur, how have you been?

Arthur: Very well.

Hikaru: Great, I'm glad to have you for this interview. We will discuss in three parts today: first, your background; second, the potential impact of President Trump’s term on cryptocurrency; and finally, your current views on the market, especially the South Korean market. I'm looking forward to it! So to start, could you briefly introduce yourself and Maelstrom? I'm curious about what motivates you to keep striving in your passion.

Arthur: I studied at the Wharton School of the University of Pennsylvania and came to Asia in 2008, working at Deutsche Bank and Citibank, gradually developing a strong interest in the financial services industry. After working there for five years, I stumbled upon the Bitcoin white paper after being laid off from my position as an ETF trader, and I began to get involved in cryptocurrency trading. Later, in 2014, I co-founded BitMEX with two other co-founders. After stepping down as CEO in October 2020, I realized that I enjoyed trading but not running a company, so I decided to establish my own family office, which is how Maelstrom came about. We are an early-stage token fund that invests entirely with my own capital. Our goal is to outperform Bitcoin and Ethereum by investing in promising projects.

Hikaru: That's fantastic! You mentioned BitMEX, which is very famous for pioneering derivatives and perpetual contracts in the cryptocurrency space. As one of the founders of BitMEX, how did you transition from BitMEX to your current role as CIO of Maelstrom? What are the differences between the two? Which do you prefer?

Arthur: Managing a small company, from my perspective, means a team of fewer than ten people, and it is indeed very interesting. The early development of BitMEX was very enjoyable. As perpetual contracts gained popularity in 2018, we quickly grew into a larger company with about 250 employees. However, as CEO, my daily work mainly involved human resources, legal, and compliance issues, which were not my initial intentions for entering the cryptocurrency space. Fortunately, I no longer have to deal with those things and only participate as a board member. At Maelstrom, I can focus on trading, investing, and ideation, working with a small team of about six people. This is what I truly love—financial markets, cryptocurrencies, and understanding new projects while promoting decentralization.

Analysis of Cryptocurrency Regulation and Macroeconomic Trends During the Trump Era

Hikaru: That's great, I think that's why all of us in the cryptocurrency industry are so passionate. Now let's talk about the topic that everyone is very excited about, which is the incoming Trump administration. It is predicted that they may implement more crypto-friendly regulations, such as appointing a new SEC chair (goodbye Gensler) and even approving more altcoin spot ETFs, like the rumored Solana and Ripple. So, I would like to ask, given this situation, what changes do you think will occur in the U.S. cryptocurrency market and the global financial market over the next four years?

Arthur: I believe we are gradually entering a phase where those holding government bonds will realize that it is a bad investment because all major governments around the world have to print money and push for inflation in an attempt to reduce massive government debt through inflation.

This is not just a problem for the U.S.; all major countries, including the EU, Japan, and China, face the same dilemma. And whether elected or unelected, politicians cannot accept austerity measures. Clearly, we saw Argentina's Milei, who claimed he would cut government budgets and achieve a balanced budget, and was elected because of it.

However, when he tried to do this, the Argentine economy performed very poorly. I remember industrial output fell by about 20%, which is a staggering number. Because when you remove all credit from the system and reduce government services, people lose their jobs because there is no money injected into the system. I don't think any politician, whether elected or unelected, would want to govern an economy like Argentina. Therefore, they choose to reduce debt through inflation, which is exactly what Trump is going to do.

One major policy that people are not noticing is that he has to print money. He needs to inflate the GDP enough to support the government's balance sheet. I know many people are focused on crypto regulation and its possible directions, but I think predicting the crypto-friendly regulations that the U.S. might introduce is very speculative. Because there are many wealthy individuals holding large amounts of crypto assets whose businesses might benefit from regulation. They will play the same game as large banks, such as donating to winning parties, entering the government, and formulating regulatory policies that benefit themselves, which may not be in the overall interest of cryptocurrency holders.

We might have a new SEC chair, but this person might choose to pursue all businesses except Coinbase, and we cannot be sure. So I think it is reasonable to have high expectations that U.S. crypto regulation will drive adoption. But the expectations in the market are usually higher than reality. In fact, Trump is a politician, and the U.S. Congress will be re-elected in two years. So he has at most 18 months to take action. Besides, he also needs to fulfill campaign promises, which are not limited to the crypto space. Therefore, I think this will be a "buy the rumor, sell the news" situation, and any policies he introduces may have positive long-term effects but will leave the market feeling less than ideal in the short term.

So if you dive into the cryptocurrency space just because you think Trump will implement positive crypto regulation, you might be very disappointed. However, I don't think the crypto market will drop because of this, as the real key point ultimately lies with the Treasury's Scott Bestant and the amount of money he needs to print to achieve Trump's economic goals.

Discussion on the Feasibility of U.S. Bitcoin Reserves

Hikaru: Okay, that's a very realistic view. It's a bit like how many token projects will release a beautiful white paper depicting grand visions, but the end result is just an MVP (Minimum Viable Product). This is indeed an important fact that people need to understand. I completely understand that the U.S. and the Trump administration may have various possible directions in crypto regulation. But there is one particular topic regarding the U.S. national Bitcoin reserve. Assuming the U.S. government really launches a Bitcoin reserve program, a strategy that programmatically limits total supply, how do you think this would affect the U.S. government and the broader financial market? What actions might other governments take?

Arthur: First of all, I don't think a Bitcoin reserve will actually materialize. But I think the path they are trying to reach this goal is very enlightening and generally positive for risk assets. If you read Senator Lummis's draft bill regarding Bitcoin reserves, the most important part is how she plans to fund this reserve. She proposed two ways for the U.S. government to purchase Bitcoin and establish a national strategic reserve.

The first way is that the Federal Reserve returns the interest income it receives from Treasury bonds and mortgage-backed securities to the Treasury. This amounts to billions of dollars each year. Therefore, she suggested using these payments to purchase Bitcoin. However, this amount is small, especially since the Federal Reserve is reducing its Treasury bond portfolio and has losses in other parts of its balance sheet. So I don't think this will contribute significantly to purchasing Bitcoin.

More importantly, she suggested re-evaluating the value of gold on the U.S. government's balance sheet. The U.S. government currently holds about 80,100 metric tons of gold, priced at $42.22 per ounce, a level set by Franklin Delano Roosevelt in 1933 by devaluing the dollar. If gold were revalued at the current price of about $26,000 per ounce, it would bring about $700 billion in paper profits to the Treasury. Therefore, the Treasury could use these funds for government projects or for purchasing Bitcoin in the strategic reserve.

But if I were a politician, I could re-evaluate the value of gold, create these "virtual" funds, and use them for my district projects, support the Green New Deal, or other plans like oil drilling, rather than purchasing Bitcoin. While I believe the U.S. government will devalue the dollar relative to gold, I don't think it will use these funds to buy Bitcoin but rather for other government projects. Trump doesn't need to go through Congress or cut spending; he just needs to have the Treasury re-adjust the gold price, say to $5,000, $10,000, or $20,000 per ounce. The automatically created funds could be used for various political expenditures.

So, I think the enlightening part about the Bitcoin strategic reserve is that it rationalizes a process of re-evaluating the value of gold, releasing paper profits for the Treasury, and using them for expenditures.

Maelstrom's Investment Strategy: Focusing on Value and Timing

Hikaru: Very interesting. It seems that this strategy might differ slightly from the thoughts of the general consumer, but ultimately it will have a positive impact on Bitcoin's price; let's wait and see.

Next, I want to talk about another topic. I believe many people are very interested in your investment and trading strategies, so I would like to ask. What standards do you mainly focus on for trading digital assets or even long-term investments?

Arthur: First, I require Akshat Vaidya, who is responsible for investments, to outperform the returns of Bitcoin and Ethereum. At Maelstrom, I have hired many people, and I could easily invest my money directly into Bitcoin and Ethereum and see what happens. So, if we are to actively invest in other projects, we must be able to outperform these two major cryptocurrencies.

We will try to grasp the cycles. I will have a macro liquidity perspective, which will also be conveyed to Akshat's investment considerations. For example, during the bear market of 2022 and 2023, we were very active and secured many highly valuable trades. Clearly, as more funds flow into the cryptocurrency space, prices rise, and trading valuations become very expensive. Therefore, we slowed down our investment pace. We pay great attention to the price at which we enter a project because price is what you pay, while value is what you get.

We cannot predict the future, but we know that if we can enter a token project at a very reasonable fully diluted valuation, even if the project ultimately performs poorly, as long as the token is launched, we can still make a profit. However, if we pay an excessively high valuation during a bull market out of fear of missing out, even if the project succeeds, we may not make money by the time the token is launched. Therefore, we place great emphasis on the investment price. Next, we will see if this project aligns with a vertical field we are interested in. But I always emphasize that the primary criterion for investment is that the price must be cheap. Because if the price is low, we have more room for error regarding the technical prospects, the team's market fit, or the time frame.

Hikaru: Very clear. This strategy of "high fully diluted valuation but no circulating tokens" is clearly not feasible in this cycle. So ensuring entry at a reasonable price, rather than paying too much during a bull market, is indeed very important.

Arthur: Yes, we all get excited and end up losing money.

Hikaru: Even experienced investors can act too quickly due to fear of missing out. Now I want to talk about a topic related to Korea, which is our local market. I noticed that Maelstrom recently launched an official blog, and you have published a lot of content in Korean. I would like to ask, what prompted you to decide to enter the Korean market? Where does your interest in Korea come from?

Arthur: I first noticed the Korean market around the ICO boom in 2017. At that time, the token trading prices on Korean exchanges were 20%, 30%, or even 50% higher than elsewhere, with Bithumb being the leader. Reflecting on my days as a derivatives trader at a bank about 10 to 15 years ago, the KOSPI options market in Korea was the most liquid options market in the world, even though Seoul had a population of only 20 to 30 million. The per capita trading activity in Korea might be the highest in the world.

Now, Koreans have shifted from speculative stock options trading to cryptocurrency. They have a high level of internet penetration, an educated population, and the upward mobility channels for the middle to upper classes in Korean society are relatively rigid. Some large companies and families control most of the resources, making it difficult to advance solely based on intelligence or education. Therefore, cryptocurrency provides a new opportunity for this highly qualified group that feels dissatisfied with social mobility. As a result, Korea has become the market with the highest per capita cryptocurrency trading volume in the world.

I noticed at BitMEX that the trading volume from Korean users was very strong. So, in the current investment landscape, we want to closely connect with areas where users are active. Although there is technological innovation worldwide, the real users are mostly concentrated in Northeast Asia and Central Asia. If you want to know where large-scale cryptocurrency trading is happening, you must pay attention to these regions. Therefore, we decided to start with Korea, establishing a local language blog, with industry professionals translating my English content to make it easy for ordinary Korean crypto investors to read and understand. This is why we want to enter this market, as it may be the most important market globally from a purely cryptocurrency trading perspective.

Cryptocurrency Regulation in Korea and Potential Institutional Participation

Hikaru: I completely agree. If you look at Upbit, for example, it ranks high in global centralized exchange trading volume, second only to Coinbase and Binance. This indeed shows the popularity of the Korean market. The "kimchi premium" also exists in reality. Earlier this year, during a mini bull market, Bitcoin's price premium on these exchanges reached as high as 20%. Additionally, Koreans have a very high enthusiasm for tokens like Dogecoin and Ripple. So, I think the market is very hot and will continue to grow with the introduction of more cryptocurrency regulations, which will provide clearer rules for exchanges and consumers. I would like to ask, what do you think about the future of the Korean digital asset market? How will the market landscape change with more regulations coming into play?

Arthur: If I remember correctly, Korea is currently voting on a tax bill. I heard that this bill mainly involves capital gains tax and taxation related to cryptocurrencies. It sounds like this bill may be delayed because there is a high proportion of cryptocurrency traders in Korea, and clearly, they do not want to pay high taxes on these trades. If a tax policy is ultimately implemented, it needs to be done in a way that does not significantly suppress trading volume. So, I am looking forward to seeing what decisions politicians will make today (around November 26).

Additionally, I think an important question is whether institutions in Korea will participate in cryptocurrency trading. Currently, I understand that only personal accounts can be opened on Korean exchanges, and corporate accounts have not yet been opened. If these institutions can participate in the future, for example, by utilizing the market's high liquidity and activity to provide services to millions of Koreans holding cryptocurrencies, it will create huge demand. Furthermore, if Korea allows foreigners to open accounts in their own names, it will attract more external liquidity into the Korean market, helping to balance the price premiums of certain tokens that arise from excessive popularity.

Given the large base of cryptocurrency supporters in Korea, politicians who might try to restrict cryptocurrencies for the benefit of traditional finance seem to be concerned about losing the votes of the young and active crypto community. Therefore, I think this is a very educational case that shows what happens when a young, active, and increasingly wealthy group of cryptocurrency holders begins to exert their political influence. This situation may become a microcosm for other regions around the world. The younger generation and cryptocurrency holders will try to push for regulations that align with their interests through political power, rather than just serving the regulations of traditional asset classes that existed before they were born.

Insights on Meme Coins and Their Speculative Nature

Hikaru: You mentioned a very interesting dynamic, especially after Korea experienced the collapse of Terra Luna. Many legislators realize that digital assets are the future, but the key is how to take these steps cautiously. Education is very important, and ensuring that events like the collapse of Terra Luna do not happen again is equally crucial. Therefore, they are being very careful in their advancement, not just for the coming months but also laying the groundwork for the next few decades. This is indeed a good point. Now I want to switch to a fun topic: what is your favorite meme coin?

Arthur: My favorite meme coin? Of course, I will only talk about what I own. I like GOAT, which is a meme coin created by Truth Terminal AI. I think it is one of the first meme coins created by AI large language models (LLMs), and there will definitely be various themed different variants in the future, but generally speaking, pioneering themes will retain value. Therefore, I think GOAT may maintain a market cap between $1 billion and $5 billion for quite some time, unlike many other meme coins that quickly go to zero.

Additionally, I am interested in some projects in the decentralized science (DeSci) field, like Worm; I find it both interesting and funny. Other than that, I don't follow many meme coins. I often hear various discussions about meme coins, and young analysts within Maelstrom are always sharing updates on different meme coins. I occasionally check out what's interesting and then buy a few casually. It's a fun game, and I enjoy it. Of course, I haven't invested too much money; this is purely speculation and gambling. But I think it is very enlightening because it helps to understand human emotions and how those emotions are reflected in trading charts.

Hikaru: Indeed, regardless of the outcome, one point we can all agree on is that we truly enjoy ourselves in this process.

Arthur: Exactly, in this universe, we should enjoy life and hope to make some money along the way.

Summary of Bitcoin's Role in the Current Bull Market

Hikaru: Of course, we also make new friends in the process. The social capital of the meme coin community is very strong, and this will not disappear in the short term.

Arthur: Indeed. Social media allows us to share viral memes on the internet, so why not try to make money by predicting the next hot trend?

Hikaru: I completely agree. Alright, Arthur, thank you very much for your insights. I believe this is significant for cryptocurrency investors around the world, especially with Bitcoin nearing $100,000. However, I have one last question: do you have any messages you would like to convey to our Korean community and the global audience?

Arthur: I think people should continue to buy cryptocurrencies. We are still in a bull market. I know some people think Bitcoin might stagnate after reaching $100,000, but ultimately, every major economy and government has committed to reducing debt through inflation rather than addressing the structural issues in their economic and political systems.

Given this, we should hold the best-performing asset since the 2008 global financial crisis, which is Bitcoin. Of course, other cryptocurrencies will follow suit. So, do not be discouraged if Trump's crypto policies do not meet expectations. He will print money, China will print money, the European Central Bank will print money, Japan will print money, and Korea will print money; every country will print money. Therefore, I believe we are still in the early stages of an explosive bull market.

Hikaru: I completely agree. I think many governments and financial markets are just using one temporary measure after another to address short-term issues, but ultimately we all know this will not last. And Bitcoin is the only long-term solution that can truly address the fundamental problems. Alright, thank you very much, Arthur. We look forward to inviting you for another interview. Wishing you a successful bull market; let's see how it turns out!

Arthur: Thank you for the invitation.

Hikaru: Thank you, Arthur.

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