Why Arthur Hayes Thinks the AI Bubble Bursting Could Spark a Crypto Bull Market

Transcript

Hi everyone, welcome to Unchained, your no hype resource for all things crypto. I'm your host Laura Shinn. Thanks for joining this live stream. Today's guest is Arthur Hayes, CIO of Maelstrom. Welcome Arthur. >> Hi, thanks for having me again. >> Yeah, excited to chat. Um, so we've had you so many times on the show and I would say if I were to just condense your thesis for Bitcoin and crypto down to one thing, it usually involves money printing. And I'm sure you're very well aware that Trump is saying that, you know, the ceasefire in Iran is on life support. Um, you know, we're seeing this prospect of potentially like a some kind of energy crisis looming. and your recent cryptohaze substack piece starts

with you anticipating what you describe as the incipient bull market. I'd love to hear why do you think that a bull market is around the corner? So I think at the end of the day wars are inflationary especially the US Iran war is no different and what's happening in terms of AI and defense and commodity stockpiling I think points to inflation around the world and pretty much any fiat currency you can imagine especially in the United States and if you take a look at what Trump has done whether you agree with it or not you know if you think about the themes that are going to continue past whatever happens with the how this war ends or you know continues

into perpetuity is nations are going to spend on AI and drones. nations are going to spend on redefining their supply lines, whether that's building pipelines, sourcing goods from other countries, stockpiling commodities. And these two things together lead to an inflationary environment. And the central banks and the commercial banks are going to step up to the plate and create the credit needed to make sure that this happens, at least in developed um markets or very wealthy sort of non-developed markets. So unfortunately if you're in Bangladesh you're [ __ ] If you're in Philippines you're [ __ ] People might starve. People might die.

But at the end of the day most people don't give a [ __ ] So um markets don't care because they don't really buy anything anyways. So that's the unfortunate part of the situation. So I think people when people get hung up on oh yes there's this really bad thing because all this fertilizer is not getting through this J4 moves and there's going to be this food crisis and rebellion. It's like well rebellion in all the places that you don't care about. Like when's the last time that you thought about Binia Fasa or what's happening in Dhaka in Bangladesh? Like most people have no idea, probably couldn't even locate these places on a map. Yet they're worried about this sort of situation that's unfolding because some commodities aren't getting through the street. The Europeans, the Americans, the wealthy Asians, they're going to get their [ __ ]

Yeah, it's a very um it's probably accurate, but it's a very sobering and um slightly dystopian take. But um so, you know, one other thing that I saw in your piece was you talked about how you felt like the war will recalibrate the allegiance or difference that different countries have um to the US. you know, you talked about like Europe, Asia, Australia, um may, you know, because of the fact that their populations are going to suffer more than we will in the US, that that would then lead to kind of a change in their relationship to the US and also to dollar assets. So explain how you think

that will happen. So I think let's go back to the Asian financial crisis in sort of the late 90s and essentially you had this situation where a lot of these Asian countries like Thailand, Malaysia, um Indonesia, they ran out of dollars because they borrowed all this money. They couldn't service the debt and dollars and then all of a sudden they have a balance of payments crisis. You know the situation resolved. Ultimately the Fed printed money and made sure that it got to the banks to sort of roll over some of the worst loans and they muddled through. But the lesson for a sovereign reserve manager was I need to have dollars ready because if something happens I need to be able to buy medicine and oil and different things uh and defend my currency. So if I have any savings from

an exportoriented economy which most of Southeast and North Asia is then I save those in dollars. What does that mean? I have large US Treasury balances large investments in equities and the corporates followed suit right? There's no investment opportunities at home. It's an exportoriented economy. The, you know, the people in the country can't really afford to buy your goods, but everyone can afford to buy them in America and Europe. And so therefore, you save in dollar assets, treasuries, and equities. And you believe that you're safe because of the last crisis, which was caused by a shortage of dollars. Therefore, if I have a lot of dollars, I'm safe. And so, you didn't really think about the physical world that we live in, right? that a lot of your commodities first come from, you

know, the Middle East. Then they transit through what a 3 km, three mile long um waterway that's controlled by Singapore, Indonesia, and Malaysia, the straight of Walaka, and then they get to, you know, their destination. And this Iran war is making people realize the physical constraints to trade. If for whatever reason um Iran can close the street or severely curtail the flow of goods and the United States who you hold all their assets because you believe that they'll be able to do something about it and what are we like seven or eight weeks into the war and regardless of what Trump says about the strap being open it's not open in the volumes needed to supply the rest of the world with the commodities that they need it an example would be Australia Australia imports pretty much 100% of

its refined hydrocarbons from China why because that's a little bit cheaper and they, you know, don't believe there's any sort of reason why you would build build your own refineries. And so then when China says, "Hey, we need to make sure that our people have enough um fuel. We're not exporting anymore." This was at the start of the war, they put this I think January, they stopped exporting certain refined um hydrocarbons. Australia finds themselves with no jet fuel and then no foreign airlines were going to land in Australia because they don't know if they're going to have enough fuel to make the return flight. And so all of a sudden you have this country at the ass end of the world depending on China for their 100% of the refined oil products. The prime minister literally got on a flight to Singapore and begged the prime minister of

Singapore pay whatever it cost to get jet fuel so that his population wasn't stranded. And great, what is your treasury bond and your equities worth when you can't have a commercial flight so that your people can come and go as they please, right? And so I think sovereign nations are waking up to the fact that great, I have a lot of dollars, but they don't buy me anything. So why do I have these dollars? Maybe I should have built my own refinery. Maybe I should have built another pipeline out to um export my hydrocarbons out of the Persian Gulf. by, you know, the UAE or some other countries in the Gulf. Maybe I should have stockpiled more than, you know, 30 days worth of food or hydrocarbons and spent that money on that rather than holding this piece of

paper, you know, guaranteed by the mighty of US government. And so I think that's this is a secular trend where people are going to wake up and realize this is the problem that I face based on this crisis. How do I solve it? Well, I either don't save in dollars. I save in another currency like gold. And I make sure that I have enough of the inputs of civilization so that if there's another sort of war or conflict, I'm not begging around the world or in certain cases my people are starving. And so that I think diminishes on a structural secular basis this demand for treasuries. And so people are going to reccalibrate how they save at the sovereign level, which is very bad for the United States because the massive trade balance is financed with a massive capital account

surplus. And this capital account surplus is this um phenomenon of sovereign nations recycling their savings into dollar assets to protect their currencies and to be able to buy dollar things in the global markets. >> And so then play that out a little bit further. So then what the reserve assets in yuan go up and then how does that affect the markets? What or does that just lead to more money printing or >> Well, at the end of the day, it means that if I hold the Treasury bond and I need to instead of holding treasuries, I need to hold more oil and wheat and building infrastructure, then number one, I'm not going to buy as much or any US treasuries with my, you know, export

surpluses. And number two, I have to sell down these assets to build these physical things or stockpile these physical commodities. And if foreigners are were this um inelastic bid for assets and now they're disappearing, you have a problem in the US markets. And the US markets are they need this foreign bid of assets to have these lofty prices. These lofty prices give people capital gains taxes. They you know this funds the government. And so without this capital flowing into the United States, there's an issue with how the government funds itself. Interest rates go up. Um the cost of debt goes up. Equity prices go down. People feel less wealthy. they spend less and so this really affects the the US economy and so my thesis is that you know

Bessant and whoever is a chairman of the Fed will print enough money to make sure that this foreign selling on a secular basis that does not impact upon only for US asset markets. >> Okay. And then one other quick question on this. Do you think the trend in stable coins could outweigh that at all or is it is that just too small right now or what are your thoughts? >> Let's see. Obviously, I published some very massively bullish piece on, you know, long-term stable coins generating all uh all all these dollars. I don't know what the stable coin growth has been over the last, you know, year. I don't think it's been that, you know, impressive in terms of the expectations.

And so, I guess we'll see. I'm not really sure that the stable coin thing, you know, really moves the needle in terms of these secular flows that have driven sort of the primacy of uh US asset markets from the Asian financial crisis to the present moment. All right, so in a moment we're going to talk a little bit more about how the Iran war is affecting markets. But first, we're going to take a quick word from the sponsors who make the show possible. Who in the group chat has the absolute worst sports takes? You guys, it's got to be me. I don't even watch sports unless it's a global event. But Coinbase is giving me a chance to outpredict a pro basketball coach for a share of five Bitcoin. And honestly, I'm built for this. I have beginner's luck, energy, and absolutely nothing to lose.

Coinbase is bringing in pro basketball coach Lethal Shooter to see if you can actually outpredict a pro for a share of five Bitcoin. Get more correct than Lethal Shooter. Split five Bitcoin and get a chance at a private coaching session in LA to perfect your jump shot. Coinbase 1 is the ultimate membership to make the most of your money and has been amazing for me. Zero trading fees on thousands of crypto assets, 3.5% APY on USDC, boosted staking and lending rewards, and up to 4% Bitcoin back with the Coinbase One card. If you trade crypto regularly, the basic annual membership can pay for itself. Plus, the $1 million streak prize pool is still live. You can also get 20% off the first

year of Coinbase 1 annual plans and a $50 Bitcoin bonus when you spend $100 on a new Coinbase One card in the first 30 days through May 31st. Make your predictions and split five Bitcoin. Get started at coinbase.com/unchained. That's coinbase.com/unchained. Join today at coinbase.com/unchained to start your predictions. No purchase necessary. See rules and other ways to enter. Terms applied to other offers. Futures swaps via Coinbase financial markets. Risk of 100% loss. Payouts event-based. Not investment advice. Not available in Nevada. Coinbase. One card

is offered through Coinbase Inc. and Cardless Inc. Cards issued by First Electronic Bank. Bitcoin back rates are based on card holders assets on Coinbase. Back to conversation with Arthur. So, you also ran another essay, No Trade Zone, in which you saw a few potential scenarios for what would happen with the war. And it's so interesting because it looks like one of your scenarios is sort of playing out. You called it the Tan toll booth. And um you know, right now it's that situation like Iran is allowing friendly ships to transit through the street, is taking payment in Chinese yuan, crypto. Um I think even some foreign central banks are starting

to sell treasuries to source yuan. And you said um essentially quote if this scenario occurs it is the end of the petro dollar and the rise of the new global reserve currency or a basket of them. And you kind of like showed how this was starting to happen. Um, so you know, it's interesting to me because like we're also seeing that even neocons like Robert Kagan in the Atlantic was saying that the US has suffered a total defeat. So I wondered if you could just talk a little bit more about like how you see all of these trends playing out in the long term in terms of the geopolitical balance.

So I think obviously there's you know many in the US political elite who believe that the United States whether it's for religious reasons or whatever um deserves to be the global superpower is the empire is the best for all these you know uh certain reasons whatever they believe and that you know this war is sort of damaging that sort of prestige and the the response to that is destroy Iran, right? Bomb them until they're, you know, back to the stone age, as Trump said in one particular tweet a few weeks ago. And then on the other hand, you have people who are a little bit more like, okay, well, empires are very expensive to run,

right? This whole US hegemonic infrastructure is expensive. That's why the US has, you know, the, you know, ridiculously high uh trade deficit uh with a capital cl surplus. You know, the middle class is hell out. It doesn't produce anything. it just exports finance because that's how the empire um that's the software that the empire runs on and they say well that's not a great deal for Americans maybe we can allow China or some other nations to sort of you know hold the baton with us and it becomes cheaper right and so there's this battle in the elite political circles as to which one and so you see Trump sort of vacasillating between okay let's you know nuclear bomb them or he's as he's threatened or let's you know try to come to some sort of deal and Again,

I don't know which one of those will actually occur, but it seems that the muddle through enough gets through so that things don't completely blow up is the situation that we're we're currently in. The ceasefire is on again, off again. Who knows what's really going on, but obviously some ships are getting through. Some oil and hydrocarbons and fertilizers getting through. Obviously, it's those who can pay the most is getting it. But again, the world isn't ending because of the Iran war. And let's call it one or two years, hence or post this, there will be more pipelines.

There will be redundant supply chains. And this card that Iran can play now will no longer be playable because everyone else will diversify the way in which they move goods. That's including China. Right? So people say, "Well, China is Iran's best friend." China imports more crude oil from Saudi Arabia than Iran. So to some extent they're like, "Okay, well if the US wants to spend billions of dollars and waste all their ammunition uh against Iran, cool. We've been stock planning this stuff for a long time. We'll just sit in the background and see what happens." So I think we're going to see what happens for the situation. For most people in the world, things are going to get more expensive, but you're still going to eat. Obviously, there's going to be a lot of people living in the world who are not going to eat, and that's going

to be very tragic, but again, no one cares. >> Yeah. I mean, it's Yeah. sad, but um it is a fact. Okay. So, one other part of the piece that you talked about um or that I wanted to talk about was you said that you were looking at the West Texas Intermediate WTI futures prices um as a signal of what was going to happen in the global economy and that you said one possible outcome would result in all hell breaking loose. um explain like why you're watching those futures in particular and um how you know the the trend or one of the trends in those prices could pretend that's all hell breaking loose in the global economy.

>> Yeah. So obviously Trump and those who support him in the Republican party, they have an election coming up and the US voter is very sensitive to gas seed prices because the US economy is built on people driving to places and spending lots of money on gas. And so the the metric to look at for what's going to be the biggest indicator of what a price a gallon of gasoline is going to cost is the WTI metric. And there's so many different crude metrics depending on the type of crude, where it's located, all these sorts of things. But again, Trump is very concerned about domestic politics, especially the election that's coming up in November. And so if you see WTI of all the measures, you know, ripping higher, that's going to be concern for him and his Republican backers. If you see the backend futures,

like, you know, 6 months out rising, basically saying, okay, well, this is going to last a long time. You know, I should demand more for my barrel of crude in six or 12 or 18 months. That's also very bad. That basically means that the market is saying, "Okay, well, this thing is going to last to a certain length of time and it's going to get worse and worse and worse." And so the spread between those is what I look at. I pull this up this chart uh every morning and I say, "Okay, well, I don't care what Trump said. I don't care what the IRGC said in Iran. Let me see what the oil market says in the only thing that really matters to Trump." He doesn't care if the Europeans freeze the death of a winner. But if the median voter in a battleground state is paying

$7 for gasoline and that means they're going to vote for the Democrat, that's when Trump cares. >> Okay. Yeah. Yeah. Um we'll have to see what happens with that. Um you know, one other thing that I saw is in the I think it's two essays ago, you said that you considered Q1 a no trade zone. Uh why did you think that and now what's your position for Q2? So in Q1 I was very worried about AI deflation and you know as we've seen starting with the tech companies people are laying off their least productive workers and replacing them with AI tools and my whole thesis was and you know this is not my original thought there's been lots of macro analysts who pointed this out is that 10 to 20% of the workforce getting let go

because of efficiencies in AI means that these high consuming individuals no longer can service their debts and no longer are buying that runs the American economy. The American economy is very leveraged to the consumer and to consumer debt. So if you take out those earning, you know,$100, $200,000 a year because, you know, their bottom 20th percentile company says, "Okay, well the AI is better. I'm just going to fire you, which we've seen, you know, 10 to 50% reductions in the label force at a lot of these large tech companies that are the leading adopters of AI." Then you say, okay, well, this is happening. At some point, you know, the banks are going to pay have a credit issue because they're holding these loans on their

book at 100 and maybe they're worth zero because all these people can't service their debts. And the software ETF, IGV US sold off aggressively from October till, you know, probably when the war started. Bitcoin followed suit. The NASDAQ was pretty flat over the same period. So this to me said that Bitcoin is saying that there is not enough liquidity being created. Central banks seem to believe that AI is a productivity miracle. Therefore, they don't need to print any money. But Bitcoin is saying something else. Well, there's not enough credit being created.

There's a deflationary event. And so, okay, well, I know eventually there'll be a crisis and they'll print enough money to make me good, but why would I be adding risk at this particular point in time uh in my portfolio? And so, that's why we basically did nothing for the first, you know, call it um three month for first quarter of this year. Okay. And um so now we're in Q2 and also we're in a stage where uh it looks like Kevin Worsh will be confirmed as the next Fed chair. So I was curious for your thoughts on how his tenure will affect the crypto markets.

>> So I think people place a lot too much emphasis on who the Fed chair is. Uh he faces very constrained options, right? So all the talk is Wars has been um blasting the Fed because the Fed has too large of a balance sheet and this has been the the talk in the central banking uh community of like what does the Fed do with the composition and the size of its balance sheet and Steven Moran another third governor published a paper basically an a menu option of how to reduce the balance sheet and you know he's been very precient in terms of his um policy papers and they are read and they are acted upon by those in that community. If you read through the the

paper, which I suggest anyone who's serious about making money um does, then you see that all of his uh ideas are around changing regulations so that banks want to buy more treasuries, want to conduct more repurchase operations, and the Fed can say, "Okay, well, if the banks are doing it, we don't have to do it." And so it's, you know, Robbie Peter to Peter to pay Paul. It's okay. Yes, the Fed balance sheet technically is declining, but it's being replaced one for one by the banks um increasing their holdings of US Treasury. So, the net effect on liquidity is zero. So, can Washington get up there and sound like he's this, you know, hard money advocate, Fed independence, yada yada

yada, when in effect in the dollar markets, it doesn't mean anything because it's not as if the Fed is actually going to go out there and start selling bots and saying, "Okay, well, we need to reduce our balance sheet by two trillion, right?" Okay, well then don't sell $2 trillion bonds. They're your bonds. You can do that, right? So, I think that is the policy option that nobody is talking about. Everyone's talking about regulatory changes that make the banks want to do the Fed's job for it. And so, that's why I say he's a um he's a neutral sort of uh variable in this sort of monetary equation, but let's focus on the wartime economy and AI. How is that going to be financed?

Let's focus on the impetus for commercial banks, both the United States and China, to do the bidding of the government to finance AI, to finance war. >> Okay. Yeah. I definitely want to ask you a bit more about the AI piece since that's, you know, what you wrote about. But before we do, I just have a couple more questions about the war. Um, you've lived in Asia now for a very long time. I was so curious to hear like if you knew kind of how people in Asia perceive the Iran war and the global geopolitical balance and then therefore you know because especially in the crypto markets I know um the Asian traders have have a big effect on on things and how all that might translate to um some kind of

effect on the crypto markets. >> Yeah. So on sort of a qualitative squishy feely basis, I I had a friend who was at the Hong Kong 7th. It's a rugby tournament. It happens in March March or April every year. It's a big event uh for Hong Kong. And I think it was a semi-final or quarterfinal game and you know the women's team, no not the women, the men's team was out there on the pitch and the entire stadium was booing them, right? Uh, and so I think the sentiment around Asia is, you know, the United States [ __ ] all this [ __ ] up for we don't know why and we're all going to suffer, right? Because it's not like, again, Americans are going to

starve or Americans aren't going to have enough oil, but my maid in the Philippines family, they're starving. Um, the bill the builder that I know is building my condo in Bangladesh, they're starving, right? Know we're having to work from home. We're having to get messages from the government about rationing energy, right? All because America decided that for whatever reason they needed to bomb this country. We don't understand why. And so, [ __ ] America. Now, obviously, it's not violent or anything like that, but that's the feeling uh out here in Asia in terms of this war. Um, if you want to have a sort of opinion, I don't think that really matters much for crypto traders because again, it's at least a liquidity play at the end of the day.

>> Okay. Okay. And so this is like a segue to the AI question, but again it's Asia focused. Um I was also curious how people in Asia perceived the competition between the US and China over AI. >> I really haven't asked anyone um directly about that. But I guess at the end of the day, everyone's benefiting. So if you're in Korea or Japan, right, Samsung has been on the tear. I think their earnings were up. It's an ungodly number in terms of um their last quarterly earnings. The Cosby has been going bananas. The Nicke um Taiwan names are getting, you know, bid up aggressively. So, we're like, great. Okay. Well, China's going to spend on AI. America's going to spend on

AI. The central banks are both printing money. The commercial banks are both printing money. This is great. People are just going to keep buying our [ __ ] right? So, Asia's loving this competition, right? Because at the end of the day, you have to buy things from Taiwan, Korea, and Japan. You have to buy raw minerals to Indonesia. You you have to ship things through the street of Malaa, right? So everybody wins in this sort of orgy of money printing and financing of this AI war. Whether or not it's worthwhile, you know, 10 years time, we'll find out. But again, people making a lot of money on this rivalry.

>> Yeah. Yeah. I I don't normally see news about the Korean markets on my timeline, but um just some of Yeah. the the market happenings there are making their way to me. So um yeah so it's kind of funny because here you are talking about how there is this frenzy and people are making money but in your latest piece you talked about seeing two catalysts that could lead to this moment of disillusion with AI and like you you seem to think it's kind of right around the corner. So talk about talk about your thesis there.

So again, we're in this there's an excellent paper written by two folks from uh China University of Hong Kong and uh University of Macau based on this model phenomenon of the game theory behind capex spending uh in AI and the authors call it the the red queen effect where they basically make a distinction between ordinary capex where you build a factory and you know regardless of if your competitor comes up with a competing product your factory still has use doesn't become come obsolete immediately. But in AI, the best model wins and the best is the best model.

Right? If you spent all this capex and your model is not as good, then nobody uses your model, right? It's like it's like anthropic versus open AI. Claude is marginally better. Everybody uses cla right and so they stop using open AI. So the you know hundreds of billions of dollars you spend on capex is worthless. So what do you do? Well, you constantly need to be spending money to create the frontier model. Otherwise, your entire capex debt is worth zero. And this generates this perpetual motion of spending. And we're seeing this now in earnings for a lot of companies, which is why you're seeing this sort of like vertical ascension in price for a lot of these inputs to AI data centers and chips and other things in the US and North Asian markets because people are

realizing yes, okay, if the model is good enough, people are going to use it. Throp's revenue has gone up like something like 10x or something crazy in the last less than one year basically because claude is just good at doing stuff and so there is a demand for compute and these hyperscalos have to keep spending this money. Now obviously this can't go on forever. um there's no such thing as sort of an infinite perpetual motion machine in this universe. And so I you know some others have come up with this idea like okay well what usually ends a frenzy there's some sort of IPO or some sort of mega merger that's just so big and so ludicrous in terms of the underpinning financial assumptions that the market

just can't adjust it. And so like you know the stock lists at 100 and the next day it's already down at 50. being like, "Oh, fuck." You know, if people aren't buying into this uh this IPO and it's just sell only, this has to be the top of the market. And so, I think there's going to be a situation like that. I don't know when it's going to occur, but it's going to be pretty obvious at the time, like this mega merger, this mega IPO, it debuts and it just completely flops. And at that point, people are going to start asking questions. Oh, is the trillions of dollars we spent on all this capex really worth it? Have we generated enough use cases for this or will we generate enough use cases in the immediate future? Why do I own this company at you know 1 million times

earnings if the category leader gets IPOed and the stocks down 20% when it should be you know multiples higher on the first day after listing. So, I think these psychological qualitative things feed into the let's ask some questions about all this money that we spent and oh [ __ ] guess what? I don't really think that I spent the right, you know, this money was well spent, so maybe I should start selling down my holdings as well. And that's the end of of this market, this bull market bubble, whatever you want to call it. And the second is politics. At the end of the day, most people around the world, especially in the United States, don't earn a lot of stocks. Yes, you know, people are making lots of money hand over fist buying some random memory company and it's up 40% pre-market because everyone discovered it

overnight, but the majority of Americans don't own a lot of stocks. But their electricity prices are going up. The price of labor is going up to build these data centers. The price of raw material inputs into um electrification and the construction of data centers is making their lives more expensive and they get nothing back for it. And guess what? They're worried about losing their job at the same point. And so I think there's going to be a political backlash that's going to hand the opposition party, you know, the team boo Democrats a sort of a narrative on a plate which is we are at Taii, we're for the worker, we're for humanity. Like there's so much good rhetoric that you can put around this that sort of catalyzes the fear that people are feeling and the inflation that they experience on a day-to-day basis and saying vote for me.

I'm going to take us back to prea or I'm going to do responsible AI, whatever the [ __ ] that means. It doesn't matter. It's just going to be a political slogan and it's going to be up to the team redemp Republicans to come up with a counter of okay well everyone's making so much money no one gives a [ __ ] but again 90% of Americans in the United States don't own a lot of stocks. So I think again it's going to make for a very interesting 2028 presidential election and again whoever wins it doesn't matter. the rhetoric is going to be very good from the opposition because it's true to some extent and therefore the investors be like well okay well you know 55 45 whatever you handicap the odds of which side winning you still have to derisk your portfolio because there's a significant pretty much 50/50

chance that the team blue democrats uh take control and all of a sudden this rhetoric could become policy. Oh, and all of a sudden all this money that you spent at these ridiculous valuations is no longer worth anything because they're going to tax you. There's a tax proposal put out by some leader in Korea overnight cause the costby to fall 5%. So investors are very concerned that the, you know, 95% of the population who's not benefiting at all from AI yet is going to be like, "Fuck this. Tax these [ __ ] Give me my [ __ ] back."

>> Okay. Yeah. I'm so one other thing that you talked about was um so you called this um an AI agentic deflationary bust and you said it could rival the severity of the 2008 subprime mortgage crisis. Um you basically said I mean yeah that mediocre knowledge workers are at risk of losing their jobs. um and that you thought that they would fall behind on consumer credit payments to banks and then you said quote it's game over for the Fugazi fiat fractionalized banking system. I would love to hear you expound on those comments.

So at the end of the day, you know, you create credit to do stuff, right? To the perpetual motion of of the economy. Like a recession is when GDP falls, doesn't fall that much. But if the pace of the economy slows, you can't service your debts. And so if the pace of the economy falls in the short term, and I, you know, I agree that in the long term, AI is going to be this awesome productivity tool. Hopefully, we as humanity use it wisely and create a an awesome economic and life experience for everyone around the world. But we are we are all humans.

We are selfish. We don't share. And in the short term, there's going to be some pain. It's not as if there's immediately a job in some sort of AI field for the knowledge worker who just lost their job at Coinbase, right? There isn't. And so that person who was making a few hundred,000 a year is now at least in the United States on unemployment insurance. what I think usually lasts about 26 to 27 weeks. Usually it caps out around annualized $40,000 US a year depending on your state. So you take somebody who was making$150 $200,000 now they're making 40. Okay, they have to make a lot of adjustments. Um they're not buying the sweet green salad.

They're not buying the mocha loca [ __ ] Frappuccino from Starbucks for $10, right? They they can't make their car payment. They they have to downsize their dwelling. Maybe they're missing credit card payments and all these debts are assets on the banking balance sheet. And so the banks have a have a growing hole in their balance sheet due to the productivity gains of AI not being passed on fast enough to ordinary workers. And so that is the it's a timing mismatch. I'm not saying that AI is not going to create this utopia of abundance in you know medium to long term. All I'm saying is right now the way that we have set up our economy globally and this is not just United States, it's every economy around the world. It's fractional financial um services sector that sort of needs a

constantly growing GDP activity. Well, this AI knowledge um intelligence boom goes completely against that and will destroy the financial system unless they print enough money. And so I believe that they're always going to print enough money. And that's sort of, you know, my investment thesis for my entire portfolio. >> Okay. And um so you made that distinction between how AI will affect the economy in the short term and the long term. So explain the long-term part like you know you kind of hinted it could be more positive and utopian. So explain kind of what your vision is for how AI will affect the economy in the long term.

>> So you know if you think Elon believe everything he says, right? So we're going to have robots, right? And the cost of labor is going to go to essentially almost zero. Right? The cost of intelligence of doing things is going to move to very very little as well. And so we've got to automate all these things, right? Your babysitter is a robot. You know, you're you're you're not using an a lawyer, an accountant to do random stuff, right? So anything that we do can be automated and done in an intelligent fashion. And that leaves us as humanity free to pursue, you know, hanging out, doing arts and crafts, playing sports, whatever it is, right?

Whatever it is that makes makes you happy, apart from doing your [ __ ] job at some like, you know, company that looks like The Office, the television series. So, we're going to remove all that nonsense and and just focus on, you know, communing with each other and producing things that are fun to consume. Again, that's the utopian future. And how do you get there? would probably have to have some sort of taxation mechanism on whatever the entities that control this intelligence or these robots. Again, I don't know what that situation is, but we're going to have to have a conversation about that. Otherwise, we're going to have such um hyper inequality that it's going to cause, you know, potentially a very very big social strife.

>> Yeah. Yeah. I I am hopeful that um it just like I I feel like the days of working for a big corporation in a soul sucking way or maybe not completely over but like it's going to be a lot less of that. So I think people it'll enable people to be more entrepreneurial which I think would be a positive thing. Um, all right. So, I did also want to ask uh because there are certain investments right now that are um just making a lot of headlines due to all this AI activity. So, semiconductors are going gang busters. Um, in the last 24 hours now, a video from CO2 has gone viral for its theory that the bottleneck in AI is moving from compute to memory due to

this, you know, transition to AI being more agentic. How are you thinking about these different trends in terms of investment? So, I am not an AI investor. Um, I thankfully have enough capital where I don't have to be at my screens all day trying to figure out the next thing. I'll be on the tennis court or skiing or whatever. So, how do I approach AI? I have, you know, some of my homies who are in the trenches just like slinging stocks all day. I literally they'll post a stock that they bought. I just buy it. I don't even I don't research it. I look at it. I read a lot of AI research. I love Catrini. They're a great research outfit. They publish long form articles.

They've got different stocks they like, just buy them all, don't care. Um, most of them go up. Uh, it's a bubble at the end of the day, right? It's it's blatant speculation on a future that we all believe in is going to be so glorious and so ridiculous and therefore anything whatever the hot new thing is goes up 100% in a few days. That's how I'm approaching AI. I'm literally just slinging stocks. No research. I'm not, you know, maybe I'll plug a stock into Perplexity to find what this company actually does. If it sounds, you know, semi-legit, okay, just buy it, right? Investigate later.

>> It says, >> are you worried at all about like Michael Bur saying this is such a big bubble and all that or >> I agree with him. That's the thing. I know what I'm doing is irresponsible. And I hope that this knowledge of the fact that I'm doing something patently stupid gives me the forethought or the presence of mind that when this situation where something gets too ridiculous, say, "Okay, it's time to get off the train and sell everything and just and just sit on the sidelines." But as Chuck Prince said, if the music's um playing, I got to dance.

>> Yes. And we know you love to dance. Um, all right. Let let's talk more about crypto stuff. So, obviously you're big on hype and um today a new hype ETF launch. I think I think it's actually the first hype ETF. Um, tell us about your hype thesis. >> So, the hype thesis is very simple. Hyperlid is not the first decentralized exchange that has tried to do permissionless perpetual trading. The first big one was DYDX and that you know for 2021 to 2022 performed very very well. Then the baton got passed to GMX that did very well in 2023. Uh and then Jeff and his team at Hyperlquid I think had a perfect tokconomics model with a

um great execution on building this decentralized exchange right what they've built it's very very good tech but again it's not nothing novel in terms of the product suite or what they're doing but they really got the tokconomics right no massive um VC pre-sale which creates this overhang which means your token is just going to dump once the what once it unlocks a massive air drop to traders and then the most important thing which so many projects just don't refuse to do. I don't give a [ __ ] what the reason is why you don't do it. You just must do it. If you make money, you must give it back to us as a token holders. Whether that's to take the missions or buy back and burn.

And from Hyperlquid's perspective, 97% of revenue um they take it and they buy back the hype token. So, us as token holders directly benefit if they execute on this vision of permissionless trading. And that sort of is what took hype from I think it listed around $3 to 60 uh in the first respect. Obviously I came out with a piece saying I was bearish on hype because of the competition, the low fees and so we saw what happened and also the the massive unlocks for the team. So when the team unlocks number one, Jeff and the team are very responsible. They said okay let's play for the long term. We are allowed to sort of unlock 100 but we're only going to unlock we're only going to sell one. And so if you look over time versus what they are allowed to sell,

what they've actually gotten on chain versus what has actually been sold, it's something like 1 to 3% of of the amount. I haven't looked at the um the April numbers yet. And then u most importantly, they are the most they have the most real volume. And I look at that as average daily trading volume over open interest. The lower that ratio, the more organic the volume because open interest grows and somebody puts up real capital to put a position. If you're just wash trading for either, you know, volumizing or some sort of liquidity rewards, then you're not really growing open interest. You'll have a massive um ADV to OI ratio, which is what most of their competitors um sport. And that's why I think I can't tell you if their volume's all real, but I can tell you it's the realest of all of its

competitors. And they've survived the low fee sort of competition. So obviously lighter and aster and some and edex and some of these other um perpetues sponsored by a leading sex came out and said okay great hyperlquid has created this great narrative on perexes we're going to launch one too and the fee is zero here's some tokens you know let's try to take some market share in the traditional fashion and you know it worked for a bit but after the incentives went away or the willingness to volumize in fake volume declined then you know hype shown through as this amazingly robust robust and organic venue for real price discovery. And then I think what really cements hyperlquid in terms of getting this vision right of

allowing anyone anywhere to trade anything is that during these volatile moments of the war, right, where US President Trump likes to do stuff on a Friday night after the markets close where he no longer has a market signal which can sort of in influence how he acts. But now we have hyperl liquid and the price of oil is trading over the weekend. Yes, we can't deliver any of this, but it's it's indication of what's going to happen on on Monday morning. The S&P 500, the NAS, the largest um equity indices have a perpetual trading over the weekends with leverage. Anyone with an internet connection can now express a view based on what has happened. And so now we have more price discovery and that's where hyperlquid is bringing. And obviously these markets

are much bigger than crypto. And so if now you change the trading behavior of the seven something billion people in the world who do not trade in large western financial markets for a variety of reasons and now they go to hyperlquid man the sky's is the limit in terms of how much money they can make from fees as an exchange as the most important price discovery venue in the world because the most amount of retail traders could actually trade there. And that's why I love Hype because it's executing on this vision that started many many years ago with most of us in the in the sex game and sort of migrated to Jeff who's got the the best sort of iteration and expression of this idea of how trading should happen in free markets.

Oh, that's interesting that you said um the best because I was wondering, you know, since you are the father of the perpetual swap, I wondered like if you had kind of any reflections on seeing your baby become the basis for, you know, what has been the breakout decks in crypto. Um, and has really kind of succeeded beyond all measure, you know, obviously even recently surpassing Coinbase and notional trading volume. Um, and I just wondered, you know, like for you to see that um what your your creation kind of formed the basis for for this really successful decentralized product. I wonder just if you had um any reflections on that.

>> Oh, I'm super proud. I love it. I think it's great that somebody has taken this this um financial product that we created at Bitex and is hopefully going to render, you know, large exchanges obsolete. Why should anyone trade on these things? Yeah, sure. Okay. If you're Citadel or Virtue or Jane Street, you know, large banks, yeah, go have fun on uh on CME and all these URX and these these type of exchanges. But for everyone else in the world who basically has been locked out of the financial system or given very little visibility into financial markets and always is served dog [ __ ] products. Here's a way for you to express a view um long or

short based on what's happening in the world and an open marketplace. Um, yes, it was obviously it's not perfect, but again, here's an opportunity for you to participate where you otherwise would not have been able to. And I think it's great that Hyperlid exists, and I hope they continue to move from strength to strength. And obviously, as a large token holder, I I hope we make money on that too. >> Yeah. Yeah. All right. I want to ask you about another big crypto trend that you're very interested in right now, which is privacy. And you have a particular horse in the race. you talk about Zcash as the the bet to make there. Why have you selected Zcash as the main privacy coin?

>> So, I think that the crypto cryptography behind Zcash is uh the most secure in terms of if you want to keep your transactions private. Now, obviously, you know, there's a big debate on um Zcash versus Monero versus some of the other privacy coins. And I think Zcash is the best. Obviously, I'm not a cryptographer, so I can't sort of give a super intelligent explanation as to like why Zcash, you know, I've read a lot of things from different folks, good and bad. I've talked to a lot of folks who are in the trenches on um developing these things and I believe that Zcash is the best option. But at the end of the day, I think privacy is important and whether you believe in Zcash or something else, I think every crypto

investor needs to have some of this in their portfolio because it's going to be very highly valued, especially in a situation where, you know, Bitcoin is synonymous and I don't think Bitcoin should add full privacy um to it. I think there's some obviously good things about having a public blockchain in terms of transparency and accountability but you know with AI big tech and big government it's very you know t trivial to deanonymize transactions and people want that priv privacy and there will be a private alternative I just happen to think it's Zcash and the relative value of Zcash and Monero to Bitcoin is at this point very very low. a very asymmetric bet that as people sort of recognize the power of these technologies because we're humans. We're

we're stupid. We think in linear terms, we don't think of how exponentially smarter an AI is than us and how they're able to do things that we couldn't even fathom are possible or make connections that we wouldn't be able to make in, you know, a thousand lifetimes. That is going to be very apparent and the need for privacy is going to continue to grow and then these coins are going to go up in value. And so I believe in Zcash and that's why it's probably by largest position outside of Bitcoin right now. >> Oh, interesting. And know why do why did you say you don't think that Bitcoin should integrate privacy? And did you mean you didn't even think that uh Bitcoin should have it as an option like you know the way Zcash does shielded or unshielded?

>> I mean I guess I'm conservative in terms of there's a Europe that works uh in Bitcoin and I think Bitcoin should be very conservative, right? It is the type of money that it is. it serves the use cases that it serves and it does it very very well and very very securely. I don't think that it should take the risk to add these other things to um its offering because there's other coins that were built from the ground up to do these things and they're going to do them better and so I think the conservative nature of Bitcoin should be maintained and that's going to in my opinion maintain the larger market share versus every other coin out there. Once you start tickering with that, then I think the value proposition diminishes for Bitcoin.

>> And do you have a particular privacy smart contract chain that you think is the one to bet on? >> I haven't really done much deep dive in any of those. >> Okay. Okay. Um All right. Well, so at the end of your recent essay, you hinted that you you um felt that near was quote your next favorite shitcoin. So ex and I'm assuming that's after hype and ze. So explain why. >> So again if you've used the zodal zodal app z o dl I'm an investor so please use it download it. It's I think the best UIUX for using uh shielded Zcash. So obviously you have a transparent address

for Zcash. You know if you're transacting on some sort of centralized exchange orc broker they send it to that address. um then you pay a little bit of a fee to shield that Zcash. And I think anyone who owns Zcash and wants the price to go up should hold their Zcash shielded versus on a transparent address. And now what can you do with a shield of Zcash? You can literally do a swap and send somebody any type of coin like USDT on Tron or Bitcoin to Bitcoin network and that transaction won't point back to you. you can do it in a completely anonymous fashion using near intents and so I think obviously you want to have some utility in terms of payment mechanisms and different uh currencies for shielded Zcash and using near intents and you know in this great

app zool and I think there'll be other apps that come out to um put the same sort of functionality in place that's going to drive demand for near and sort of change the narrative on what near is I know they're trying to do some AI stuff and maybe it works maybe it doesn't but I think that the core thing that is super special is that the integration between shield and zcash using near intense to any crypto asset in an anonymous fashion and you know the economics of the near blockchain means that every time one of these transactions happens the the NEO protocol earns a little bit of a fee and that over time if the volumes grow will flip near from a deflationary to sorry an inflationary to a deflationary protocol and that's what will cause the price to rocket higher

All right. So, we are talking now after a really tumultuous April for crypto where there were just a crazy number of hacks and you know one of them uh was one that started somewhere uh I'm talking about Kelpto and then had just collateral damage like really throughout the ecosystem but you know mainly in a which you know at that time was the biggest D5 protocol. I don't I know it dropped from uh its top spot, but I don't know about now. But anyway, I was wondering like how do you think about like the risk on chain? Like there's been a lot of, you know, chatter about like whether or not it's it's worth it and you've invested in a number of different DeFi protocols. Obviously,

you're, you know, a big promoter of hype. So, how do you think about that risk? >> Number one, the risk is ever present. It is there. You cannot handwave around it. um that there is no risk on chain. These are bare assets and with that comes a certain amount of risk. Now ters have a variety of choices to make in terms of their lifestyle to safety continuum right and ease of moving assets or ease of um adjusting contracts. And some teams take the okay I'm going to make my life a little bit more difficult but there's a lot more human elements to actually change things. I trust the other people who are with me in this journey to create this product and

therefore I believe that I am safe in that respect. Other teams say I'm going to trust more automated solutions or I'm just going to trust myself and if I get compromise we're [ __ ] right? One of one multisc which we're kind of finding out is a lot of these implementations of of these protocols. And so I think that if you take a look at sort of the high level of what whoever is hacking a lot of these larger protocols, they're socially hacking a process that by design is not very secure because you know the team chose a less lifestyle impacting security architecture and have suffered the consequences. And I think this falls on you as an investor, especially professional fiduciaries like VCs and otherwise to ask the questions

about okay yeah you can give me some sort of convoluted technical jargon about why you know this solution is not you know resistant to hacks but okay well talk to me about the humans involved how does this process work you don't have to tell me the specifics but are you using a one of one multisync I mean and if you say yes right away so I think a lot of these things unfortunately these are just bad decisions made by people who made a lifestyle choice in terms of how they want to deal with um updating smart contracts and dealing with any sort of uh withdrawals and obviously they were exploited and that's unfortunate but we'll learn our lessons.

>> Okay, so we only have a couple minutes left. Um so I'm going to just ask you an open-ended question which is about uh Maelstrom's investments. um you know you came on the show I think last time to talk about your private equity efforts and I don't know if you want to call out kind of any particular investment that you you know think is going to take off or how the private equity piece is going but I just yeah leave you to give us any update you'd like to on Maelstrom. >> So we're we're very close to closing our first anchor investor. I can't really um say the name on the show as of yet.

It'll definitely you'll hear about it um once it's signed. In terms of investments, I think that when we first talked, founders price expectations were much higher than they are today, which is great. And so I think you if we're able to pull off this fund raise, we are in a perfect spot of max disillusionment disillusionment with the space. And okay, unless it's micro strategy or some spack launched by some politically um connected person, you're not investing in crypto as an institutional investor or you know you're worried about it getting hacked on some DeFi protocol. So you're sort of you know abandoning the space or the VC overhang of selling has mean that everything is down only you don't want to participate which again

takes down the valuations for very very good businesses and so raising this money now we're at the perfect sweet spot. This is kind of like how I felt in 2023 where on the VC side of our portfolio, the early stage stuff, we were starting to deploy in the perfect time of maximum um bearishness and disillusionment with the sort of shitcoin investment complex. And so I I think this is the best time to be investing. Prices have come down. We're going to get some great multiples on some amazing companies that are still very very profitable. And when you know the tide turns and maybe that's when you know Bitcoin hits 200,000 and ETH decides that it wants to rise above whatever 3,000 4,000 whatever it is people all of a sudden want to run back

into um shitcoins and um crypto adjacent businesses then I think that we're going to be in a perfect position to really capitalize on our ability to invest in the downturn. >> Yeah. Yeah. I would agree with that like a million% because even though the markets are doing like clearly just crypto has reached a a stage of maturity that just yeah has it's just never been clearer before. Well Arthur it's always a pleasure to chat with you. Thank you so much for coming on Unchained.

>> Thanks for having me. >> Who in the group chat has the absolute worst sports takes? You guys, it's got to be me. I don't even watch sports unless it's a global event. But Coinbase is giving me a chance to outpredict a pro basketball coach for a share of five Bitcoin. And honestly, I'm built for this. I have beginner's luck, energy, and absolutely nothing to lose. Coinbase is bringing in pro basketball coach Lethal Shooter to see if you can actually outpredict a pro for a share of five Bitcoin. Get more correct than Lethal Shooter, split five Bitcoin, and get a chance at a private coaching session in LA to perfect your jump shot.

Coinbase 1 is the ultimate membership to make the most of your money and has been amazing for me. Zero trading fees on thousands of crypto assets, 3.5% APY on USDC, boosted staking and lending rewards, and up to 4% Bitcoin back with the Coinbase One card. If you trade crypto regularly, the basic annual membership can pay for itself. Plus, the $1 million streak prize pool is still live. You can also get 20% off the first year of Coinbase 1 annual plans and a $50 Bitcoin bonus when you spend $100 on a new Coinbase 1 card in the first 30 days through May 31st. Make your predictions and split five Bitcoin. Get started at coinbase.com/unchained.

That's coinbase.com/unchained. Join today at coinbase.com/unchained to start your predictions. No purchase necessary. See rules and other ways to enter terms apply to other offers. Futures swaps via Coinbase financial markets. Risk of 100% loss. Payouts event-based not investment advice. Not available in Nevada. Coinbase 1 Card is offered through Coinbase Inc. and Cardless Inc. cards issued by First Electronic Bank. Bitcoin back rates are based on card holders assets on Coinbase.

Nothing you hear on Unchained is investment advice. This show is forformational and entertainment purposes only, and my guest and I may hold assets discussed on the show. For more disclosures, visit unchainedcrypto.com.