Welcome back to the O Show, everything crypto and everything else every day. Guys, I have a really special guest and I'm actually really excited to talk to. I want to say, I don't know if I want to say like the king of crypto, but definitely somebody that's very interesting. Mr. Arthur Hayes, how you doing today?
Excellent. Thanks for having me.
I'm excited to talk to you and learn a little bit more because we cover a lot of your content on the show. You have a very interesting background that I think is awesome because you're very different than most founders in crypto.
Because I feel like you're very intelligent, but you also know how to have fun and how to throw a good party.
That's what it's all about at the end of the day. Two-stepping, that's what.
Two-stepping with some cowboy boots on?
All right. Well, obviously also too, thank you so much for liquidating me on BitMEX. I feel like if you were not properly liquidated on...
I did not liquidate you. That is up to you and the market. I'm an exchange, a neutral party here.
I know. I totally think it was my responsibility, but I feel like if you were not liquidated on BitMEX, then you don't know a lot of the history of crypto. We've got a very very robust history. But kind of talk to us a little bit. I want to know exactly what made you want to start BitMEX, especially being a first mover and then watching all of the other exchanges kind of copy-pasta what you did.
Yeah, so I started trading crypto in 2013 back in the day, a long time ago. And when I started, there was like one exchange where you could trade on leverage and it was these two dudes in the Caribbean who we didn't know who they are. I've actually subsequently met one of them at a conference.
Of course. Of course you did. It was probably like there's probably 10 people there, too.
And yeah, it was super awesome. I made a lot of money and I wanted to level up the exchange because I wanted to make more money. So I was like, let me just build my own thing. And so I was a derivatives trader in Hong Kong at Citibank and Deutsche Bank and I took that experience, applied it to crypto, and said I think I can do a better job. And that was sort of the impetus for starting BitMEX. And obviously it's been a crazy journey and our number one product is the perpetual swap, which basically came from me and my founders answering too many support questions of people who didn't understand how a futures contract worked.
In the troll box though? Was it in the troll...
No, no. We, you know, on our support ticket thing, right? Every morning we'd spend hours just answering the same question. Where'd my futures contract go? It expired. Why doesn't the price match the spot market? Like simple, right? And I'm like, this is crazy because we have other things to do than answer these questions. Can we create a product that's a lot simpler, but has the same ability to have very, very high leverage. And that was essentially the genesis for our tinkering behind how do we create this never-expiring derivatives contract that mimics trading on margin, but you can do 100X YOLO. So that was sort of why we created this thing. And I mean, great kudos to us for doing it because obviously everyone has sort of copied this product, which is great because at the end of the day, I think the number one killer app for crypto is speculation. This is why everyone's here. The price of Bitcoin went up a lot. You saw it on whatever blog, news channel. You're like, okay, maybe this makes a bit of sense. Let me read the white paper. Let me find out a bit more. So I'm 100% on board with speculation drives adoption. And so if people get involved in crypto because they traded 100X leverage on BitMEX or got liquidated or whatever, right? And they learn more about the industry, then I think we've done a good thing.
I agree with you. I do think that's a very unpopular opinion. I'm a firm believer that crypto is probably one of the only industries that you can operate on a true level playing field, and you make as much money as you want based on your ability to show up, practice self-education, and critical thinking.
Sure. I mean, I think a lot of people don't do that, but yeah.
I mean, but if you're trading on BitMEX back in the day, you actually had to know how to trade. Like, you couldn't just press buttons.
Yes, true. I think that's a theory. A lot of people did press buttons, and they still press buttons. And then we learned that on 10/10 at Binance. A lot of very serious traders didn't understand how these products worked, what the mechanics were, what was the microstructure of the market. And it isn't like this is a secret. Like, I directed all this 10 years ago, and people are still getting liquidated for dumb mistakes. So, I don't think it's, if you're some small retail trader, and you think that these big guys know more than you know, they're just as [uncertain] as you are.
I appreciate that. What was the exchange that you were trading on before you invented BitMEX?
ICBIT. I don't even remember that. I will because I came in under the 2017...
They went out of business because they had something wrong in their margin calculations, and they had to get bailed out by Cumberland Mining back in 2013 during the first pump of Bitcoin to like 1,300.
Wow. Wow. Do you remember the day that Bitcoin dropped below like $5,000 support, and we went all the way down to like what was it? Like $3,400? Do you remember that day? I do.
Yeah, I remember it because I was coming into the office in Singapore. I had a bunch of meetings, and then someone pulled me aside. I was like, you know, the exchange is down. Someone DDoS'd us. I was like, what happened? And then you see the price of Bitcoin just cratering. The financial markets are melting down because everyone's shutting down the world because of the COVID situation. So yeah, it was an interesting day to put it that way.
I remember I was at an OTC desk and their primary customers were helping Bitcoin miners liquidate their holdings to pay for their overhead costs because we weren't able to take out collateralized loans on Bitcoin yet. And I remember the founder was like, yeah, if we drop below $5,000, it's over. And sure enough we did.
But okay, so they say... what do they say about flattery? That copying, being a copycat, is the most sincere form of flattery. Is that what they say? Something like that?
Like I remember going to a... I forgot the name of the conference. It's in Boca Raton every year. It's like a golf thing plus finance thing. And the CME had invited me and I think Laura Shin and one other crypto person to come speak on some panel about derivatives or whatever. And I was at dinner. I didn't know anybody. I was just hanging out. I was sitting next to a board member of the CME. And then we got to talking about something related to crypto or whatever. And she was extremely dismissive of the fact that us crypto people could ever create anything that would rival what the CME had done. And I thought, okay, that's an interesting sentiment. And then you get Terry Duffy out here a few months ago raving stark raving mad that HyperLiquid is eating their lunch because they offer a better product and you can trade things 24/7. So I want the CME to go out of business and all these exchanges to go out of business. Like I want HyperLiquid to be number one or Binance or whatever, right? Like I just... I don't care. I made a lot of money. Whatever happened with BitMEX, who cares? It doesn't matter. If the CME has to bend the knee because Jeff and the 10 other autists beat us up, beat a 30,000 person company up, yeah, that's amazing. I'm all for that.
I love that too. And I love that mindset you have because I love to see the underdogs win. And that's one of the reasons why I stayed in crypto. And I feel like you kind of feel that way too, because TradFi is the enemy. TradFi's always been the enemy. I feel like people don't understand how predatory TradFi is. And that's why when BlackRock came in the picture, I was like, okay, we have the giants here. What are they going to do next? How are they going to react? But it's pretty clear that they're here to stay, especially with all the tokenization happening. And I actually just did a short-form content piece on the tokenization of stocks and how that works and what that looks like on all the various chains. And I just feel like my audience is going to be... it's mind-blowing just to think of how complex this stuff is. But in TradFi, they do these things all the time. And there's derivatives on derivatives on derivatives. And retail doesn't even have access to it.
Yeah, I mean, it's going to be fun.
So what do you feel like... how do you feel about strategy? Strategy and then other institutions... like I guess the real big institutions, because strategy they've done interesting things, but with BlackRock and all the heavy hitters coming in, how do you think that's going to change crypto?
I think Michael Saylor had his time in the sun, and strategy will be irrelevant. I mean, they still hold a lot of Bitcoin and all that sort of stuff, but if you think about why strategy was able to run this particular corporate finance game that they've been playing for a long time, it's because if you are an institutional investor or someone in their retirement account, strategy was your only way to get some sort of exposure to Bitcoin. Couldn't buy spot, you're not allowed to. There was no ETFs. And so once you have all these other products and all these other ways to access crypto, why would you trade this funky stock thing? Like there's preferreds, there's... they have four or something, right? There's the issue where they increase the float when things are premium to MNAV. How do you calculate MNAV? Depends on who you ask. It's just so complicated. It's just corporate finance games and kudos to Saylor. He's a genius for doing this strategy, but it's not going to work when you don't have a persistent bid from folks who have other options. And so I think that the days when everyone cared about how much Bitcoin did they buy, is he ever going to sell? We know he's going to sell. He already sold, right? We know that when MNAV is above one, he'll issue stock. We kind of know that he probably cares about paying the dividend, maybe on the stretch preferreds. But after that, you're like, okay, whatever, who cares? It doesn't matter, right? I care more about inflows into ETFs. I care more about other particular financial products than what Saylor is doing over at strategy. So I think he's going to have to do more AI-generated videos to stay relevant in this industry because it doesn't matter anymore what he does.
I agree. I appreciate what they've done, but at the same time I think being able to be an accredited investor, being of that elite group, and being able to issue an asset out of thin air, then raise capital that is printed out of thin air, it's pretty wild stuff because a small business would not be able to do that.
No, I mean that was good for him.
Do you wish he thought of it?
No. I had my own stick. He's a corporate finance guy. And if you go back, he's got some amazing interviews from back during the dot-com time when he was running the company. There's some amazing quotes of Saylor. You can go back and look at some of his old CNBC clips. The guy is hilarious. So what he's doing now, this guy was doing this 20 years ago. This sort of chicanery and P.T. Barnum-esque circus entertaining of institutional investors.
I love it. I mean that's a pretty good way to describe him and his demeanor. And I know that you have a project and we're going to talk about that, but I want to get into your thoughts about meme coins versus altcoins and infra coins and really just kind of the future of crypto because there's a lot happening. It's very hard to digest. Most of my audience, they're retail non-accredited investors and we are accelerating so fast now and it feels like a lot of this acceleration is due to meme coins that are being built on these chains that were supposed to be used for tokenization, aka RWAs. I also like to refer to them as NFTs. It's kind of the same thing. But meme coins have kind of kicked this off. To what extent...
I love meme coins. I don't trade them because it's really difficult to be in the trenches trading meme coins. Hats off to anyone who's able to do it. It's extremely difficult. You can look at the stats, what, 99.99% of all meme coin investors lose all their money. Okay, that's a casino. Cool. Whatever. Who cares? I'm not adverse to that. But it's very difficult. And so if you think you're going to be a full-time meme coin trader, you just get off of work and you open up your Robinhood app or whatever and punch some buttons for a few hours and then all of a sudden you're going to be able to buy the new bracelet or whatever the TikTok influencer told you you need to have. That's just not going to happen. You're going to lose all your money. So we don't do meme coin trading at Maelstrom. I love coin trading, but we're very specific about what we like to trade. I like things that actually have product market fit, actually have some revenue, actually take that revenue and pay it back to the token holders. Very small subset of projects that actually do that. Now, okay, you buy one of these things, you're not going to go up 100x in 3 hours, right? Where you buy some meme coin runner that starts at a million and goes to 100 million market cap. Yeah, cool. You can catch one of those. You do 100x on your money. Like good luck. Let's see if you can repeat that over and over again.
Let's see if you can take profit in time, too, because that moves fast.
So it's just not my particular trading style. I know that is a lot of people's because they say, oh, I only have so much money. I feel this pressure that I have to earn these returns very, very quickly because of inflation, because of my dead-end job, because of all these different things. All the reasons why you're in crypto is why you're pushed towards the most speculative asset, which is meme coins. But it's just extremely difficult to make money in these things. Now, that doesn't necessarily mean that it's going to be the most popular way that people get into crypto because of all these societal forces that are pushing you towards this industry in the first place, but it's just the hardest place to make a consistent amount of money because, again, you're trading the ephemeral nature of what is hot on the internet. You're trading vibes. Vibes is hard to trade. Very few people... if you could trade vibes well, you would be ahead of Universal Music or Sony Music, right? Because you'd be A&R and you'd be picking out who's going to be the next hottest artist if you were that good at vibes. You're not. So you're just going to lose all your money. And so I think trading on other things that actually have a real purpose, whatever you want to call that in crypto, with some actual cash flows, that's why I lean more towards traditional coins versus the meme coin space.
So, coins with a proven track record.
Streak along the bowl, right? As it goes down the...
You should. Why wouldn't you? I mean...
Anyways, I lost my train of thought because I was thinking of something else, but anyways. So, as far as all... what do you think about the meme coin with stock pairs or stonk pairs, however these young kids are calling it?
So, I had my analyst take a look at this and it's quite interesting. Obviously had a big pump in volume recently on the Robinhood chain and it's driving fees. You swap, Pump, Arbitrum and all these other things. We'll see if it lasts. It's a bit funky.
