Original translation: Wu said blockchain
On November 1, Arthur Hayes, co-founder of BitMEX and chief investment officer of Maelstrom, discussed the potential impact of the 2024 U.S. presidential election on the crypto market on the Unchained podcast.
He emphasized that Bitcoin’s liquidity is a safer option amid market volatility, and shared his views on Bitcoin, Ethereum, Solana, decentralized finance (DeFi), and memecoin, arguing that speculative assets could gain due to capital inflows after the election.
Finally, Arthur Hayes pointed out that major economies (the United States, the European Union, Japan, and China) have historically expanded their money supply in response to financial challenges, tending to invest in assets such as Bitcoin and gold. He advocates a long-term holding strategy under these global trends.
Election-related market expectations? Cryptocurrency will be supported no matter who wins
Laura: Hello everyone, welcome to Unchained, my host, Laura Shin. Welcome, Arthur.
Arthur: Thank you for the invitation.
Laura: Before we get started, I want to emphasize that nothing we discuss here constitutes investment advice, so please do your own research. The reason I brought Arthur here today is that you might be interested in what he thinks about trading during the election, as someone who is familiar with both crypto and macroeconomics. Arthur, we are recording this with one week to go before the election. What are your thoughts on how the election will affect the market?
Arthur: I think that whether Trump or Harris wins, in the medium term, more money will be printed, so cryptocurrencies should do well. In the short term, the market clearly favors Trump because what he says and how he will print money and distribute it is very similar to the policies that American politicians have advocated since the Reagan era: cut taxes, reduce regulations on businesses, and keep spending the same or even increase spending. This means that the rich will enjoy tax breaks, the stock market will soar, and ordinary people will get health care. And the United States can continue to arm itself abroad because the defense budget will not be reduced. This is Trumps statement, and the market welcomes it. As for Harris, her views are similar, but expressed in a more complex way, and may be a little difficult to understand. But at the end of the day, her message is consistent with Trumps, just for a different audience.
However, the market is more favorable and understanding of what Trump said. I think the real risk is that no matter who wins, if the other side questions the fairness of the election, believes that there are unreasonable things, and does not accept that their candidate lost, then there may be street protests and legal proceedings, which will create greater uncertainty about the election results. I think this is the real risk facing the market.
At the moment, the consensus is that Trump is the favorite by a narrow margin. But I think the outcome of this election is still very hard to predict. The market seems to think that Trump will win. So I think the market sentiment is just like that. I am not adding too much risk at the moment, I already own a lot of cryptocurrencies and some energy stocks, and I am happy with my positions. Considering that we may not know for the next few weeks who the next president of the United States will be, and may not even be sure until the swearing-in on January 20, is it wise to add more risk now?
A delayed election could unsettle markets and tilt them more toward Trump
Laura: Very interesting. So I want to ask, if the election results are not immediate, but may take a week or two to be determined, for example, because of mail-in voting, counting, and even some recounts. If this situation is not the chaos that you describe, but just a long period of uncertainty that may last for a week, two weeks, or even a month, what impact do you think this will have?
Arthur: I think the market has factored in the possibility of Trump winning. The current market sentiment seems to be expecting Trump to win, the Republicans to take control of the House and Senate, and then he will give money to the rich. So the market has not factored in the possibility that even if he wins all of this, the Democrats and the public may take to the streets to challenge, and Harris will not concede the results. Its actually very interesting. At Maelstrom, I like to teach young people how to manage risks and how to make decisions in uncertainty, using implied probabilities to make judgments. We also have some election games internally, and I offer prizes of five to ten thousand dollars to each winner. However, if someone loses, they have to pay out of the public fund. This means that we buy drinks for everyone after the meeting. So there is a price for making bets and failing to make correct judgments. As for when I decide when the bets will be paid, it is based on the moment when the loser realizes that he has lost, and thats when we know the game is over. When Harris or Trump says on TV, I lost, the other side won, the election is over. So, street protests or election challenges in the courts dont really matter. If the candidate who actually lost says I lost, then we know its all over. As for when this will happen, who knows?
Laura: What if Trump still refuses to admit that he has lost?
Arthur: I think in the 2020 election, he might realize the result and afterward say, Oh, a lot of things happened, maybe there were fake voters, or he hinted to his supporters that the election process was not normal. But in the end he still conceded the election result.
Laura: Exactly. He conceded on January 7, 2021, which is a big date. But you may have heard on Joe Rogan’s show that he didn’t actually say he lost, and then Joe laughed at him and he said “I didn’t lose.” But I know what you mean.
No trading on election night, preferring to hold current positions for long-term gains
Laura: I saw you mentioned that you are long now. Also, you mentioned in an interview with CoinDesk that 5% of Maelstrom’s funds are in the Ethena ecosystem, right? Then you said that you will transfer funds after the election results are clear. So are the remaining 95% those long-term positions you mentioned before?
Arthur: That’s right, all Bitcoin, Ethereum and some token projects.
Laura: Okay. So you don’t actually trade during the election? Do you trade on election night? Because I imagine there’s probably going to be a lot of volatility then.
Arthur: Not at all. I would have stretched out that morning and gotten ready for tennis. No matter who the winner is, the result is the result, and the market will continue to print money. Im not worried. Yes, there may be some short- to medium-term volatility, especially if people dont accept the result. But at the end of the day, the American people are not voting to tighten or not, but to continue to print money and decide who to give it to, whether its someone who likes Trump or someone who likes Harris. Thats the decision they really face.
Laura: It’s interesting because most of my questions are about how to trade elections. So why don’t you do that?
Arthur: Whats the point? You could be sitting here trying to make a few extra points, but if youre wrong, youre losing money on trades like the Trump trade over the past month. Once hes in the media, the prediction market is saying Trump will win. I know people dont always understand what the prediction market is saying. Its actually much closer than the 68% probability that appears on the surface, and its actually within the margin of error of any poll, whether its Trump or Harris.
Whatever the reason, the financial markets think Trump will win. The strong dollar, tariffs, low taxes, deregulation, etc., the market is clearly rising. We just had the Fed cut interest rates at the end of September, which provided further liquidity to the market. Therefore, the market has already priced in the possibility of a Trump victory. Even if Trump wins, the SP 500 may rise another 100% in the next 12 months. But if you are only trading short-term for a week, even if you think Trump will win, you may lose money. You enter the market at this time, and then Trump wins, and the market may fall 5%. This situation is possible, or the market remains stable after Trump wins. You took the risk and did not get a reasonable reward.
The better risk direction is that I think Harris will win and the market will react negatively to that. Therefore, I would consider taking a tactical short position because the market is not pricing in a short-term short position. The market is not pricing in a scenario where the winner or loser does not accept the outcome. The market is also not prepared for a Harris win and people are confused about how she will print money and give it to people. She will still do it, but the process will be more complicated. If I really want to trade, I will choose this direction. Although I am not bullish on this asymmetric payoff expectation, if I have to bet, this is what I will do. The prediction market can be biased. So the only way to profit is if the probability of Harris winning is higher than the prediction market currently expects.
Prediction markets are basically saying, if I run 100 elections, Trump will win 60+ times and Harris will win 37 times. That doesnt tell you the actual probability of Harris and Trump winning. Just like flipping a coin, I know the fair probability is 50%, but if I flip it 100 times, I wont get exactly 50 heads and 50 tails. There will be fluctuations in this distribution. It would take an infinite number of flips to get a truly fair 50%. So now we have only one event and a probability distribution. We dont have enough parallel universes to repeat the experiment and get the true probability. So prediction markets distort peoples thinking and make them mistakenly think Trump will definitely win, but in fact, thats not the case. I think people understand these markets wrongly because they dont understand statistics.
Laura: Okay, but my point is that the reason you only considered the Harris trade is because you feel that the prediction market is not accurate.
Arthur: Prediction markets are accurate in their function, the problem is peoples interpretation. I think the market misunderstands the information conveyed by the prediction market. They say Trump will win, yes, maybe he can win, but his chance of winning is not 68%, but 50%. Therefore, the best bet is to choose the possibility of Harris winning and the market going down. Its not that this will definitely happen, but if I have to trade, I will choose this direction. Because now the polls are almost evenly divided, and I just saw that Harris is one point ahead of Trump. But you should know that the popular vote and the electoral college are two different things. Usually if the gap is small, Republicans will have an advantage. So the prediction market may be because people are overconfident or have misunderstandings about the electoral college. There are indeed many misunderstandings. Most people dont understand math and statistics, and they dont understand the American electoral system. These misunderstandings make people think Trump will win, so the market goes up. This may happen, but it is not a trading strategy I will take.
Solana is a high-beta Bitcoin
Laura: Okay, so we talked about the overall market, do you have any specific expectations for some of the major cryptocurrencies? Like do you think Bitcoin will perform differently than other cryptocurrencies like ETH or SOL?
Arthur: I think Bitcoin is leading the market. If youre going to bet in this environment, you want to make sure you have the best liquidity. Because if youre wrong, you need to be able to exit your position immediately to avoid huge losses. So if youre going to bet, youre going to be in Bitcoin or major currencies like ETH or SOL. Im going to speculate in these currencies instead of smaller currencies. If Bitcoin goes up to $85,000 because Trump wins, people will be richer and then buy other things, like my Dogecoin and Chickencoin, haha, in short, there will be a follow-up effect. But if youre going to speculate on the election, its better to be in the major currencies because they have better liquidity. If youre wrong in your prediction, whether its a wrong prediction of the outcome or a wrong market reaction, you need to be able to exit quickly to reduce slippage losses.
Laura: So even though Bitcoin is currently near its all-time high, do you still think it will perform the best?
Arthur: Yes, I think liquidity will flow to Bitcoin after the election. Obviously, if Bitcoin goes up, then other currencies will rise more in percentage terms. People often have a nominal price misconception, such as Bitcoin is $72,000, and they think it is cheaper to buy a $1 coin, thinking it has more room to rise. This mentality will cause investors to buy those coins that look cheap. Therefore, if you want to plan ahead, you will think that Bitcoin will rise, and people will turn to those coins that look cheaper, which forms the so-called rotation effect.
Laura: So with the election coming up, if people aren’t expecting that, can they just buy smaller coins?
Arthur: Yes, but the problem is that from a traders perspective, most people dont really think it through. When they trade, they often dont consider the consequences of failure. If you make the wrong choice, the liquidity of the altcoin may evaporate quickly, resulting in a 10%, 20%, 30% loss, because you cant exit the position at all. Bitcoin is different. It is easy to exit even when the market is falling. Even if you think that altcoins will perform well, short-term trading based on election results is still not suitable, because if you make a mistake, you will lose a lot of money if you exit the trade, while the loss of Bitcoin is relatively controllable and you can keep the green hills.
Laura: Haha, thats interesting, Ive never actually traded. So back to Ethereum, it has always been the second largest cryptocurrency after Bitcoin, but it has not performed well this year and has a low market cap ratio. SOL has attracted a lot of attention. What do you think about this?
Arthur: I havent calculated the data specifically, but I think Solanas validator profit margin may increase more than Ethereum. After FTX collapsed, Solanas on-chain profitability improved significantly, which led to its price increase. In addition, Solanas unlocking speed slowed down, transaction volume increased, and validators income increased a lot. Ethereum has not changed much. In the future, Solanas profit growth rate may slow down, while Ethereum may get more traffic support in the expansion of the second-layer network, which will drive its price.
Laura: So before the election, would you be more inclined to trade Solana?
Arthur: Yes, Solana is a high-beta version of Bitcoin, with greater volatility and good liquidity. If Bitcoin performs well, Solana may rise even more. Ethereum is relatively slow, and the current market narrative is more inclined to Solana, and its volatility is suitable for short-term speculation. Ethereum is currently seen as old and slow, and the trading mentality also tends to Solana. In addition, factors such as Solanas active community and good UI experience also make people tend to invest in it.
Laura: Especially because Solana has such an active community?
Arthur：Yes, Solana has an active community, a user-friendly UI, and good liquidity. It rose from $7 to $180, and many people made profits from it. People tend to expect past trends to continue in the future, so when Bitcoin rises, Solana is considered a high-beta Bitcoin.
Laura: I would also like to ask about the statement that “L2 is parasitic on Ethereum”. Do you think this view is correct?
Arthur: I dont think this is the right view. Although more data is needed to support my view, L2 still needs the security of Ethereum. Many complex transactions are delegated to the L2 layer. Although there is a view that they capture most of the value, L2 ultimately needs the security of Ethereum. If the market value of L2s native token is not several times that of Ethereum, it cannot provide equivalent security. In the proof-of-stake system, Ethereum remains an irreplaceable security pillar. The more L2s overall transaction volume, the more security fees they spend on the Ethereum mainnet, which is why L2 still needs to rely on Ethereum. So I think this L2 parasitism statement ignores the importance of Ethereum to L2.
Laura: What about L2 on Solana? There are reports that Anatoly et al want to call them “network extensions”. What do you think about this?
Arthur: I haven’t learned much about it yet, but Solana is already very fast, and the current performance is sufficient to support most applications. There is no need for L2 for the time being. Creating L2 may just be to attract VC funding.
Would a Trump victory improve DeFi regulation? Unlikely
Laura: Okay, so do you think there will be any specific changes in the DeFi space during the upcoming election?
Arthur: Some people think that Trumps election will be more favorable to cryptocurrency regulation, and thus DeFi will benefit because more Americans can participate in it. But I dont think so. Trump did not make much substantive progress in his previous four years. Even if the Republicans win seats in both houses, there are many people in the party who are dissatisfied with him, so it is difficult for him to achieve major policy reforms. In general, I think the expectation that Trump will bring friendly regulation and promote DeFi is a self-anesthetized fantasy.
Laura: What do you think about Trump’s promise?
Arthur: Politicians always make promises during the campaign, but rarely deliver on them after taking office. The reality is that the presidents attention is usually focused on national defense and other more pressing international affairs, such as Russia and Ukraine. These issues will take precedence over cryptocurrency policy.
Laura: Okay, Im looking forward to seeing the comments after this episode airs. But you mentioned earlier that Harris might continue the Biden administrations policy on cryptocurrency. In fact, we have reported here at Unchained that in Harris circle, there are indeed some names that have been mentioned as possible successors to Gary Gensler as SEC Chairman. One is Chris Bremer, who has actively spoken in support of cryptocurrency in Congress many times; the other is Erica Williams, who was the head of the Public Company Accounting Oversight Board and seems to be more supportive of cryptocurrency. So, um...
Arthur: I’m skeptical about this. Gensler was a professor at MIT and even taught a cryptocurrency course. Many people also thought that he would support cryptocurrency when he took office. But after he entered the government, he became a politician, taking orders from those who could promote him, such as Elizabeth Warren, because he wanted the position of Secretary of the Treasury. These candidates may have a positive attitude towards cryptocurrency before entering the government, but once they enter the system, their priorities will be completely different. So people underestimate the impact of the government system.
Laura: Well, yeah, maybe none of them will end up getting the job.
Bitcoins rise is good for meme coins. Which meme coins should you pay attention to?
Laura: Let’s talk about other parts of the market. What are your expectations for meme coins during the election?
Arthur: I think the trend of meme coins is in a high beta relationship with Bitcoin. If Bitcoin performs well, funds may flow into meme coins. However, I will pay more attention to the trend of Bitcoin at present, and wait until Bitcoin breaks through further before considering meme coin investment. If Trump is elected in the election and it is good for Bitcoin, it will be safer to wait for the market reaction before entering the meme coin market.
Laura: You mentioned earlier that you like the Goat coin, and I’m fascinated by the story. It’s AI-generated and involves an internet legend from the 1990s. What do you think of Goat and AI coins?
Arthur: I think AI coins are a new category at the moment, and Goat is the king of this category. Similar to the position of CryptoPunk in NFT, Goat has a unique story background. If it can continue to be successful, other AI derivative coins may just follow suit. Therefore, Goats story, background, and AI-generated concept do make it attractive.
Laura: So basically youre saying that Goat is almost the Bitcoin of these types of coins, right? That is, if another crypto AI coin is going to emerge, it needs to have some kind of differentiation similar to how Ethereum is positioned relative to Bitcoin, right?
Arthur: Yes, if you want to use that classification.
Laura: Oh, you mentioned another meme coin before, but I didn’t catch the name.
Arthur: Its Smoking Chicken Fish, a pseudo-religious meme coin, a chicken body with a fish head, holding a Marlboro Red Brand cigarette, very funny. Their slogan is Ramen, similar to the religious Amen, but changed to Ramen, because the chicken is cooked in the soup, like a humorous belief.
Laura: Is this also promoted by AI?
Arthur: No, it’s just a standard meme coin. Just to see if this meme concept will spread online, I think it has potential.
Laura: Oh, I see. I noticed that Smoking Chicken Fish has 20,000 followers on X, so it seems to be gaining attention. What is its market value now?
Arthur: About $60 million in market value.
Laura: That’s quite high. When you invested, it was less than 100 million, right?
Arthur: Yeah, I just thought the concept was fun and I liked the creativity of it.
The potential impact of the Fed meeting on cryptocurrencies, quantitative easing may be carried out to increase liquidity
Laura: OK, lets talk about the Fed meeting right after the election. What are your expectations for that? How will it affect your view of traditional and crypto markets?
Arthur: Well, it is an interesting topic indeed. I attended a commodity investor conference in New York a few weeks ago, and someone mentioned that the reserve level of the US banking system may be so low that the Fed needs to restart quantitative easing (QE). Since the 2008 financial crisis, the banking system has maintained high reserves to cope with potential financial stress, and now due to quantitative tightening (QT), the reserve level is gradually reduced. Insufficient bank reserves will lead to market stress, and the recent surge in repo rates is a signal.
Lets look at the marginal buyers of US Treasuries. In the past, they were China, Japan and other countries, but now they are mainly hedge funds, especially those based in the Cayman Islands, Luxembourg and the UK. They buy Treasury bonds through hedging arbitrage and finance through the banking system. However, as the US government debt increases, the balance sheets of banks become more strained. Therefore, either the government reduces spending (almost impossible), or the Fed stops QT or even restarts QE. This will have a positive impact on risk markets.
Laura: Thats so interesting, I feel like I just learned a lot. Most people are focused on interest rates, but if there is QE, then the market could be pushed up again. This fits in with the point youve been making, right?
Arthur: Yes, this trend will happen sooner or later. The only question is when the Fed will restart QE. The only ones buying U.S. Treasuries now are hedge funds that are doing arbitrage trading, not investors who really want to hold them for the long term. The capital chain in the market is very tight, and the Fed tends to intervene quickly to avoid market turmoil.
People are too focused on the election results, but no matter who is elected, the US fiscal structure problems will still exist. In the face of growing debt, the Feds solution has always been to print money. So, if you can seize the markets lows with appropriate positions and low leverage, the real bull market will still come no matter who is elected.
Laura: Okay, so now that’s your perspective, what are your thoughts on the trade? Do you still want to hold a long position, or…
Arthur: You can want to hold a long position, but you also need to be able to withstand short-term market fluctuations. For example, if you hold a Bitcoin position, Trump loses the election or there is social unrest in the United States, and Bitcoin falls from $75,000 to $50,000, you should not sell your position because of these fluctuations. We know that they will print money and know that these structural problems will not be solved. Then Bitcoin may rise to $250,000. You will not be forced to sell because you use too much leverage two days before the election, so that you miss the bull market opportunity brought by the depreciation of fiat currency in the future.
Laura: Just now you mentioned how to allocate positions reasonably. What are your thoughts on this?
Arthur: If you check the cryptocurrency prices on your phone before going to bed at night and feel uneasy, your position is too large.
Laura: I like that suggestion.
Japan rate hike could strengthen yen and impact global markets
Laura: I also wanted to ask, earlier on we saw a reversal of the carry trade in Japan start and the market didnt react to that. Im wondering what you think will happen going forward. Do you think thats over? Will the market continue to be affected? What do you think?
Arthur: I dont know exactly when it will happen, but Japanese interest rates will rise, the dollar will be close to 100 yen, and Japanese capital will flow to the West and will flow back home to support the Japanese economy. I cant tell you how long it will take, though, because we just saw the Japanese Liberal Democratic Party lose its majority on Sunday. This is the party that has been in power since 1945, after the war, when they got rid of American colonial rule. They always win. Theyve only lost once since 2009, but now theyre no longer the majority party.
So the question is, what will put political pressure on the Bank of Japan to normalize interest rates, that is, raise them? We have a Bank of Japan meeting on Thursday, and I dont know if this question will be raised then. We will wait and see what Ueda (current Bank of Japan Governor Kazuo Ueda) says to see what he thinks about the Bank of Japans interest rate normalization. Currently, USD/JPY is around 153, which is very close to the high of 162 before the collapse. So, the Bank of Japan may surprise the market in terms of raising interest rates, because the current political chaos means that they dont have pressure from specific politicians to slow down the process.
Arthur: Ueda was appointed as the Governor of the Bank of Japan to reverse previous policies, such as yield curve control and expanding the balance sheet. This is his job. So the question is how long it will take him to accomplish this. He said he would be very patient in doing so, but given the current chaotic political situation, this could be an opportunity for the Bank of Japan to raise interest rates because the politicians cannot put pressure on him to stop the process.
Laura: I guess we’ll just have to wait and see.
Arthur: Yes, its a very complex but very important situation, and the US election doesnt really matter.
Laura: I love this unusual ending. Thank you so much for joining us.
