Arthur Hayes Full Podcast Transcript: Dogecoin, Aptos and the Fed

Recently, Coin Bureau invited Arthur Hayes and Raoul Pal for an in-depth conversation discussing market risks, aggressive investment strategies, and annual predictions. Arthur emphasized the strategy of holding Bitcoin and altcoins and shared their family office’s successful experiences with the Ethena project and the liquid staking token ecosystem.

Raoul shared his investments in Solana and high-end NFTs, noting that doing nothing might be the best strategy this year. They also explored the cultural value and market potential of memecoins, predicted that Dogecoin might get an ETF, and discussed the impact of the US election on the market and potential future risks.

Investment Strategy Sharing: Hold Firm, Don’t Be Afraid; Doing Nothing is the Best Strategy

Arthur: My investment strategy is to hold, not sell, not get scared, and not use too much leverage. It’s actually simple; everyone knows what they should do, but we usually don’t do it because YOLO (you only live once) is fun. But in the end, it’s simple.

If you believe central banks and governments are heavily in debt, will continue to be in debt, will continue to print money, and will continue to give out benefits to get votes or public support, then cryptocurrency is the answer. Obviously, Bitcoin is the veteran; I hold a lot of Bitcoin. Then, when you move into the risk curve and want to increase potential returns, you go into altcoins.

Clearly, for our family office, the most outstanding project is Ethena. Their team is excellent in creating synthetic dollars and aiming to replace Tether and USDC. Ethena’s circulation is now about $3 billion, making it the fourth-largest dollar stablecoin.

I think this is the best thing we’ve done this cycle, and I believe we’re just getting started; Ethena’s impact on the ecosystem is just beginning. The second would be Ethereum and the entire liquid staking token ecosystem. Obviously, EigenLayer will go live later this year. We have many other investments in that vertical. So, I would say these are the two highlights of our portfolio this cycle.

Raoul: Doing nothing is the best strategy. You know, 90% of my position is in Solana, the best choice so far in this cycle. The only meaningful action I took this year was selling some high when Solana rose from $150 to $200 and started buying high-end NFTs.

I bought almost all the Beeple works I could, and then I bought all the X Copy works I could afford, building a long-term portfolio. These works were very cheap at the time, and my view is that the market cap in this field will go from the current $2.5-3 trillion to $10-15 trillion by the end of this cycle and reach $100 trillion by 2032.

From now on, that will be a $97 trillion wealth accumulation, the fastest wealth accumulation ever. Even if I’m completely wrong, it’s still a $50 trillion wealth accumulation. That’s equivalent to the entire historical market cap of the S&P 500.

So, a lot of wealth will be generated in this field and will circulate within it, whether in venture capital or building application layers. But in reality, people will chase those symbolic assets. So, I’ve been buying as many symbolic assets as possible because I think this is the last chance to buy these things at such prices.

What is the “Banana Zone”? What Impact Does it Have on Cryptocurrency?

Raoul: We’re entering the “Banana Zone.” The “Banana Zone” is a concept Arthur and I often talk about. It’s a highly cyclical phase when liquidity enters the market, and central banks need to refinance all the debt, pleasing people with candy.

At this time, cryptocurrencies usually rise vertically. It’s driven by the macroeconomic forces of the debt refinancing cycle, affecting all asset prices, but cryptocurrencies perform particularly well. So the simplest thing is not to mess it up.

Maintain a core portfolio, with most assets allocated to major cryptocurrencies. If you can get it right with other assets, you can make a lot of money in that 10-20% of your portfolio, which carries higher risk but also higher returns.

Looking back at the classic “Banana Zone” of the last cycle, Solana, Avalanche, Luna, and Matic performed outstandingly during this phase. Within a year, these four tokens had incredible performance. We will see a repeat of this situation.

Who will it be? I don’t know yet. But that’s part of the “Banana Zone” game, and it’s one of the fun parts because you can take risks and feel like you’ve truly seized an opportunity, while most of the time, you just watch and wait.

Why Are Memecoins So Popular? What Value Do They Have?

Arthur: I think memecoins will continue to exist and become crazier as more money is printed. I’m often in Singapore, a small place with a very homogeneous society. Every time I walk on Orchard Road, the shopping district, I always see local Singaporeans queuing at Chanel, LV, Gucci, etc., the mainstream big brands. They’re always lining up, waiting to get in and buy what they want, costing thousands of Singapore dollars, and they do it often. So, if people are willing to queue up to buy leather goods with the LV logo, they will definitely sit in front of their computers and trade any hot memecoin.

Because you don’t need to understand cryptocurrency, just like you don’t need to understand fashion. Everyone likes it, so I like it too, very human. So I think memecoins will stay, and for people just entering the cryptocurrency space, it’s the easiest thing to understand. Oh, this is a cool picture, this is a fun joke I understand, everyone is in on the joke, I can make money from the joke’s spread, okay, I’ll buy this memecoin.

I don’t need to understand blockchain, AI, and cryptography. I just need to know if this is a cool cultural trend. I’m already doing the same thing in real life when I queue up for those expensive brand products. So, observing human behavior, why are the world’s richest people, if you look at the rich list, many own luxury brands? Memecoins are the luxury brands of cryptocurrency.

It’s easy to participate because you don’t need to queue. You just need to buy online, assuming Solana’s system works. In short, you can quickly buy these things on a decentralized exchange. So, I think memecoins are the luxury brands of cryptocurrency, and this won’t change.

Raoul: Yesterday, I had coffee with Miao from Jupiter, and we talked about this. The interesting thing about memecoins is that their utility is either zero or very small. Bonk has some utility, Shiba Inu has some utility, but their real cultural value lies in the attention they get. Attention is upstream of everything, and it’s very easy to understand.

You don’t need to value them; you just need to know if they can attract attention, if that attention is lasting, and if owning them can give me some feeling or status. This is the same as an LVMH Louis Vuitton handbag, the same as fine wine, and the same as the memes you share online. These all concentrate attention.

Sharing This Year’s Market Operation Strategies and Future Market Predictions

Raoul: I basically didn’t do much because I really didn’t have the time. If you notice, many aggressive operations are based on attention, and I don’t have enough attention to allocate because I’m too busy. So, I kept a relatively simple strategy.

I have Bonk and Doge because I still think Elon will do something with Doge, that’s it. I observe this field; everyone reads Ansem’s tweets, trying to figure out what’s happening, but I don’t have enough attention to focus on these things. So, you actually need some knowledge to operate these.

Arthur: My leisurely life includes running around the tennis court or skiing on the slopes. So, I also don’t have the attention to keep track of which dog coin is the hottest. I also hold some Dogecoin. I think Dogecoin will get an ETF before the end of this cycle because it’s the earliest memecoin, traded on Robinhood. For institutions considering entering cryptocurrency, they will apply ETFs to any high-market-cap and long-existing things, and Dogecoin is one of the earliest memecoins.

How Likely is Dogecoin to Get an ETF?

Raoul: Last week, I talked to Yan from VanEck, and I told him, you have to apply for a Dogecoin ETF. He said he just wanted to make sure he wouldn’t go to jail first. I said, you’re fine, Dogecoin has been around for a long time, and it outperforms Bitcoin every cycle, which is very amazing.

So, I’m working behind the scenes to push this, but I haven’t convinced Yan yet. But I’ll keep trying. One of Hunter Horsley or Yan will cross this line. It’s unlikely to be BlackRock, but we’ll try.

Which Memecoins Might Succeed?

Arthur: In terms of memecoin narratives, I think many memecoins are too specific. For instance, political memecoins might be interesting for a while but lack lasting cultural value. When you talk about a meme like dogwifhat, whether you’re Korean, Chinese, American, or Argentine, you’ll find it amusing.

But if you talk about American politics, firstly, you might offend half of Americans, and secondly, 95% of the rest of the world won’t care. So, I think many memes are too specific and won’t resonate globally. Therefore, if someone can create a global memecoin that isn’t offensive, inclusive, and fun, it will succeed.

Raoul: This is actually a good place to test narratives, in Singapore, because it’s a culturally diverse Asian audience. Asians like to gamble, and they also like memecoins. They are big buyers of Dogecoin and other dog coins. You just need to see if the narrative resonates here. They don’t care about Trump and American politics; they just want something that can cross cultural boundaries.

How Might the U.S. Election Affect the Market? How to Protect Yourself and Take Advantage of Market Volatility?

Raoul: In my view, there won’t be much impact.

Arthur: The candidates are essentially the same, backed by a group of stakeholders. After the election, they will continue to print money, so both large-cap tech stocks and cryptocurrencies will continue to perform well. There might be some volatility, especially concerning Trump’s legal issues, but ultimately, regardless of who wins, they will print money.

So, I don’t think it will have much impact. They will all vote for war budgets. The U.S. economy is built for war. So, it’s the same, regardless of which candidate you prefer. I don’t care about their slogans; I just know they will print money, so any effective investment strategy now will continue to be effective after the election.

Raoul: If there is any volatility, it could be due to one candidate dropping out or violent incidents. But the end result is printing money. So, election years and the following year are usually very positive for risk assets because everyone is buying votes.

Arthur: The Fed isn’t independent right now. This is a false premise. In reality, the Fed is led by the Treasury, and Janet Yellen is the most powerful person. She can do whatever she wants, and Jerome Powell is essentially powerless. The Treasury is the driving force, always working behind the scenes. If you look at some Fed research papers, like a recent one from the Atlanta Fed about central bank swaps, they have basically been supporting international dollar borrowers, detailing every instance of the Fed printing money and giving it to foreign institutions.

Raoul: If you look at Arthur’s perspective, there is indeed a global dollar shortage. We lost some U.S. banks and a giant Swiss bank, making the dollar shortage problem more severe. Yellen went to China twice, and her task was to sell bonds. China is willing to buy bonds, but they don’t have dollars, so we must find a solution. There will be some arrangements at the G20 or G7 meetings to ensure enough dollar liquidity in the global system. So, since 2008, there hasn’t been any real independence. In fact, there’s not much independence among central banks either. The Bank of Japan and the Treasury haven’t been independent since the 90s.

What Are the Main Risks in the Current Financial System and the Cryptocurrency System?

Raoul: For me, there is a risk that’s not so obvious. I think the biggest risk is a ridiculous bubble in the next three years. There might be a bubble similar to 1999, leading to an overly inflated market followed by a significant correction. This is the biggest risk.

Arthur: The biggest risk in the last cycle was the credit issue with centralized counterparties. Typically, in the crypto space, we love decentralization, but to make money, we do centralized things, which eventually explode because their business models are incompatible with decentralized assets. This has happened repeatedly.

So, how might this cycle evolve? What are the centralized entities we now trust and push the market? ETFs, fund managers, what are they doing? They are custodianing their assets, possibly only in Coinbase and a few other banks. If one regulation passes, we will accumulate hundreds of billions or even trillions of dollars of crypto assets, custodied in less than 20 companies, possibly in less than 5 institutions.

If you’ve ever worked at a bank, you know that those who earn the least have the most important jobs; they handle forex reconciliation or ensure stock settlement. If you consider crypto asset custody in a traditional financial institution, they now want to enter this field because they see Coinbase making a lot of money from BlackRock and others, and regulations force you to custody with third parties.

They might force you to custody with big institutions like BNY Mellon. So now, you have a massive amount of crypto assets in these companies, and the person handling this might be earning $50k to $60k a year, overworked, disrespected, and knowing nothing about cybersecurity. It’s not their money.

If I were to hack cryptocurrency, I would target these U.S. custodian banks because their cybersecurity is an afterthought. They have no idea what they’re doing because they’ve never custodied these assets. If they lose these assets, they can’t ask the Treasury or the Fed for a bailout.

In crypto, no one can create Bitcoin or Ethereum to compensate for your loss. So, if I consider risks, a major crypto custodian being hacked, losing $50 billion to $100 billion in crypto, that would be the end of the cycle.

Raoul: And it’s unlikely to be Coinbase because they know the game. But other new entrants don’t understand the complexity of these assets. Another risk for me is the derivatives market, where almost the entire crypto options market is concentrated on one derivatives exchange.

This poses a risk because a lot of people use this single centralized platform for options trading. If this exchange encounters problems, we could have a big issue. We need more options exchanges and platforms to distribute the risk because derivatives use is increasing, and we don’t know who will bear the risk when the market explodes.

Arthur: Regarding options, there’s an interesting phenomenon where zero-day options are very popular. Interestingly, CBOE (Chicago Board Options Exchange) has resisted launching zero-day options for years because they can’t achieve real-time margin. When you sell zero-day options, you essentially take on unlimited upside risk.

Despite brokers strongly requesting these products because they are very profitable for retail customers, CBOE hasn’t launched these products. Imagine if they launched zero-day Bitcoin or Ethereum options and Bitcoin surged 50% in a day, all market makers would face intraday margin calls, and CBOE is unprepared for this. This could cause the market to crash.

Raoul: These aren’t predictions, just to be clear. These are potential risk points we see, not saying certain companies will definitely collapse. At the end of each cycle, someone always blows up; we just don’t know who it will be. If you leverage a 70% volatility asset, you will definitely blow up, that’s a 100% guarantee.

What Are Some Undiscovered Investment Opportunities? Which Projects Are You Optimistic About?

Raoul: I try to do nothing. One phenomenon I’ve been watching is the Bitcoin to Ethereum rate. If this rate starts to rise, it might signal the start of altcoin season. So my focus is on the “Banana Zone” because that’s where you can make big money. So even if you do nothing, you don’t want to lose your tokens in this zone.

Arthur: I think Aptos might become the second-largest Layer 1 and surpass Solana in this cycle. This prediction is within a 1 to 3-year timeframe, and I’ll provide more details in September.

Raoul: I have a different view, I work with the Sui Foundation, and I think the Move protocol is a big narrative. We can discuss this in the future. I’m also very interested in the upcoming major Layer 1 projects because in the “Banana Zone,” these trades are very profitable.

In the last cycle and previous cycles, these trades generated huge returns, so it will be the same this time. Most of these tokens have rebounded from their lows. They all launched at the wrong time in the last cycle, but the current market environment is very favorable for some of these tokens. I’m not sure which specific projects, but you can consider Celestia, Monad, and other projects.