Arthur Hayes: The AI Crash That Could Send Bitcoin to $1M

Transcript

You can't change the fact that a chip gets better every two years if you if you pump 10 trillion dollars into the economy. So what's the first response going to be by the financial authorities to try to save the banks are going to say, "Oh, we just need to shovel fiat money in." And at that point, investors are going to say, "I do not want to put any new capital, whether it's free or not, into AI because it does not meet its cost of capital." So therefore, this capital goes straight to crypto. And this is the the implosion of the AI bubble. and the follow on money printing that's going to happen especially in the United States to try to stick shave the system from this gross capital misallocation that's happened over the last let's call it 6 to 7 years by that point is going

to dwarf subprime and is going to take us to Bitcoin a million or whatever >> bank station I'm here with Arthur Hayes Arthur welcome back to the podcast >> thanks for having me >> Arthur I originally asked you to come on back in May because I saw you were getting bullish on some of the tokens that I was also bullish on hype near Zcash. So I was like sick. Let's let's get Arthur on the show. We can be bullish together. We can talk about tokens. It's going to be great. And then you sold them. So now I don't have any tokens to talk to you about about why you're bullish because you sold them all. What happened? So you know I'm always analyzing my thinking especially on this AI narrative and you know I felt that the risks outweighed the benefits

of being long especially in these things and time to take some profit there wasn't the the same asymmetry there in terms of the awareness of these the potential of things like near and hype on the Zcash front bit of a different issue the way I view things if I think that there is a risk of like pretty much a complete wipeout in my capital due to some technical issue. I can't in good conscious keep my capital in that particular situation. Uh obviously the Zcash team is fixing this issue at informal verification. You know when when the new shield pool launches hopefully this thing will be fixed and I can evaluate then and see if I want to uh come back in and you know I might come back in at higher prices but again I've been doing this for a very long

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within reach. Bricks brings DeFi's promise to the emerging world and brings emerging market yield to your wallet. Let the yield flow with bricks. What was giving you the jitters? uh what what's causing you to to what did you see in the AI trade that that caused you some jitters? >> So, obviously we have the SpaceX IPO. It's done very well in the first two trading days, but that's a a low float high FTV shitcoin in my opinion and we know how those go when you start having unlocks and we start having unlocks in September. We have anthropic and opening eye coming to market as well. And also we have this Iran war energy situation.

you know, if you believe the authorities, they say it's supposed to be fixed. And then I guess read some headlines this morning that Israel says we're going to keep bombing Lebanon and supposedly Iran cares about Lebanon. We don't know. So that's like a whole thing. We'll see if this thing actually materializes anything. But at the end of the day, we have this underlying bid for physical commodities that isn't going away. And so there could be a situation where we wake up in 3 four months time and oil's at $120, but the straight is supposedly open. >> And what do you do then? essentially every energy is the input for our entire civilization including the AI because AI is just transforming energy into intelligence the most efficient way possible. So, you know, all these things were weighing in my mind like, okay, I think the summer is going to be sort of

a topping period for a lot of the markets. I've done really well on these calls. Let me just take the W and go chill. And, you know, if I need to buy back in other things and let me find some asymmetry in other places, right? Like, I got into hype in the the the high 20s, low 30s. It's now whatever they got out at like 70s, right? That's a decent trade, right? I think to go from the 60 to the 150, my original call, not that it's going to be impossible, I think it will happen at some point, but it's going to be a harder slog than the first part of this this run. And so, okay, as an investor, at least in how I view things, is I want to find those asymmetric trades where I can deploy a little amount of capital

and get a big return and then I can put the rest in sort of low income yielding, you know, bond-like structures or Bitcoin. >> So, how are you positioned right now? Are you in cash looking at opportunities trying to find the opportunities? Uh how are you positioned? >> So obviously very long Bitcoin as always. I'm perennially long Bitcoin got a lot >> when you sell these tokens like sell hype and near and Zcash which I imagine are shorter shorter term positions than Bitcoin otherwise would be. Do you sell into Bitcoin? >> Um depends. So I haven't this time. I'm just sitting at a lot of tea bills just earning some yield and you know if I'm able to find some asymmetric opportunities before I really check out for summer vacation then I'll do that otherwise you know I'll just be compound

my my rates at whatever three and a half% like not exciting obviously there's this big bull market going on but >> thankfully on a decently large capital base it doesn't really matter um to me I more care about my mental sanity >> right right okay so if you look at the crypto markets there are pockets of dispersion everywhere. You have some of the majors, Bitcoin, Ether, which you know, Bitcoin is sitting at its 200E moving average. Ether is like 30% below its 200E moving average. You know, Mr. Market is coming to us today with a deal on these assets. Meanwhile, some of the other assets that we were just talking about uh Zcash um VVV Near Hype are breaking through at all-time highs.

you know, hype especially is at is at all-time highs. And that's not really something that we've ever seen before in the crypto world. And so, while there's like some in some parts of crypto there's a bare market, in some parts there's applications and protocols that are breaking through all-time highs. Have you seen this before? And like what do you make of this? What does this tell you about the state of the industry? Well, obviously there was a great trade conceptually at least back in the day when I really went long ETH back in like you know when it was to trade $100 to $200 which was there was some chart that was going around about the value of all applications on top of Ethereum were worth more than Ethereum. Like well that has either one either one Ethereum is undervalued or two the applications are

overvalued and we were in a sort of a you know pseudo bull market at the time. So let me just go long ETH. So I just [ __ ] backed the truck up in ETH and 20xed right or 10x whatever it was. So >> that was in 2020 to 2021. >> Yeah, around that time that era. So >> that era. >> And so yeah, I mean speaking of ETH, I think ETH has one of the probably the cleanest setups for something that could really rally off of, you know, a very big safe crypto safe um market cap, right? Like I don't Ethereum has a lot of issues but >> ain't going to zero overnight. At least I don't think so, right? Actually, it could, but the risk of it throwing a zero overnight is much less than Hype or any of these other tokens. Not that I

don't love Hyperlquid or some of these other projects, but it has has a certain Lindy effect and a certain largess and stickiness that I could I could deploy a lot of capital into ETH and turn my phone off for a year and a half and be happy about that. I would not do that with in the same notional with anything else in the ecosystem other than probably Bitcoin. >> Mhm. So, I think that's probably one of the best setups I see out there for a mega cap coin because, you know, ETH is trading well below its 2022 all-time high of 5,000. Whereas pretty much every other token of value that has existed at that time period, a major at least broke through that. You know, Bitcoin did, Salana did, you know, pick your, you

know, bigger cap dinocoin and it got through those levels. It might not be trading there now, but at least it got there. ETH hasn't even gotten to that point yet. So, I think there is if ETH starts to move, people are really going to jump on that train because they so badly want ETH to just like why isn't ETH at 15,000 or some level, right? There's obviously structural reasons why it's not, but people would love to believe that it could get there. >> What do you make of ETH trading like well below its 200E moving average? Do you pay attention to the 200WE moving average that much?

>> No. >> No, you don't. >> I mean, I don't really look at technicals too deeply. I'm more of a narrative gut feel kind of guy. Um I just look at the chart, right? And if you look at the >> the troughs over the last five years, we're trading near those levels. I mean, yeah, it'd be great to get a ETH at $1,000, but like, okay, cool. You're great at Bitcoin at $5,000, too. Like, should would have. >> Sure, sure, sure, sure. Okay. Uh, so, well, I'll kind of present the question again. Bitcoin is above the the 200E moving average. ETH is 30% below it. Does that mean do you do you have do you like Ether as a better deal than Bitcoin in this moment?

>> Yeah. So if you gave me a dollar fiat capital and so we choose one I'd choose Ether over Bitcoin purely just on a >> chart perspective. >> And is that is that what you're doing? >> Is that what I'm doing? I'm I'm evaluating it. We'll see. >> Okay. Okay. Okay. Uh so so one of the things I want to ask you about is like I know you're a big hydrocarbons guy. You're a big energy guy. Uh we just got the the peace deal in Iran as you said it's like sure you know is Israel can do its thing. Um but like go um WTI and a lot of the oil tickers are trading down at the lowest they've been since the start of the Iran war. Um is this is this durable? How how is this input into

your into your trade and into your like attitude towards the markets? I believe that this is a fake out and we're going to be at uncomfortably uncomfortable levels of hydrocarbon prices. Now, I'm not saying oil is going to be at $200, but it's going to get up to uncomfortable levels. >> And I basically subscribe to the theory that you have all of this restocking effect. So let's say that this deal holds and the straight opens for what do they say like 30 or 60 days whatever it is and you have to pay your environmental fee but it's not a toll you know of course >> you know love the environment uh and these ships go through volumes get back to some level close to where it was pre-war

but you have two issues right so the governments that spent down inventory to keep the price not going crazy like the United States and a lot of other countries have to rebuild >> you conver commercial inventories that have to rebuild and then you have everybody else who is caught short or caught unprepared is going to be forced to you know restock their inventory to acceptable levels because let's say that Trump and Netanyahu decided they want to bomb Iran again after the US elections in November then you couldn't be you can't be a politician go back to the people like yes the Americans bombed Iran and we didn't have enough oil supplies because we trusted that America would keep sea lanes open and all this was kind of fine You can be wrong once.

You can't come back to the same people, oh well, they did it again 12 months later. Um, and we didn't learn our lesson. We still kept holding treasury bonds and big cap tech stocks. And for that reason, you guys can no longer get on a plane and fly and go on vacation because we have no jet fuel. Um, we have no diesel, we have none of these things because we refuse to sell them these financial assets and buy these real assets. I think that's over. I think countries are going to start looking more like Japan and the US and China and having 100 plus days of imports ready of you know hydrocarbons and these refined products and that additional demand is going to slowly push up prices to levels that we have it that you know maybe we

get through $120 on WTI oil in 6 to 12 months. So I think this is a great buying opportunity for um Exxon Mobile, you know, oil services funds, um natural gas companies, um Latin America energy plays that are within sort of the you know, the US orbit. So I like these investments because if I'm correct, then you're getting them at great prices for something that if you believe the commodity math is almost not a certainty, but a higher probability outcome than the market is assigning it.

There are a couple things that uh I I think align with what I understand to what to with what you're saying. First, we have 60 days to figure out what a lot of the nuances of this deal actually look like. To be honest, like some of the some of the deal is like we're just going to punt on the details because we both want a deal signed now to signal to the world that we're signing this deal. But like what happens with nuclear material TBD? What happens how does the straight of form actually open TBD? like what that environmental fee actually is and how it's enforced to TBD. So, these are all like jittery surface area uh for the for the deal to fall through for you know this to actually not actually manifest into a long-term truce and we kind of just punted the problem into the

future. So, that's one problem. So, and we also have 60 days for that to figure out. So, the straight isn't going to necessarily be open for that time. The the other time is that like we've been drawing down the United States, China, Japan as you said have been drawing down on their oil reserves and so they need to bring them back up and that also takes months uh of of buying and so like you know oil's cheap now but it's not going to immediately go away. We have the inflation problem to deal with. So inflation is here today. It just started showing up after the oil spiked up 3 months ago when the Iran war started.

And so we have at least 3 months of inflation to get to actually show up in the market because of the higher oil prices. And again, this this problem isn't going to be solved for another one, two, two or 3 months before this rate can actually open if it does actually open and all these countries do restock. And that's all that's going that's going to happen if Trump doesn't decide to, you know, reverse course and bomb Iran again, which I actually think is should be in consideration of any investor. like we could just be at this thing again in like one to two months.

Did everything I say kind of like check out or is that aligned with you? >> Yeah. And I think think about it from the um IRGC's perspective, right? Every time that Trump has done a deal with them, it's either been a ruse to to strike them again, whether it's, you know, Trump or his attack dog Netanyahu or Israel. So >> yes, there's this truce for 60 days, but you would be you should be fired as a war journal if you believe that somehow you're safe >> that this means anything other than Trump wanted a deal to stick shave the markets so that maybe you know Elon's deal goes well with open know, you know, you can float these mega IPOs without any issues.

But yeah, to your point, nothing's actually been solved. It's just like the tariff thing. There was initial salvo the market did not receive it very well. You know Trump had to backtrack and then US and China basically engaged in these like nothing burger extensions extension and you know there's not been sort of a grand bargain if you will sort of a status quo understanding of where things are but I think something similar could happen with the Iran war. You know they probably have some strikes between Iran and Israel and Lebanon and whatever. The deal is still nominally in place >> at Primmaacia, but underneath >> the flows are nowhere near as much as they were, you know, February 26th.

>> Yeah. Yeah. The I I do agree that high oil prices could be is the simple answer to like why be bearish? The world cannot sustain like $110, $120 oil prices for more than a few months before we already are seeing inflation kick in. And United States, we have it way easier than everyone else. And so like the the bare case, the recession uh trigger is high oil prices. And so we we know that there that is a possible future. So we have to be wary about that. Granted, the stock market knows this and the stock market has been doing great. It it shrugged off the Iran war so easily. You know, it got a little bit jittery, but then the AI trade, you know, and the memory stons all just went through the roof. And so

like one of the other reasons why you cited as like taking like a riskoff position is because we have open AI, we have anthropic space coming into the market at very high valuations uh uh uh lowflat high FTV shitcoin as you called it. Uh what do you what do you make of like the current health of the equity market? Uh like is it too euphoric, too skittish? What do you think? Well, the assumption that it's all AI obviously that the the equity market is literally just an AI story and any second or third derivatives from this, you know, capex buildout that is going to be probably bigger than the railroads in terms of percentage of world GDP spent on building this infrastructure. Whether or not it's useful, we'll see. And that's why all these stocks are rallying

and that's why you know if you believe that this is bigger than the railroad build out does oil at 100 or 150 really matter in the next one or two years is is Google going to stop their capex buildout because oil is higher if they believe you know every single major US tech CEO has basically said I'm okay with my company going bankrupt if I don't risk that I lose the AGI war you know risk being not at the table for AI. If that is the prevailing consensus among these eight guys that this is why they need to spend 100 plus billion dollars a year in capex, the oil prices are relevant.

>> The oil prices are irrelevant up to a certain point. Like I think we 90 $100 oils are relevant. 120 not so sure. >> We'll see. I again if you read if you listen to the rhetoric about oh we're investing for an S-curve in technology. >> Yeah. Oh, this is going to be the biggest buildout since the railroads. And we're not there yet in terms of the amount of money spent as a percentage of GDP. So that would tell you that we're in the the early part of of a bubble. And given the sort of manic utopic rhetoric out there about what AI can do and what it's going to mean for the world. I don't know if materially higher

oil prices are going to dent that enthusiasm. We'll see. It's all about does it do these hyperscalers scale back on their capex commitments because they believe that either a they can't charge a high enough price to earn a return >> or you know this they just think they're not going to make money enough money >> or you know the market says the banks stop lending to them or the US government stops giving them preferential treatment. So like all these things are the variables. Oil does affect those. I think if I'm going to be wrong, it's that people don't care. $150 oil, cool. But AI is going to usher in utopia where none of us do any work anymore. So what do we care about oil and Elon's building the space building

in space where there's infinite sun? Yeah, I mean there's orbital mechanics that come into play there that you haven't really understood, but okay, maybe. So like if this is what you believe, then does terrestrial prices of dead dinos really matter? And so I think that's that would be the push back against my bearish thesis on on AI. >> Yeah. What are you looking at? What indicators are you looking at to kind of like measure how much time left we have in this uh in the AI trade in the AI bubble? Is that how you think of it? >> Yeah. So I see that this is a bubble. It we are either in the late stage or the early stage of a bubble whatever. Right?

So >> when I put my hat on as a trader I'm like okay I got to think about the exit from this thing. I fundamentally believe that humans are always overoptimistic at the beginning of any technological buildout. I believe that this could be bigger than the railroads in terms of percentage built. Okay. Um what happened with the railroad buildout, right? You had two financial crises in sort of the uh mid to late 19th century, 1873 and 1893, basically predicated on credit given to railroads and sort of an over um indexing about the return that these things could generate. So, you know, I think that we could be this could be the first little test maybe this summer.

We'll see. And then, you know, you rally off of that. And we're still bill believing the hype in terms of what AI can deliver. And I think, you know, you read Michael Bur and a lot of these guys about what's wrong with this situation. It's all these circular revenue deals. It's that, you know, Google invests in a lab or Nvidia invests in the lab. the lab takes that investment and buys the chips, >> right? >> Um Google is underwriting the credit of the data center that is going to provide them the the compute, right? So, it's all just circular accounting. The depreciation is pushed off in the future, right? You're taking a chip that

depreciates every two years pretty much, which we've seen over time, but you're giving it a six year life or six, you know, five or six year life. That doesn't make any sense um to advertise alone. Based on that, you're saying uh that this capex will continue indefinitely even though you have Chinese competitors with models that are good enough charging 1% of the price. Um and so I think this a lot of investors have sort of bought into the the America, you know, is it the baddest biggest badass country, best tech, da da da. It's the same fallacy you thought about cars, right? Do you give a [ __ ] if you were drive a Ford or a BYD? Give me the BYD. It's cheaper, right? It's just

as good, if not better. >> So, I think people have bought into the brand of the USA, but they forget that like the brand value erodess when a customer is faced with a product that's good enough and 1% of the price, which is what, you know, a Deep Seek or Kimmy model can can deliver. And so I think these are some of the things that it's eventually the market will will recognize. I don't know when that is. And then they'll say, okay, I don't believe that I should be paying this multiple for this company. Or the executives at these hyperscalers say, I don't believe I'm earning the return I need to earn. I need to scale back my cap my capex projections. And that's when the whole edifice starts to break.

>> Yeah. Then you can add on top of that anti- AI politics. TBD on whether or not that becomes a thing in this election. Um I've been reading, you know, different things and some publications that I like to get a mood on what's going on in the US. Unfortunately, for my thesis on sort of Trump turning on AI Bros, I still think that the Democrats haven't leaned into this issue enough because they're just bought and p they're just as bought and paid for as Republicans from, you know, big energy companies, AI um data center people and all that sort of stuff. But there's there's anger there. I mean, I don't live in the US. I'm just reading magazine articles, but you live there.

You know, there is this pent up I'm afraid of losing my job. Why is this data center coming into my town making stuff more expensive, polluting my water? [ __ ] these guys. I don't own any of these stocks. I'm not up 50x in my portfolio. I'm struggling. Why Why should I essentially underwrite this expansion when I get nothing from this? Where's mine? And I think there's going to be a whole class of politicians that are going to tap into that anger. And that'll be the number one issue that Americans are voting on. you know, maybe in this midterm, maybe not, but definitely for the 2028 presidential election. And that should scare the [ __ ] out of investors.

>> Yeah. >> Because you can take a look at what happened in the, you know, late 19th century, early 20th century with all of the action against sort of the industrial revolutionaries, the robber barons. And yeah, they all still were wealthy after the fact, right? John Rocker, John D Rockefeller, still the richest man in the world after they spilled up his companies. But like if you were just an ordinary secondary market holder of these shares, you know, you could have gotten battered and bruised as sort of capital and labor came to these sort of agreements about how we're going to police this new economic productivity that has been created.

>> Maybe I'm reading tea leaves here, but um what you were what I was thinking about while when you were saying that is is like look at what happened to the crypto industry after we had our big runup and bubble and like cla rise to fame in 2020 and 2021. like we were on top of the world. Like crypto bros, you know, ran the world. We every the whole world thought crypto was cool for a brief moment. And then in 2022, interest rates came, the bubble popped. Uh and then and then the regulators came at crypto when we were weak, you know, when we were down bad and out. Not not while we were on top of the world in 2021, but Elizabeth Warren built her anti-crypto army in late 2022 and Gary Gendler came in 2023. And it was when we were kind of

like just like you know licking our wounds from the market is when the regulators came. And so maybe we could project forward into the AI world where you have a lot a lot of um you see Tom Shaughnessy's tweet about like one possible way the AI bubbles pops which is a little bit what you were talking about which is everyone shifts away from like this the paid plan where you pay $50 a month and you get to type into chat GBT as much as you want which just doesn't appropriately price these things. But when you go is you go to the API model or you just pay per token and the pay per token you're going to char be charged a lot more because the whole plan subscriptionbased model is just not at all reflecting the actual cost to the company. So everyone is going to be it's

like a pay peruse thing and all of a sudden usage is going to dry up because it's actually way more expensive and all this stuff is getting subsidized. And so you do have like a couple like dominoes getting lined up of like ways to pop the actual revenue metrics of these like supercaler AI companies followed by just like exactly what you're saying just like AI politics just like being the the second of a onew punch into the whole industry. What do you think about that? >> Yeah, for sure. And it's going to take time. This is not an immediate thing. Yeah, it's a two-year plan >> and I don't think people really appreciate that the effect that China will have on this. It will commodify the token market just like it's commodified every other market. Like China builds a

gigawatt of electricity at one sixth the cost of the US. So they can essentially when they want to well they're already doing it right you can use deepseek you can use you know those mean these other Alibaba test whatever bu models and as long as you don't talk [ __ ] about the Chinese communist party you can pretty much get all the same answers that you want if not more >> their tokens are going to be free compared to ours >> so it's like okay I'm trying to find out the the cheapest rental car do I need to use the chat GBT Claude Sonnet Opus >> yeah, >> Grock, whatever the [ __ ] model that's 100x more expensive, or do I just go to

the Chinese one that's super duper cheap? Maybe they they practically free and I get the same answer, right? I'm just I just care about rental cars, right? Most people aren't doing super duper secret like I'm going to build the next missile to destroy the world kind of [ __ ] right? Like they're just trying to optimize their lives. Same with businesses. Do you really care if you use a US or Chinese model? At least the Chinese model is open source. You could theoretically like put that open source model on your own um bare metal server racks and run this or you could give all your data to Anthropic OpenAI, GMI, Elon, whatever, right? I'm like, do you really want to do that? So, I think it's it's an interesting thing and it's the same sort of mental fallacy that a lot

of people fell with a lot of other things outside of luxury or high high-end luxury, which is the end consumer doesn't care about brands when the competing product is good enough and is a fraction of the cost. >> Like your brand value goes to zero. >> Do you care what your brand of car is if you're not driving a Lambo or Ferrari? [ __ ] no. Get me from A to B. Tesla's fine. BYD is fine. Deaker is fine. BM I don't give a [ __ ] what the car brand is. I want to be safe. Get me from A to B. Cheapest price possible. Right. Right. >> And I But yeah, okay, fine. The the Birken bag, I'm going to go pay Hermes a bunch of [ __ ] money. But apart from that, there is no brand value.

>> So stop talking about like US AI if you're going to say it's 100x more expensive than the Chinese version and does the same stuff, >> right? Yeah. Ultimately, end of the day, people are just going to want the Toyota Corolla models >> and that's going to be supplied by the Chinese. Yeah absolutely. >> Yeah. I suppose like in this moment right now like uh AI company equity value is up only like you can go trade uh anthropic on hyperlquid it just just goes up and they just raise it a higher and higher round everything related to AI just goes up in addition to that they're subsidizing the actual usage and so the cost of a token isn't actually really the cost of a token and that only really works when you know number goes up when there's free money like flying around. And I'm sure being in the crypto

in the AI industry kind of feels like being in the crypto industry in 2021. Like all money's fake and you just have to like build and execute as fast as possible. And so as soon as that kind of stops and the marginal consumer or consumers broadly start becoming price sensitive, then a lot of this effects will start to actually like show up and people start to look at like fundamentals and reality rather than kind of the hype and the narrative. But we're not in that phase in the market right now. people aren't price sensitive to tokens. AI labs aren't even price sensitive to tokens and so everyone is in this kind of like euphoric state. How do you know how long we are in this state? Like what do you what do you look for as an investor?

>> I think the biggest tell is going to be this depreciation schedule. Right? So a lot of these financing deals like we like you got to care about the debt because usually it's the debt and the credit that's going to force the you know mark fiction to reality. Okay, >> right and close that gap. And right now you have people underwriting am ad amortizing GPU deals with a five to six year period when things are getting better in a two to three year time frame. >> So that is mathematically going to start really biting us in you know late 2027 2028 time frame if you think about the the pace of which capex and loans were issued. 2025 to 2026 were the banner year. So add two

to three years under that you really get into this 2028 time frame which is the critical period where either demand has so ramped up so high and that you know that doesn't matter or it disappoints and just the math of if I am advertise an asset at six years but it has a useful life of two then all of a sudden all those H100s and blackwells that you underwrote are essentially worthless And it's not as if the Frontier Labs can train on anything bad because if it's all about I need to have the best model and any a one or two or 5% incremental improvement could lead to a compounded permanent

moat of my competitors. I cannot use the Neoclow with H100s and Blackwells. I need to have whatever the newest Nvidia or Huawei chip is. And you know I have to do that. can't I cannot use these other chips and I think that's when the rubber meets the road and that's when we mark to market uh on this and we see okay where's the revenue where's the capital returns does this make sense >> and uh I have a feeling that that that'll be the test and the greatest part for crypto is that if we do get an AI credit event number one it'll be bigger than 2008 because the whole world is on this delusion that AI is the most the biggest

technology ever. We're going to build more capex per percent of GDP than we did with the railroads, much bigger than subprime. And the Fed can't print Moore's law. I don't care how much money that you throw at this thing, you can't change the fact that a chip gets better every two years if you pump 10 trillion into the economy. So what's the first response going to be by the financial authorities to try to save the banks are going to say oh we just need to shovel fiat money in at that point investors are going to say I do not want to put any new capital whether it's free or not into AI because it does not meet its cost of capital so therefore this capital goes straight to crypto and this is the the implosion of the AI bubble

and the follow on money printing that's going to happen especially in the United States to try to stick shave the system from this gross capital misallocation that's happened over the last let's call it six to seven years by that point is going to dwarf subprime and is going to take us to Bitcoin a million or whatever right this is the big print >> if you get this if this is if this thesis is correct and you time this well you'll never work again this is the John Paulson subprime trade this is the the big shore Michael Bur trait of of this particular epoch And that's kind of how I'm thinking about this. I don't know when this is going to happen, but I know it got to I got to get this right

because you if you're able to be liquid at this situation and when this fiat money floods into this system, it's not it can't go to the AIA trade anymore because again, the Fed can't print Moore's law. Can't make a [ __ ] uh depreciation schedule change no matter how much money you print. And I think that's the best argument for why crypto is going to do so [ __ ] well when AI completely implodes. Uh, and that's that's what I believe. I don't know when this is going to happen, right? >> And I'm going to continue updating my mental model, but that's kind of where I'm at right now. >> Huh. I find this incredibly compelling.

I I love that. I What I love about this is that it is so counteryclical. It's like we have two opposing waves happening. You have the AI at the top and crypto at the bottom. And a lot of the timing is is for the futurecaping that we are doing right now. We don't we don't know but we're future escaping the timing of everything where if you give a one to two year time horizon that kind of align with the political fears that we might have in in about two years. So your your window for opportunity is between zero and two years for the AI bubble to pop. It's like it could happen tomorrow years from now.

>> If you think if you go back to subprime subprime started in 2007 with the failure of those two hedge funds, right? we started to mark to housing prices stopped rising in 2006. >> You had the first cracks in 2007 and then the crisis in 2008. So, you know, and you had essentially a panicked um bailout where um Bush was not elected, sorry, Bush was in office. >> Mhm. >> He rolled out TARP. Um Obama came in this, you know, supposedly more equitable Democrat whatever continued the bailout, right? because he had no other ideas on how to solve this thing.

Um, and they did it anyways. Did put any bakers in jail? All this kind of stuff, right? So, like if you think about the perfect perfect storm for this is marked to reality in terms of underwriting GPUs at 6 years versus two that comes that chick has come home to roost starting in 2027, but probably will limp on until 2028. And then you have a presidential election which could be a referendum on AI. You know what has AI done for me lately? Okay, crit. I can book a travel. I don't need my assistant to book my travel anymore, but my water's dirty.

>> And you know, I didn't have enough money to buy Tesla or sorry, uh, SpaceX or Anthropic or, you know, SKHENX or whatever the [ __ ] stock you want to pick that's up 20, 30, 40x from 2022. I'm just some poor American person living paycheck to paycheck, you know, with dirty water and hearing a buzz outside my outside my house because of this [ __ ] data center and I don't own any of this [ __ ] So, [ __ ] these guys. Then, you know, I could be a Democrat. I could be a Republican and there'll be some smooth talking politician who's going to tap into this anger. And again, I think the 2028 presidential election will be a referendum on on AI. And it doesn't really matter who wins or loses.

But just the fact that that is a referendum on AI, you as an investor are afraid that this, you know, guy or gal is going to be successful and then tax you to into oblivion and all of a sudden there goes your all your returns, >> right? And so you should sell ahead of that event. So, I think if this is going to happen, the perfect storm for a a big print yield curve control back the [ __ ] truck up situation would be sometime in, you know, the fall of 2028. So, you know, obviously I don't want people to lose money, but at least for my portfolio, if this thing were to happen in the way that I see it, that would be my perfect storm of a situation,

>> right? And the time to have sold your AI stons would have been well before that because by the time a brid big print comes along it's like AI stocks are already in trouble. Correct. >> Yeah cuz the S&P what like so they TARP happened in whatever it is September of 2008. >> S&P didn't bottom till March 2009. >> Right. >> So and they were printing and printing and printing. QE was announced in December printing and printing and printing. It didn't do [ __ ] you you need to already be into Bitcoin into Ether well before this and so like >> not necessarily because again everything's correlation one on the downdraft right >> investors are going to sell everything >> oh you're trying to go you're trying to ride the AI bubble into cash let everything correlate to one on the

down and then buy the bottom is the you know pseudo plan >> that's that's that is the ideal best trader ever you just [ __ ] crushed it we'll see >> the cuz like why Why I enjoy this? While I enjoy this story, I am looking at the crypto bitcoin and like the blue chip prices. Bitcoin and ether. They are strictly deals in this moment. They are off their highs again. Ether is 30% uh below the 200E moving average. >> Well, to your point, what what catalyst brings them higher? If all of if the incremental unit of fiat is going to fund capex are going to some bank that's going to lend to yeah companies where's the capital that's going to be available to push

Bitcoin to 200,000 or ETH to 10 or 15,000 >> like they may rally a bit but I think this is the this is the reason why people are so disappointed is like okay yeah Bitcoin took out its all-time high was it you know from 69 to 125 so like you know it doubled from the alltime high all high. That's probably one of the most >> shitty bull markets ever for crypto. >> Yes. >> Why? No one was >> because >> AI took all the money. >> Yeah. >> We printed a lot of money globally and what happened? All that capital was funneled into AI. The only thing that investors want to allocate to is AI.

Whether that's on the debt or the equity side. And I don't see that changing if this AI story continues to be the only theme that you're investing in. Especially if AI can survive higher oil prices, you're definitely going to be, "Oh, wow. AI survive. It's 100 oil's at $150 and the NASDAQ's at 40,000." Then energy doesn't matter. It's all about AI. NASDAQ 100,000, right? And so I think yeah, Bitcoin could rise because it's, you know, a shittier version of of a tech stalk, but it's not going to be that explosive rally that you expect given the trillions of dollars and euros and yen and yuan that had been printed.

And so that is why I think investors are still going to choose AI as the fastest horse to sort of exchange a infinitely debased fiat unit of fiat for some financial asset that will outperform the debasement. >> In order for crypto to kind of just have the vitality and energy just and the funness that we once had in the markets, do you think like AI needs to just stop sucking all the oxygen out of the room? >> Yeah, exactly. I don't see why I don't see how on a broad sense you get you can get Bitcoin at 500,000 with this AI story in play because again okay that if Bitcoin went to 500,000 that's let's

call that a a 10x return right was it um Sandisk at 50x this year or something crazy is it went up 10x >> right so like >> you could find some second or third derivative down from some component that's necess necess necessary for data center buildup. Put your entire net worth into that and you could be 20xed in 6 months. Why would you buy Bitcoin? I think that's how you have to think about this. It's it's it's always an opportunity cost.

>> Again, it's all the same trade. Everyone knows that this unit of fiat will be worth less in the future. What can I buy now that's going to outperform that? And I want the fastest horse. AI is the fastest horse and has proven itself to be the fastest horse and therefore uh an investor with this you know marginal unit of fiat is going to continue to choose AI especially if SpaceX 180 anthropic does well open AI does well um the oil price goes up and you know the rally in the party continues it's only going to make it harder for some of these cryptos to do extremely well they could still do But then you're like, "Oh, I made 50% on my crypto, but like this other tech

stock was up 20x. I messed up." >> I do remember doing some podcasts, end of year podcasts in like December or January, 6 months ago. And uh there were a lot of there were a lot of consensus takes at the time of like crypto is just not going to be that exciting because the AI trade is going to suck all the oxygen out of the room. And that I remember that I remember doing a handful of podcasts like that and that's exactly what happened. Uh, and like here we are and you know, Bitcoin is down $40,000. You know, Ether is down 50% from the where we started this year. I think I think that math is correct. And the only tokens that have made all-time highs are like somewhere between $500 million and $2 billion market cap coins with the exception of Hyperlid. Uh, and really

the only activity has really been down market in like the one to two billion market cap range. >> Yeah. I mean, it makes sense. >> Yeah. Yeah. Let's talk about hyperlquid. What's it like? Did you create pers or do were you just the first person to implement them? >> So, there's a paper written by Robert Schiller about a perpetual thing, right? >> That's from like 90 1993, right? That's like the early one >> something like that, right? And no, we didn't actually site that paper and I had never read it before, but when we came up with the idea, but we kind of arrived at the same conclusion. Uh-huh.

>> And initially it was we took the Bitfinex um Bitcoin and dollar rates and then created this never- ending thing, but it wasn't responsible enough to the market. And so the real innovation um that we invented was this self-correcting mechanism, the funding rate. How you look at the past X period, their premier discount, apply that going forward as the funding rate. That is what really made the perpetual swap work in a crypto highpace, highly leveraged environment because you had this very quick resetting of what the rate should be >> in the real market and it's completely self-contained. You don't need to reference outside prices to arrive at this um mechanism. So that is a new invention that myself and the team at BitMX created starting in 2016.

>> So I would say yes, we invented the perpetual swap. This is not a Robert Schiller product. >> Yeah. What's it like uh to be in 2026 and per just the narrative? What's it like to be the creator of PERS and have the nar I think I can't I love that like Terry Duffy and you know the Nisy guys are like freaking out about Hyperlid and you know all these per like go [ __ ] yourself. >> What does it what it what does it mean to be freaking out? >> I mean they're oh regulator come Hyperlid they're taking all my money like get the [ __ ] out of here.

Like Jeff and his team of, you know, 11 engineers have completely whooped your ass. Like good on them. I I love it. And so I'm really proud of Jeff and what they've done and all the other entrepreneurs that have taken this perp thing to a new level. And now we have PERS on SpaceX, PERS on anthropic, like per on oil, per on whatever. Like it's great. I love it. I think it's great. >> Markets don't move one asset at a time. One day it's Bitcoin, the next Nvidia, then gold, and then the S&P. But most traders are still managing their portfolio across different platforms, different accounts, and different pools of capital. Bit just changed that. Their new stocks 2.0 product lets you trade tokenized equities directly with USDT, all inside the same app you already use for crypto. This is not just another tokenized stock product. Stocks 2.0 is

designed around deeper liquidity, faster execution, and the lowest fees in the market at just 004% and 1:1 economic exposure to the underlying stock. Dividends, stock splits, and other corporate actions are reflected automatically, helping your position stay aligned with the asset you actually want exposure to. One platform, one account, multiple markets, crypto, equities, commodities, and more. All accessible with USDT. Bit trade smarter. Start trading today through the link in the show notes. This is not investment advice. Some exciting news. We are launching a new podcast to help people figure out the crypto cycle, how to navigate it. The best crypto cycle investor I know, his name is Michael Nato. He runs the DeFi Report. This is the guy that sent me a sell alert before the 1010 price drop happened. His cycle analysis has been absolutely on point.

I've been following him for years. And this year, we started recording weekly podcast episodes. Each one we get into his portfolio, what he's holding, the market structure, entry targets, fair market value of Bitcoin and Ether, and where we are in the cycle. There's new episodes that are released every Wednesday. They're 30 minutes. They're short. They're punchy. I think this crypto cycle is harder to navigate than most. So, let's do it together. Go subscribe to this podcast. Search the DeFi Report wherever you get your podcast. YouTube, Apple, Spotify, or find a link in the show notes. There's a new episode waiting for you now. Can you paint the bullcase for the perpetual as an instrument? Like why will pers I don't know if you believe this, but like why will per eat the world? Why why will like Wall Street eventually get

perpified? Like why why are pers good? >> Because retail investors love them. At the end of the day, Wall Street is about extracting value from dumb retail to smart institutional investors. And so if the dumb retail says, I want a 247 product with 100x leverage on whatever financial price there is around the world and I don't want to have to understand um futures curves and all these sorts of things. The perpetual swap is a product for them combined with socialized loss mechanisms which is basically what we have invented uh in the crypto ecosystem. That's Hyperlquid.

That's Binance has BitMX. That's that's all of us, >> right? We've done, you know, starting in 2014 up until the present, we sort of refined this system. Everybody doing their part to sort of like make this the perfect product. So, if all the retail, if the marginal retail person says, "Okay, I want high leverage trade 24/7 and the only way to have that happen is on a perpetual swap with socialized loss. I'm not going to open my Robin Hood account and trade there or trade some leverage futures contract on the CME. And without the the dumb retail, then you just have Ken Griffin hitting against Don Wilson and that's not the game that they want to be in. They're going to figure it out. Okay, fine. I'm I'm going to deal with whatever compliance complexities there is and the

tech issues and the custody issues. I now need to trade on Hyperlid or whatever the dominant perex is. and they'll get there because the clients are there. The people that they want to make money off of have migrated. And so that's why it's a structural trend. And I think the problem that a lot of these traditional exchanges, they don't understand why they're not going to be successful with the purpose that they're launching. Number one, a lot of them don't do 247. So it's automatic. Like what the [ __ ] are you even thinking? This is a 247 market. Number two, you have an attack custody.

No, no. Clearing the clearing situation has to be socialized loss. That's the only way this is going to work for you as an exchange to offer the high leverage and the notionals that are trading. If you continue to cling to this guaranteed settlement clearing house model that's been around since, you know, probably, you know, 50 to 100 years, you will not be able to from a risk perspective get to the point where you can offer a compelling product to the average retail trader. hyperlquid, Binance, everyone else will just be a better compelling product because they're able to offer the high leverage. Yes, you do have this issue where you could get your um ADL or your profit cap and all that sort of stuff. And I know there's a lot of institutional investors who don't like

that uncertainty about their profit payoff, but that's the trade-off to get the retail person excited about trading on this. And the fact that Trefy doesn't understand that and doesn't get why these products are successful means they're going to launch all these perks. They'll trade a bit, but again, the marginal retail punter is not going to trade that. They want the high leverage. They're perfectly happy giving up some of their profit in adverse scenarios and they'll continue to trade more and more on hyperlquid. >> Why? What can you talk about the socialized loss mechanism and why that's so fundamental to the purp why why do you emphasize that so much?

>> Because the exchange cannot lose money, right? You can't offer a product where the exchange is put at risk. Mhm. >> And when you do guaranteed settlement, the exchange is that risk cuz you're saying at any price, at any velocity of getting that price, I will make sure that the person in profit, even if all the other trades are bankrupt, gets paid. How do they get paid from my balance sheet? So to rectify that, we built all of these clearing organizations. And the clearing members put up bonds and they got a little bit of a fee for this risk capital that they put up and that worked fine and sort of a bounded timeframe market. And you have sort of a central banking government that can bail you out if things get really, really bad.

>> I see. Now in crypto, right, we have highly volatile assets, bearer assets. You can't print crypto and you're not going to see your clients. And so if you have 100x leverage, you have to protect yourself with the exchange. The only way to do that is socialized loss. And so unless you op um put a socialized loss mechanism into your clearing situation or your margining, then you from a risk perspective cannot offer this product. Mhm. And this is the same mechanism that makes these things like a protocol rather than needing to have like illegal entities in KYC because hyperl is not going to come knock on your door saying, "Hey, you owe money. We're just going to ADL you instead." This same mechanism >> you it's a whatever you put into the max you can

lose. Your initial margin is a maximum loss, >> right? And if you get ADL as a trader, all that really means is like you won as much as possible and there are no more chips to give you because you won them all. Correct. And so no one can really be like, are you really upset? Like sorry other people didn't take >> upset if you didn't understand how the mechanism worked or maybe the implementation wasn't as advertised. But >> any sophisticated trader by this point like ADL has been around since 2014, >> right? >> Like you if you understand how >> you should want to get ADL in the sense that like that means >> Oh, no. You shouldn't you should never want to get ADL. But what I'm saying is you should understand how it works and have modeled this out and if you lose

money and you didn't know what was going on then you deserve to lose the money. >> Uh okay there's Hyperlid there's uh there's lighter and then there's Coinbase and Robin Hood as a centralized end. There's all these different players uh and Poly Market and KHI are in this race. There are so many uh players racing for the US Per market and like with a lot of the statements we just had Mike Celig from the CFTC on the show. There's a lot of just like positive per statements from like um coming out out of the C CFTC. What I'm trying to get a grasp on is like how valuable the US market is or is the perp inherently like an offshore thing? Like where do you think the perp thrives better onshore or offshore?

>> I mean I'd say that probably most US people will still trade per. So I mean we'll see the incremental uplift on what any of these platforms get if they have a you know that can properly market these things. But I mean I I don't know. It's big. Obviously, the US retails trading market is a massive market, biggest in the world. Um or one of the biggest in the world. So, it's a massive market and the the ability to advertise freely will be a great boon for whoever is allowed in that that space. >> Yeah. I think one of the the question I asked is like what you said earlier was like the perp is just fundamentally a retail instrument because it's just it just works well with what retail traders like and that's why everyone else is going to come and center around the per

because retail's there. Uh, but like if we put the perp inside the United States, there's going to be regulations on it. Like you're not going to get 100x leverage, maybe you get 10 because that's just what it it means to operate inside the United States. And so if retail really wants all like the bells and whistles that make the perp a good product for retail, don't they need to go offshore and therefore isn't the perpetually offshore instrument? That's my thought process. maybe, but at the end of the day, if you have distribution and you can market, like people love marketing >> getting marketed to and so that's something that an offshore platform can't do effectively. And so I think that is one thing. Okay, they might have lower leverage, but you're able to reach um a different user that was not going to be finding Hyperlid on the web,

right? >> They need to see the ad on the bus station or the train or whatever and that that kind of thing before they're going to onboard. >> Do you think there'll be an offshore winner and an onshore winner? Sure, for sure. I mean, >> yeah, >> Hyperliquid's already going to be an offshore winner. Binance is already an offshore winner, you know. Well, the onure the problem with onure is going to be highly commoditized, right? It's going to they'll be, you know, 510 licenses coming out or whatever it is and everyone's just going to blow a bunch of money in marketing and, you know, we it's going to be very difficult to make money.

>> Do you think uh Hyperlid flips Binance? >> Eventually. >> Eventually, >> it'll take time. Wh why will it do that? because it's a better product and you know you don't have to deal with all the other things of operating an exchange and at the bare minimum you outsource security to the layer one where Binance has to secure their environment which is extremely expensive and it's only to get more expensive and so but the client doesn't understand that they see the rate they just see the fee right >> and that is the fundamental reason why uh decentralized exchanges are better is because a client pays for the security of the L1 but then pays again for the trading fee.

>> Mhm. >> Do you trade on lighter at all? The ZKL2 per tech? >> No, I mean I was investor in it or investor. I think we invested in some of it. I don't I mean I don't trade hyper I don't trade on hyperlquid either. I don't trade using leverage. >> You invented the perp and you don't use per. >> No. >> Should I Should we take a lesson from that? >> If you're not Are you spot only? >> Yes. Spot only. If you're not in the trenches, you know, living this [ __ ] day in day out, alarms on your phone, don't use leverage.

>> Okay, so why why are you a spa guy? Just because >> the thing is already so [ __ ] volatile. You don't need leverage to make good returns. >> I find it so funny that the guy who made persp but okay, but you can lend to the per market. You can be the you can do like the automatic >> female is essentially lending to you know we've you know >> do you like doing that as like a like a barbell strategy where you like >> I mean when the rates are high enough yeah I love you know staking USD right now the rates aren't that high so I don't do it.

>> Sure. Arthur I got no more questions for you my man. Uh thanks for coming on the show. I appreciate it. >> I always learn a lot. >> Bank stationation. You guys know the deal. Crypto is risky. You can lose what you put in especially if you use a per. Don't use leverage. You heard it from Arthur Hayes. Uh, this is Frontier. It's not for everyone, but we're glad you're with us on the Bless Journey. Thanks a lot.