GCR

Global Coin Research partnered up with Blocktempo at the Asia Blockchain Summit last week. Our founder Joyce Yang interviewed Arthur Hayes in Taipei on his debate with Nouriel Roubini, privacy, Bitmex and DEXes, Facebook coin, crypto media.

Additional sources:

https://podcasts.apple.com/us/podcast/ep-29-bitmex-arthur-hayes-on-his-debate-nouriel-roubini/id1399033937?i=1000444242879

Transcript:

Arthur Hayes 

Hi everyone, this is Arthur Hayes. I’m the co-founder and CEO of BitMex, and welcome to the Asia Blockchain Summit 2019. 

Joyce Yang 

Hi guys, this is Joyce Yang from Global Coin Research. I’m here with Block Tempo Live at Asia Blockchain Summit with Arthur Hayes. We’re excited to have him here. We just came out of a great debate with Arthur and Nora Viding, and there was a lot to talk about there. My takeaway was that Nouriel was seriously just shitting on a lot of…. Excuse my playing on TV, but he was really just highlighting the fact that there’s so much Shitcoins in this space, and that a lot of retail folks are getting hurt. And that was his main premise that I heard kind of over and over again. What did you think of it?  

Arthur Hayes 

Yeah, it was a broken record. He kept talking about the Shitcoin. He seemed very knowledgeable about all of the different coins that exist in this industry for somebody who thinks they’re all going to zero. So something kind of tells you that he might be a bag holder very secretively. 

Joyce Yang 

Very secretively right, I think that’s a lot of good folks who are in the space who really shit on…. I’m very too contaminated by this “Shit” word as well because of the fact that he’s been using it at least 10 times in this debate, but at the same time I think because we’re in such an early industry and such a nascent space and because the space is so decentralized, you just naturally can’t lock bad actors. 

Arthur Hayes 

Well, I don’t think it’s even that bad. If you think about a regular startup company, 90-95 percent of all new businesses fail within the first 5 years. So why do you think that just because you put a white paper around the internet and you have a blockchain or some sort of cryptographic element to your startup, that you’re no different than the average. So the fact that most of these things are worthless, this is with the trend of all new businesses and technologies. 

Joyce Yang

I agree. And so generally we agree that there are a lot of poor quality folks and companies in the space. But as long as we drive them out and actually join the good actors, we should be fine.

Arthur Hayes 

And the price and the markets, and the free market will allow the driftwood to drift away.

Joyce Yang

Right? What I always thought was interesting is that the volatility is something you see in nascent markets such as in China where there’s the Asian market that you are very well aware given the same background that we both share. And you know, still even now the government has to intervene whenever the volatility gets serious and people start losing money, but at the same time that’s just the map, like the nature of retail markets, right? 

Arthur Hayes 

Well, I think most governments these days have basically made a determination that the stock markets shall never go down. And so whether it’s China, the United States and Europe, whenever the stock market or the equity markets broadly start to fall, they start to print money and they start to do all sorts of actions to inflate their markets. Because they think it’s a social good, that because you invested in equity, it has to go up. And that has destroyed price discovery and allow companies to exist and business models to exist which should not exist. And the good thing about crypto is because it’s a free market, bad ideas become zero very quickly.

Joyce Yang

That’s really interesting I mean, I think there are a lot of counterintuitive examples such as Tron, but I would stay away from that for now. But the same time I think because it’s a free market, there are a lot of opportunities for folks who really want privacy for example, actually to gain that advantage and have access and avoid capital controls for example in China. And we’re seeing obviously a lot of volume going up because of the recent crackdown in Hong Kong and the protests driving that at work. That’s partially the reason I wouldn’t say it’s all of them, but what do you think about that? 

Arthur Hayes  

I mean, I think right now it’s all of this money printing, the global central banks paused between 2017 and 2019, balance sheets sort of flatlined and now you have the Fed, ECB, PBOC, BOJ all talking about restarting some form of quantitative easing. And obviously that’s going to lead to all sorts of risky assets going up in price; Bitcoin being one of those and cryptocurrencies. So as investors globally look around and they see low to negative yields on very safe government bonds, they start to reach out on the risk curve. And if they can’t afford a property or maybe the domestic equity markets are too expensive on a P/E ratio, crypto starts to look attractive if it’s down 80-90 percent over a 2-year period. So you know, money printing lifts all assets whether it’s crypto stocks and bonds or real estate, and money will flow to this section of the market if central banks continue to print it. 

Joyce Yang

That’s a very fair point and I think a lot of folks don’t actually look at the macro environment and generally how the institutions and the kind of the government and economies that we’re in now is kind of in dire situations, and people are really looking forward to this this crisis that we have coming out. 

Arthur Hayes  

In the end of the day as I said on stage, all we’re trying to do is give people a choice. And it’s up to them if they want to buy a Shitcoin, they want to buy Bitcoin, if they want to buy a stock or a property or whatever. But at the end of the day we’re not saying you have to purchase any of these assets, it’s a choice. And you can see the relevant merits and demerits of any of these technologies and make your own choice if you want enter this industry. 

Joyce Yang

Right? So BitMex right now is a centralized exchange, is there thoughts about actually offering a decentralized offering as well? Because as we spoke on the panel or at least in the debate, there was a lot of emphasis on privacy as well as holding your own tokens. 

Arthur Hayes  

Right. So I mean, that’s sort of separate from treated trading derivatives. We’re a centralized trading platform, obviously, we need to be very fast, we have leverage. There are all sorts of intricacies that putting this straight on to a blockchain does not make sense at this time. Now, if you are so bent on decentralization and you’re only going to exchange your assets and maybe some sort of financial training, there are very illiquid decentralize exchanges. I still don’t think that is desired by traders right now. If you want a hold bitcoin for its purposes as potential digital money, that’s different from your ability to trade it. Now, a trader, I don’t think really cares about the centralization or centralization. They want a fast cheap way to exchange risk on the market And so we think that a centralized solution because that’s the best opportunity for our customers. 

Joyce Yang

Right, that makes sense. Are there thoughts of actually offering non-custodial trading for centralized exchanges; BitMex specifically? 

Arthur Hayes  

Because we offer margin trading; well, not margin trading, but because we take margin and we have to make sure that if you if we say you bet 100 Bitcoin and that’s your profit, we need to make sure that we can pay that out to you. So as soon as we start allowing people to trade on credit or we don’t hold the Bitcoin in our control, then we could run befractional and at some point not be able to pay out our customers, and that would be very detrimental to our business. So we’re very conservative in that fact that we don’t allow clients to “Hey I mean, I’m good for it.” That doesn’t work. Either have the Bitcoin in your account from origin or you don’t. And if you don’t, then you get liquidated.

Joyce Yang

Yeah, that makes sense. And we also touched on Libra in the debate as well, and you actually have recently written a very extensive post in your newsletter describing your thoughts on Libra and its movements of the world as well as on local governments. Can you share kind of a quick summary of what it was about there?

Arthur Hayes   

Sure. So I think Libra essentially is a basket of fiat currencies that is represented in digital form by a token that rides on a permissioned Blockchain, which has some sort of nose. Now, because Facebook has 2 billion active users, they actually control the customer. Whereas previously, commercial banks controlled the customer; they had all the information about you because they were originating loans, your mortgage, all these sort of things. But now social media companies because of the wealth of data we share about ourselves to these companies, they know more about us than a financial institution. And we spend more of our time staring at their app than at a physical bank branch. So what I think is that because Facebook and some of these big tech companies have billions of active users, why shouldn’t they sell financial products? Because they can originate a loan cheaper than a bank, they have so much free cash flow that they can actually lend off of their own balance sheet without having to borrow money. So they don’t need any sort of baking license. All a bank is relegated to is a dumb node that holds fiat currency in electronic format aa a central bank, which is what a commercial bank should be relegate it to. So in my view of Libra on notches, and Facebook rolls us out to Instagram, WhatsApp and some of their other social media properties, it has a potential that completely disintermediate commercial banks entirely and destroy their revenue generating possibilities. 

Joyce Yang

So PayPal should be weary for example?

Arthur Hayes  

Well, PayPal is just…. Yeah, I mean PayPal is fucked anyways. I’m more talking about commercial banks like you know, why should I go to a city bank to get a personal loan? Or if I’m on Instagram and I want to buy that sexy bag, Facebook can loan me the money directly at the point-of-sale and compete a credit score based on my engagement in all of their social media properties. That’s where I think we’re moving to with Libra. And because it’s programmable fiat money, it’s possible. 

Joyce Yang 

All right. So it’s a really great FinTech player and a really great user experience potential for even folks who want to buy and get access to payments a lot more quickly and more intuitively. But at the same time, it doesn’t sound like it’s a cryptocurrency. 

Arthur Hayes  

Absolutely. It’s something not a cryptocurrency, essentially centralized, permissioned, and possibly will be censored. Because you can believe that if a government wants to stop a potential transaction on Libra, all they have to do is call the foundation and the foundation will comply with that.

Joyce Yang 

Right. And so the thought why I spoke to Facebook was that they were going to slowly move away from the association. 

Arthur Hayes  

Well, in the document, it’s states at Facebook and Magnus’s it is a node or there possibly will be a node, but it doesn’t have enough voting power to actually determine the course of what the foundation does. And sort of make sense.

Joyce Yang

Down the road.

Arthur Hayes  

Maybe. I don’t really…. At the end of the day, if people are really worried about this corporate overly controlling their financial privacy, that’s great for crypto because that means that they actually value their financial privacy. And what we’re seeing out of the whole backlash against Libra and Facebook is that people are starting to recognize that they’ve been giving away their data for free to all these social media companies who’ve minted all these billionaires, and now they want to take back control of their data and financial privacy. It is just an offshoot of that movement.

Joyce Yang

Right, for sure. Definitely I think in the western hemisphere people care of and echo these thoughts about privacy a lot more than what you see in Asia where most of the Bitcoin trading for example is from circulation, is from kind of escaping their social mobility from their local societies and governments that couldn’t really move up in the hierarchy of the society. So I always wonder if you know, are we going to see how to store the value and medium exchange narrative coming out of the western hemisphere first. And then the retail folks here will start actually holding on to the Bitcoin. 

Arthur Hayes   

Still thinking, let’s say China for example. There are a lot of large holders of Bitcoin, and a lot of the large miners believe religiously in the properties of Bitcoin and why it’s useful to society based on their own personal experiences. So I definitely think that in Asia a lot of people don’t trust the government. Even though there might be some sort of centralized one-party state in a lot of countries in this region, the actual everyday people don’t trust them, because they’ve been through several iterations of governments over the last 100 years, and they buy gold and they buy property to store their wealth. And they trying to hide as much as they can from the authorities. So crypto if it actually is anonymous; now bitcoin is not, it’s you know definitely sub-anonymous, and given the right tools, law enforcement can to find out who you are if they try hard enough. Using crypto, it might lead to Bitcoin actually implementing real anonymity into the protocol. 

Joyce Yang 

Yeah, for sure. And do you look favorably towards other tokens other than Bitcoin? 

Arthur Hayes   

I mean it’s their trading vehicles. I think if you want to talk about sort of hard digital money, then bitcoin is the only game in town. Now obviously other coins and tokens offer other verticals. You have sort of the protocol and smart contracts, we’ve got sort of like file management, we have privacy, all these different verticals. And you know, some of them would be successful, some of the won’t be successful. I’m not really super technical into understanding it, I’m more of a markets person.

Joyce Yang

Right, got you. My last question I think would be you know, for folks who don’t know that much about Asia.  You’ve been living in Asia for quite some time. I live in New York City, but I also fly to Asia a lot of time, there’s so much is happening going on here. What would you advise folks to kind of look at and pay attention to here? Because obviously, all the activities we looked at in this conference….

Arthur Hayes  

Yeah I mean, people need to understand that a lot of people hear about Bitcoin and all these things in Western English-language media. So if you don’t speak any of the local languages, you most likely have been reading a translated or republished article from a large media organization that’s based in the US or Western Europe. So obviously they’re going to have a bias towards companies and movements in that region, and they’re going to feature startups and other personalities in those regions. And that sort of relies on all the activity that’s happening in Asia, because these Western Media Organizations don’t really cover what’s going on the ground. Maybe you can read about it in the local press, but this isn’t what people are going to see on an International English language speaking level. So there’s definitely things happening in Asia; the largest exchanges are based here, the largest miners are based here. Some of the largest projects have developers based in these countries. So if you really care about crypto, go to a meet-up in a different country. get out of your comfort zone.

Joyce Yang

That’s great advice and I think folks should totally do that. Go to Hong Kong, and go visit the Nexus office in Hong Kong center, because it’s a pretty amazing one. All right, thank you so much. 

Arthur Hayes  

Thank you.