Arthur Hayes: Memecoins will get even crazier; Dogecoin will get an ETF before the end of this cycle

Original translation: Wu said blockchain

Recently, Coin Bureau invited Arthur Hayes and Raoul Pal to have an in-depth dialogue to discuss market risks, aggressive investment strategies, and annual forecasts. Arthur emphasized the strategy of holding Bitcoin and altcoins, and shared their family office's successful experience in the Ethena project and the liquid pledge token ecosystem. Raoul shared his investment in Solana and high-end NFTs, pointing out that not operating is the best strategy this year. In addition, they explored the cultural value and market potential of memecoins, predicted that Dogecoin may get an ETF, and discussed the impact of the US election on the market and potential risks in the future.

Note: In this article, Arthur made many seemingly very subjective judgments, which do not represent Wu's opinions. Readers are advised to invest carefully and strictly abide by the laws and regulations of their location.

Podcast: https://www.youtube.com/watch?v=0cX1Huf89PE

Investment Strategy Sharing: Hold Firmly, Don't Be Afraid; Do Nothing Is the Best Operation

Arthur: My investment strategy is to hold, don't sell, don't be scared, don't use too much leverage. It's actually very simple, everyone knows what they should do, but we usually don't do it because YOLO (one-time fun) is fun. But in the end, it's very simple. If you believe that 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 in exchange for votes or popular support, then cryptocurrencies are the answer. Obviously, Bitcoin is the elder statesman, and I hold a lot of Bitcoin. Then, when you get into the risk curve and want to increase potential returns, you get into the altcoin space.

Obviously, the standout project for our family office is Ethena, and their team has done a great job in creating a synthetic dollar and intending to replace Tether and USDC. Ethena now has about $3 billion in circulation, which makes it the fourth largest USD stablecoin. I think that's the best thing we've done this cycle, and I think we're just at the beginning of the impact that Ethena has on the ecosystem. And then the second one is probably Ethereum and the entire liquid staking token ecosystem. Obviously, EigenLayer will be live later this year. We have a lot of other investments in that vertical. So I would say those are the two standout highlights of this cycle in our portfolio.

Raoul: The best thing to do is to do nothing. You know, 90% of my position is in Solana, which is the best choice in the cycle so far. The only meaningful move this year was when Solana went from $150 to $200, I sold some of the highs and started buying high-end NFTs. I bought almost all the Beeple works I could buy, and then I bought all the X Copy works I could afford to build a long-term portfolio. The works were very cheap at the time, and my view is that the market value of this space will go from $2.5-3 trillion now to $10-15 trillion by the end of this cycle, and $100 trillion by 2032. From now on, this will be a wealth accumulation of $97 trillion, which is the fastest wealth accumulation in history. If I am completely wrong, it is also a wealth accumulation of $50 trillion. This is equivalent to the entire historical market value of the SP 500. So there will be a lot of wealth generated in this space and circulating in this space.

People will buy high-end real estate, but a lot of people won't leave the space, and that wealth will circulate in the space, whether it's venture capital or opportunities to build application layers. But in reality, people will go after those token assets. So I've been buying as many token assets as I can because I think this is the last chance to buy these things at these prices.

What is the "banana range" and what does it mean for cryptocurrencies?

Raoul: We are entering the "banana range". The "banana range" is a concept that Arthur and I talk about a lot. It's a very cyclical phase when liquidity comes into the market and central banks need to refinance all the debt, to please the people with candy. At this time, cryptocurrencies usually go vertical. This is a debt refinancing cycle driven by macroeconomic forces that affects all asset prices, but cryptocurrencies are particularly outstanding. So the easiest way is to not screw up. Keep a core portfolio with most of your assets in the major cryptocurrencies. If you can do it right in other assets, you can make a lot of money in that 10-20% of your portfolio, which is riskier but has greater rewards.

Looking back at the classic "banana range" of the last cycle, Solana, Avalanche, Luna, and Matic all performed well in this phase. In a year, these four tokens have performed amazingly. We will see a repeat of this. Who will it be? I don't know yet. But that's part of the game of the "banana range", and that's part of the fun of it, because you can take a lot of risks in it and feel like you really took advantage of the opportunity, but in fact most of the time you just sit back and watch.

Why are memecoins so popular? What is the value?

Arthur: I think memecoins are here to stay and will get even crazier as more money is printed. I am often in Singapore, it is a small place and the society is very homogenous. Every time I walk in the shopping area on Orchard Road, I always see local Singaporeans queuing up at Chanel stores, LV stores, Gucci stores, etc., these are all mainstream big brands. They are always queuing up, waiting to go in and buy what they want, which costs up to thousands of Singapore dollars, and they often do it. So if people are willing to queue up to buy leather goods with 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. People like it, I like it too, it's very human. So I think memecoins are here to stay, it's the easiest thing to understand for people who are just entering the cryptocurrency field. Oh, this is a cool image, this is a funny joke that I understand, everyone is in on this joke, I can make money by spreading this joke, okay, I will buy this memecoin.

I don't need to understand all the underlying technology like blockchain and 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 go to buy these expensive brand products, I'm standing in line for hours to put some logo on my chest. So, I think looking at human behavior, why are the richest people in the world, if you look at the rich list, a lot of people own luxury brands. Memecoins are the luxury brand of cryptocurrency. It's easy to participate because you don't have to wait in line. You just buy it online, assuming Solana's system works. Anyway, you can buy these things quickly on a decentralized exchange. So, I think memecoins are the luxury brand of cryptocurrency, and that's not going to change.

Raoul:Yesterday I had coffee with Miao from Jupiter and we talked about this. The interesting thing about memecoins is that they either have zero utility or very little utility. The Bonk has some utility, the Shiba Inu has some utility, but their real cultural value is the attention they get. Attention is upstream of everything else, and that's very easy to understand. You don't need to put a value on them, just whether they attract attention, whether that attention is lasting, and whether owning them gives me a certain feeling or status. It's the same with LVMH's Louis Vuitton handbags, it's the same with fine wines, it's the same with memes you share on the internet. It's all focused attention.

Share this year's market operation strategy and future market predictions

Raoul: I basically don't do much operation, I really don't have time. If you notice that a lot of aggressive operations are basically based on attention, and I don't have enough attention to allocate because I'm too busy. So I keep a relatively simple strategy. I have Bonk and Doge because I still think Elon will do something with Doge, that's all. I observe this space, everyone reads Ansem's tweets, trying to figure out what's going on, but I really don't have enough attention to focus on these things. So you actually need to have a certain amount of knowledge to operate these.

Arthur: My leisurely life consists of running around on the court playing tennis, or skiing on the ski slopes. So I don't pay attention to which Dogecoin is the hottest. I also hold some Dogecoin, and I think Dogecoin will get an ETF before the end of this cycle because it is the earliest memecoin and it is traded on Robinhood. For institutions that are thinking about getting into crypto, they will apply an ETF to anything that has a high market cap and has been around for a long time, and Dogecoin is one of the earliest memecoins.

What are the chances of Dogecoin getting an ETF?

Raoul: I spoke to Yan from VanEck last week, and I told him, you have to apply for a Dogecoin ETF. He said, he just wants to make sure he doesn't go to jail first. I said, you can do it, Dogecoin has been around for a long time, and it has outperformed Bitcoin every cycle, which is amazing. So, I'm pushing this hard behind the scenes, but I haven't convinced Yan yet. But I'm going to keep trying. One of Hunter Horsley or Yan will cross the line. It's unlikely to be BlackRock, but we'll try.

Which memecoins are likely to succeed?

Arthur: In terms of memecoin narratives, I think a lot of memecoins are too specific. Like some of the political memecoins, they might be interesting for a while, but they don't have lasting cultural value. When you talk about a meme like dogwifhat, it doesn't matter if you're Korean, Chinese, American, or Argentinian. But if you talk about American politics, first of all, you're probably going to offend half of Americans, and secondly, 95% of the rest of the world will think it's none of their business. So I think a lot of memes are too specific and don't resonate globally. So if someone can create a global memecoin that's not offensive, that's inclusive and interesting, that would be successful.

Raoul: This is actually a good place to test the narrative, in Singapore, because that is a culturally diverse Asian audience, Asians love gambling, they also love memecoins. They are big buyers of Dogecoin and other dogecoins. You just need to see if this narrative resonates here, they don't care about Trump and American politics, they just want something that can cross cultural boundaries.

How might the US election affect the market? How can you protect yourself and take advantage of market volatility?

Raoul: My view is that it actually has no big impact.

Arthur: It's actually the same candidates, there is a group of stakeholders behind them supporting them. Money will continue to be printed after the election, so whether it's large-cap tech stocks or cryptocurrencies, they will continue to do well. There may be some volatility, especially on the issue of Trump's verdict, but at the end of the day, no matter who is elected, they will print money. So, I don't think it will have much of an impact. They will all vote for the war budget. The US economy exists for war. So, it's all the same, it's just a matter of which candidate you like. I don't care what their slogan is, I just know that they're all going to print money, so any investment strategy that works now will continue to work after the election.

Raoul: If there's any volatility, it could be because one of the candidates drops out, or there's violence. But the end result is printing money. So, the US election year and the year after that are usually very positive for risk assets because everyone is buying votes.

Arthur: The Fed is no longer independent. That's a false proposition. In reality, the Fed is led by the Treasury Department, and Janet Yellen is the most powerful person. She can do whatever she wants, and Jerome Powell can't really do anything. The Treasury Department is the dominant force, and they've been behind it. If you look at some of the Fed research papers, like the recent one from the Atlanta Fed on central bank swaps, they've basically been supporting international dollar borrowers, and the paper details every time the Fed has printed money and given it to foreign institutions.

Raoul: If you look at Arthur's point, there is a global shortage of dollars. We lost some banks in the United States, we lost the giant Swiss banks, and the shortage of dollars is getting worse. Yellen went to China twice, and her mission was to sell bonds. China is willing to buy bonds, but they don't have dollars, so we have to find a solution. There will be some arrangements at the G20 or G7 meetings to ensure that there are enough dollars flowing in the global system. So, since 2008, there has been no independence. In fact, there is not much independence between central banks. The Bank of Japan and the Ministry of Finance stopped being independent in the 90s.

What are the main risks to the current financial system and the cryptocurrency system?

Raoul: There is one risk that is not so obvious to me. I think the biggest risk is that there will be a ridiculous bubble in the next three years. There could be a bubble similar to the one in 1999, which will lead to excessive market inflation and then a big correction. This is the biggest risk.

Arthur: The biggest risk in the last cycle was that centralized counterparties had credit problems. Usually, the problem in the crypto space is that we like decentralization, but in order to make money, we do centralized things, and as a result, these centralized things eventually explode because their business model is not compatible with decentralized assets. This happens again and again. So, how might this cycle evolve? What are the centralized entities that we trust now to drive the market? ETFs, fund managers, what do they do? Custody their assets, probably just at Coinbase and a few banks. If one of these regulations passes, we will have hundreds of billions or even trillions of dollars of crypto assets custodied in less than 20 companies that are probably custodied in less than 5 institutions.

If you've ever worked in a bank, you know that the people who make the least money have the most important jobs, they're in the back office doing things like forex reconciliation or making sure stock settlements are made. If you think about custody of crypto assets in a traditional financial institution, they want to get into this space now because they see Coinbase making a lot of money from BlackRock and others, and the regulations force you to have custody with a third party. Then they might force you to have custody with a large institution like Bank of Boston Mellon. So now you have a large amount of crypto assets in these companies, and the person handling it is probably a guy who makes $50,000 to $60,000 a year, who is overworked, has no respect, and knows nothing about cybersecurity. It's not their money. If I was going to hack crypto, I would hack these U.S. custodian banks because their cybersecurity is an afterthought. They have no idea what they're doing because they've never had custody of this kind of asset. If they lose these assets, they can't ask the Treasury or the Fed for a bailout. In crypto, nobody can create Bitcoin or Ethereum to compensate you for your losses. So if I think about the risk, and this is a 2-3 year risk, I would say a major crypto custodian gets hacked and loses $50 billion to $100 billion in crypto, and that would be the end of the cycle.

Raoul: And it's unlikely to be Coinbase, because they know the rules of the game. But other new entrants, they don't understand the complexity of this type of asset. Another risk for me is the derivatives market, the entire options market for crypto is almost concentrated on one derivatives exchange. There is a risk because a large number of people use this single centralized platform to trade options. If this exchange has problems, we could have a big problem. We need more options exchanges, platforms to spread the risk, because now the use of derivatives is increasing, and we don't know who will end up taking the risk when the market explodes.

Arthur: One interesting thing about options is that zero-day options are very popular. Oddly enough, CBOE resisted for years to launch zero-day options because they couldn't do real-time margin. When you sell zero-day options, you essentially take on unlimited upside risk. CBOE didn't launch these products despite strong calls from brokers to launch them because they are very lucrative for retail clients. Imagine if they launched zero-day options on Bitcoin or Ethereum and Bitcoin surged 50% in one day, all the market makers would be forced to do margin calls in the market, and CBOE would be unprepared for this. This could cause the market to crash.

Raoul: These are not predictions, just to make it clear. These are just potential risk points that we see, not that XYZ is going to go bankrupt. Someone is going to blow up at the end of every cycle, we just don't know who it will be. If you leverage an asset with 70% volatility, you will blow up, that's 100% guaranteed.

What are the undiscovered treasure investment opportunities? Which projects are you optimistic about?

Raoul: I try not to do anything. One phenomenon I have been watching is the exchange rate of Bitcoin to Ethereum. If this exchange rate starts to go higher, it may mean the beginning of the altcoin season. So my focus is on the "banana range" because this is where you can make a lot of money. So even if you do nothing, you don't want to lose your tokens in this range.

Arthur: I think Aptos may become the second largest Layer 1 and surpass Solana in this cycle. This prediction is a 1 to 3 year time frame, and I will provide more details in September this year.

Raoul: I have a different view, I work at the Sui Foundation, and I think the Move protocol is a big narrative. We can discuss this in the future. I am also very interested in this upcoming round of major Layer 1 projects because these types of trades are very profitable during the "banana range". These types of trades have created huge gains in the last cycle and in the cycle before, so this time will be the same. 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 them. I'm not sure which projects, but you can think of Celestia, Monad, etc.

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