How to Prepare for the 2025 Bull Market | Arthur Hayes

how do you have a recession when the government is like 30% of GDP it's almost mathematically impossible which it is right now welcome to bank list where today we explore how notable Crypt Trader Arthur Hayes is positioning his crypto portfolio at the end of this 2024 going into 2025 this is Ryan Shan Adams I'm here with David Hoffman and we're here to help you become more bankless all right first we got to get this out of the way we've recorded this on Election Day so literally the day America is

showing up to vote at the polls we don't know who won the election at the time of recording neither does Arthur he's like literally getting ready to to go to bed he's in a different time zone the good thing is Arthur just doesn't care yeah it's not actually relevant he says the elections irrelevant so actually kind of fits it doesn't matter according to him we talk about that in the first part of it but uh to him the outcome is is really the same no matter what in addition to the election we also talk about the Chinese property bubble and the coming money Cannon which Arthur thinks will be bigger than the covid stimulus we also talk about the fed's

next move and why treasury is sucking all the oxygen out of the room he has uh some Choice words and labels for Jerome pal has a lot of choice words so um some viewer discretion uh might be advice don't listen to this one with kids in the car there you go yeah thanks David we should shout that out he also tells us his positioning for the prospect of recession and War and then we get into his crypto portfolio what he's holding and why one of my favorite parts of the episode is uh about why he's bullish eth but not for the same reasons that David

and I are bullish eth so we get into some debate on the topic of whether eth is money whether it can be money and uh I want to think David we got a little bit of concession from him but like not much we identified the gap between us and Arthur which I think is a very overcomable Gap we just need time uh having Arthur on the show is always useful just to kind of get a download on a pretty zoomed out perspective for somebody who zooms out very very far into the ultra macro but also like plays in like dgen meme coin trenches uh he's

a guy that can trade it all uh so let's go ahead and get right into that conversation with Arthur Hayes but first a mess to talk about some of these fantastic sponsors that make the show possible Bas nation very excited to introduce you once again to Arthur Hayes he is a Trader he is a macro commentator he is the co-founder of bitmex also the CIO of the malstrom fund uh we want to talk about how he's positioned this is the end of 2024 we're going into 2025 a lot of things happening in the world Arthur welcome back to bankless hi how you doing guys good man okay so it's an election day over here in the US where

David and I are located so everyone's going crazy you know a lot of uh I was uh dropping my kids off to school big big you know Trump Flags you some on the side of the road waving flags like it's uh a little crazy over here what's your plan I know I I don't think you're located in the US right now but like what are you doing today what are you watching what are you paying attention to uh I mean I'm doing nothing I'm about to after I get off done with this I'll be going to bed and I'll wake up tomorrow morning and I'll play tennis and at some point you know I'll check my Bloomberg and see if either Harris or

Trump conceded and if not then you strap yourself in for weeks or months of a contentious Battle of you know who won right I mean somewhere what what happened in 2000 with uh Bush and Gore and people were debating what hanging Chads and all sorts of other [ __ ] because even you know paper ballots and I don't know it's just nonsense right like do do you think any of this really matters let's talk about for investors for for crypto do you think it matters who wins no I don't think it matters at all I

think the regulatory apparatus will be what it is I I hly think it's kind of irrelevant the things that the reason why Bitcoin is 1.2 1.3 trillion dollar asset class is not because of regulations either Pro or against the reason why the ethereum decentralized computer is the second largest crypto currency has nothing to do with regulations the reason why there's all these other meme coins and all these things happening has nothing to do about you know this or that politician and

what their stance on crypto it's a fundamental a better technology of moving communicating what value is amongst humanity and then money printing right and so you know we I don't really talked about technology because it's not really relevant for most people it's all about okay well I could see that my paycheck buys me less every every day every year I can see that the rich get richer and the poor get poor I can see that nothing has changed but oh look at this new thing called crypto and look at all these individuals who've achieved

generational wealth in a very short period of time because there's this thing there's a new technology there's a new way of networking and communicating which has allowed a certain portion of humanity to to escape the inflation and debasement and you know Financial repression and all that sort of stuff and so I don't see any of that changing in the United States and China Japan European Union any countries right everyone's doing the same stuff everybody has a fractional Fiat banking system everyone has expended a lot of

credit to build stuff and a lot of that stuff at these at this point isn't worth the money that was put in but no one's willing to recognize the loss and impoverished some rich people so they're just going to inflate it away and hope the poor people don't re revolt and so that's where we are and so I had you know Donald Trump Cala Harris two sides of the same coin it doesn't really matter who wins it's fun theater I'm sure all the networks in America love all the campaign Finance dollars that are going to buy ads and whatnot and Jo Zuckerberg and Sergey Bren and all you

know all the social media Bros they love the billions of dollars that are getting spent by each campaign to try to sway opinion and maybe there's outside countries trying to influence opinion as well so everybody's just spending money on media does matter does that mean that you're not position in any particular way as it relates to the election I mean I was long before I didn't reduce my exposure yeah you have not on the sidelines that I'm not deploying yet because I think it's going to be a bit you know there's some questions about how the fed and treasury

react depending on who wins um and how that sort of plays out but you know let's say by the end of January all that'll be solved I think and it'll be very clear the you know the path that that they're going to go on and then you know get on the horse that's so funny because I think a lot of people in in crypto agree with you in large strokes but like they they do still think tend to think that politicians have the ability to at least slow things down so they might say yeah broad Strokes Arthur you're right you know nothing stops this

train the money printer goes burn crypto's going to like Ascend and it's just like a better communication Network and that's true and like if you measure that in decades but like there there's Gary gendler's of the world for instance who could just like throw a monkey rent in like you know Western Finance uh Clarity around like crypto and just like slow it down put the breaks on do do do you do you think that that's the case at least in the short run like some of these politicians and the administration choices might have some impact like I

mean Trump has come out and said he's very Pro crypto I mean you would think that would be bullish if if he won the election on the on the crypto side then and like more bullish maybe than than KLA Harris do do you do you do you see that there's like at least a short-term play here even if let's say that The Regulators actually mattered which I don't think they do in the macro sense to the long-term direction of crypto the specific ways in which America is governed means that even though president Trump or Harris can say

proc crypto things or neg or anti- crypto things they don't write bills so bills are written by Congress people and senators and in the wake of what is the chevron case where the Supreme Court basically said congress makes laws not the unelected bureaucrats it's the onus is even more so on the rule making body to con create a rule whatever it is good or bad and to put that bill on the president's desk for him or her to sign it right and so if we're talking about

the most polarized electorate in modern history probably the next last 100 years how the [ __ ] are these guys going to create a bill that's going to get on their desk regardless of what either continent says for or against so there's absolutely no chance that there's going to be any sort of bipartisan thing that they can agree on of what crypto regulation should be and so even if you believe Trump and even if you believe that if there's one person in charge of whatever regulatory agency they can somehow wave the magic wand and all of a

sudden all these institutional investors are going to go and they're going to Market YOLO Bitcoin and you're gonna you know it's all G be oh it's gonna be from like 70,000 to a million dollars as that's not how it works and so I on a micro legislative level and so I think people just don't understand well the Americans didn't you know pay attention to civics class and then everyone else was not- American understandable why he wouldn't understand this is there anything about the election that you're paying attention to because there's more than just the President right we have the presidential election we have the

Senate we have the house uh is there anything about the election that that is see outcome right what's the what's the makeup and then that determines like how who gets the money so particular part of the American economy or electorate gets the free money how quickly that happens right and so if it's one party controls all three branches of government then it get the money gets printed faster but if it's a divided situation then you need a financial crisis or some sort of war that says oh okay now we're all together in the printing of the money and so

we'll put aside our differences and we'll do the same thing we would have done if we were in charge and so it's just the pace of what happens so it's really it all comes back to the money printer that's the biggest signal to you that's it that's it let's do the math you look I I've done the math I looked at the recent um presentation to the treasury borrow borrowing advisory committee by the treasury was released last week late last week and they have a nice chart and it shows the largest five

expenditures of the federal government which are Healthcare and Social Security defense and veterans benefits and interest on the debt and so all five of the those combined grow faster than nominal GDP so your spending is growing faster than your ability to tax to fund it there's just mathematically no other way but printing money and so I don't care who gets who's just put in office both Trump and Harris are goingon to bomb somebody they might not bomb the one that the other one's going to bomb but they're bobbing somebody so defense is going up and nobody Cuts benefits for

old people because they vote and so if you want to if you want to be the Congress person that cut the benefits of the Boomers and the silent generation then you won't be in office in two years and so a very simple calculation that spending will can only go in One Direction because it's in the politician interest to continue to spend okay we're we're going to come back to that I want to come back to that in the context of what China is doing too you've written articles about this and we we'll pivot back to the fed too but it's like the the high level for for Arthur Hayes it seems like it's just like they're going to print money it's just how fast right and who's going to print it doesn't matter it's just how fast okay but like

before we get there let's talk about um the cycle that we're in cuz um a lot of people in crypto are a little bit confused like even even David and I have been talking like wait are is this a is this a bull run I mean it kind of feels like it because bitcoin's close to all-time highs and yet institutional demand driven it doesn't feel like there's a there's a new crop of crypto investors so are we really in a bull run are we like so what's what's your sense of the crypto Market cycle right now is this bare bull is this something else uh do you even think about it like that we

had a very good bull run from call it late 2022 up until uh mid 2000 early 2024 so the April time period And if you want to be a very good student of money markets you can take a look at the reverse repo facility at the fed and September 2022 was when it hit the high of 2.5 trillion and it was drained down to what don't know was it now like 200 billion um over the next 18 24 months and that corresponds perfectly to the

rise and and crypto so there was a bull market Janet Yellen said [ __ ] you J Paul we're [ __ ] printing money and she did it pumped in $2.5 trillion dollar into the economy every asset went nuts right we're at S&P at alltime high ndaq at all-time highs um crypto at alltime highs and certain asset classes so there has been a bull market it's just been it hasn't been as broad based as traditional ones where every single piece of [ __ ] altcoin is 10x right and was like what the [ __ ] I thought I just

had to like you know buy Bitcoin then the next week I sell my Bitcoin then I buy the worst I could find on crypto Twitter that goes up 10x and I sell that for a bit and I go back into Bitcoin and then I rinse a repeat but it didn't happen like that this time but in a macro sense there has been a bull market it's just that very few people have participated in it and so you have a lot of people who said oh it worked like this in the past Cycles therefore it must work like this in this cycle and they got hosed sorry David you looked like you had something to say there no I was I was contemplating all the dog [ __ ] in your

portfolio yeah dud it's like thinking about his life choices oh my God man um all right so so what's your base case here Arthur then like foure suit like uh cycle you the way others played out like I know someone else asked me this like oh is it's gonna be the fouryear cycle like yeah why why you why try to be prescriptive just adapt to what is I think if you try to put these prescriptive oh it's a fouryear cycle therefore in the second or third year whatever it is I must do this well okay

if everyone does that then you don't get the result of the past so I don't know with the how many years the cycle is it doesn't even matter it doesn't matter yeah look at the liquidity cycle Bitcoin I think for the first time is very clearly directly related to liquidity and China was in the past it was the dollar this time ibe go back goes back to China and maybe the global aggregate but the tech is solid the tech changes less and less obviously as Bitcoin gets older and older and the thing that

really matters is how much Fiat is being debased how fast from where what what's the pipe understand that and I think you get a much better sense of where Bitcoin and crypto goes is it a four-year cycle I don't know could be four could be five could be six could be 10 I don't know doesn't matter all right well let's come back to your crypto portfolio a little bit later and see see how kind of you're positioning for this because like I think a lot of people are still wondering if we're going to have this play out like we're going to get the altcoin kind of like trade going on but we'll get to that later let's talk about

liquidity cuz you think that's key understanding all this uh all right so a lot of crypto investors don't understand China I mean I think a lot of us like barely understand like kind of like macro and the FED uh you seem to have a take on China which is basically this is a this is a quote from your uh article your recent article on the 28th given that the Chinese property bubble was the largest in human history that's what you said the largest in human uh history the amount of one credit created will rival the sum of dollars printed in the US in

response to co 2020 2021 wow so you're talking about a Chinese property bubble and you're talking about like a big money Cannon injection of Fiat liquidity into these markets as a result give us the context here so like how did we get here what is what is uh what you call like monetary chemotherapy and why why is China heading in that direction but like why is there a property bubble in the first place well at the end of the day the Chinese government said we want to industrialize very quickly and they

said okay well industrialization happens in cities they were very agrarian economy coming into you know 1950 after the disasterous Civil War Between Chen shank kek and maong and so the Communist parties were going to urbanize and so every Five-Year Plan there's an urbanization Target now I'll [ __ ] things up pretty bad um while he was in power until 1976 and then things SED liberalize under dun sha ping who was basically like I'll do whatever it takes just to to create prosperity in China whether and if that goes against sort of

maoism or traditional Marx Marxist Lenin Theory whatever let's just grow and so let's get these people into the cities and so again all credit is determined by state preferences because the marest banks are owned by the state the largest companies in any sector are all state-owned and so if the government says we want to have people in cities then what do we do we build stuff and so if you're going to move I don't know how many hundreds of people have moved from farms into the city in about 30 years right that's just

going to create a epic boom in land prices which I think the figure that I have was they're up like adx over the past 20 years um it's going to create an epic boom in all the other manufacturing and industrial goods you have to use to build Apartments cement air conditioners you know cheap furniture right all this stuff all these companies did very very well um from the late ' 80s until sort of the you know 20 20 and so the problem was that at a certain point you reach

saturation in how much property you need for a particular um amount of people and they reached that saturation and then they said well government policy says we need to build housing the only thing that banks are going to lend for is not the only thing but one of the main things is property therefore I shall buy property I shall build property and if I'm a Chinese you know investor I can't invest abroad the currency is restricted of course the super wealthy are able to to get their money out but the average Chinese saver doesn't have access to foreign investments and so while when

you're getting 2 to 3% and and in your bank account and the econom is growing at 10% a year you're like well [ __ ] that's not that's not that's kind of credit I need something else property was the only thing that they really could invest in that had a track record of always going up was supported by the government was supported by the Banks and the credit and so everybody believed property can only go up and it was true for the past 30 years the best thing you could do was save your money borrow money buy a property and so that's what happened and Xin ping gets

into power and you know he's not the first one to recognize this but it's well we're misallocating credit right if we want China to be this manufacturing you know country we want people to have a harmonious Society if we have the most expensive real estate in the world uh when you think about it per median income I had a chart in my my like Beijing Shanghai Shen and like um the rental yield is the lowest in the world meaning the prices are super high and if you look at the

price to median income apartments in the major tier one Chinese cities are the most expensive in the world and so obviously that creates a lot of social angs right the old own all the [ __ ] and then the young are like what the [ __ ] I can't I I can't get on the ladder I know and and I'm not I'm not going to have any kids I'm not going to have a family and so you get sort of a birth rate decline which you know and in a country that needs young workers to manufactur thing that's also bad so she says okay well we're misallocating credit I need to stop it now it's hard to stop it when

literally every arm of the government has made money on this all the major banks have loans against this all the major industries the majority of their business is property and the ma the number one asset held by everybody in China is property how do you pop that bubble without causing massive social unrest and so I guess 2020 after the co lockdowns and whatnot he thought he had enough control um politically and economically to pop the bubble and so

they started doing what every country does when they pop a real estate bubble same what the FED did in 2007 and8 they start raising the price of credit or restricting developers from get a and predictably the market collapsed uh and so for two or three years into this situation and deflation is setting hold in China you know the median sort of time that it takes to clear a property bubble is you know 5 to 10 years you think about the United States Japan it took them what 20 to 30 years to get out of it and so that's what she St down the

bubble like okay what the [ __ ] what am I going to do to get out of this situation and at the same time you know the geopolitical situation is heating up there's proxy wars everywhere between China and the us there a trade war and all these things right and he's trying to right economy and this property level so there's two options one is you do the Argentinian situ situation where you do a liquidation of credit okay you bought a property you lent against this thing it went down in price sorry that's called capitalism you lost money uh and so you're going to go out of business

you're going to go bankrupt you're GNA fire some workers that's the one option that gets rid of all the debt very quick extremely painful could cause a revolution you never know or you do monetary chemotherapy which is you lower the quantitative easing lower the price of credit to zero make the Banks solvent again and feat money terms and then do bankd directed credit to get the economy back going which is what Japan has done what the European has done and what the United States have done after their

respective property Bubbles and I call chemotherapy because yes while it does cure the economy the financial sector makes them whole the banks are whole they can lend again you you know destroy the lower middle classes with inflation because have to financially repress them to make sure their Capital doesn't leave and given the amount of money that uh China printed to create this property bubble over the last 30 years they've just the amount of credit insued in China is is enormous the amount of chemotherapy they're going to have to put on their economy is just going to be next level and so I know a lot of people

think oh it's not enough there's a lot of um commentate commentators uh Economist like oh China's not doing enough stimulus well everyone said the same thing about the FED in 2008 it was tarp wasn't enough we need more uh by March of 2009 you were doing quantitative easing one S&P didn't bot them until March 2009 and then over the next you know 12 years massive bull market and they kept printing trillions and trillions and trillions of dollars the European Union wasn't doing enough

in 2011 the Euro's going to crack Maro drag gives a speech well do whatever it takes he's done whatever it takes they've been printing money since 2011 you know alamic started in the early 2000s kudasan came in and I'm going to print the most money ever you know curve control quantitative easing and again it wasn't enough at the start but once you do it for 20 [ __ ] years it's enough and so it's just wait now you don't have to say they don't have to come out with a bu full bazooka on day one it takes a while and so I think there's a

structural bid under sort of you know thix Supply assets like Bitcoin and gold that are going to go up because there's just so much Chinese Fiat entering the system to reflate their system yeah what's crazy here is because I we've seen this movie play out in the west like almost like to a te all right it's like you were mentioning 20072 2008 and you actually mentioned earlier in your essay that there's like an underlying reason I I hadn't glued into this but I found this really interesting there's an underlying reason that governments want

citizens to own property and it's actually you know partially you say for regime stability because when citizens a larger percentage of citizens own property they have a shelter they have a place over their head and they have some something that they need government protection for it's like you think about a the the the the basil use case of government is to like secure your property right to make make sure that somebody with you know more guns can't just like come and take your home and your your property away from you so government sort of want citizens to own

property so that they will will prop up regimes because they need that that that security overshadowing it so this is just a function of of governments and this is why we see you know um property bubbles basically in any sophisticated complicated economy is is that right that's my theoretical that's my idea on the theory of like why government needs a wide dispersed ownership of of property in the place of like you know organized religion or some other you know cohesive rules why you should

respect the authority of of the state so Arthur um I do want to kind of compare and contrast the 08 07 uh United States housing crisis to the one that you're alluding to in China the the difference that I'm kind of getting is that there's like a little bit more of a like a controlled demolition rather than like uh like an uncontrolled explosion that I think happened in in 2007 cuz we didn't we had we had seemingly had no control over it in in the United States it was a complete surprise the FED raise rates

into starting in 200 what I don't know 2006 or 2007 I mean the you know the first Canary to fall were the two um uh what was it BMP perrya uh credit hedge funds they gated each other they gated investments in the summer of 2007 Bear Sterns went bust within seven months which B and JP Morgan had the the fource shotgun marriage the Fed was raising rates they stopped at that point but it's always

caused by a restriction of credit because the authorities like oh we've gone too far they recognize they've gone too far and but they think that in their Infinite Wisdom that what they could prop up they could also take down very very slowly and not cause any um services and it's the same huus in every single Central Banker or uh government official they think that they can build it and they can take it down in a slow and controll fashion and it never is the case until then they always get to the situation where they have to take the chemotherapy even they don't want to

take it can you kind of compare and contrast the sizes of these two things uh cuz like like I alluded to listeners are going to be a little bit more familiar with 2008 and the size of that whole thing versus whatever is going on in China we're totally uninformed about China how big how big is this um unraveling would you say the interesting thing about China is that in the Chinese system as opposed to the US system most people buy an apartment so like you get some money and you say oh I I want to I'm G to move in in like two or three

years time so you buy an apartment off off plan you don't buy used you buy new because the bank is going to lend against new they're not going to L gun use that's how it works in Asia so you go get a loan from the bank put your down payment down for the property developer and you put down I think 10 or 20% immediately and then within a short period of time you have to you get your mortgage and then you pay the full balance to the developer before you get the property you wait years before you get your unit but you fully paid for it

and so you're trusting that the developer is going to make good on that promo so the developer short a house or an apartment long cash and so what do any person who runs a a scheme like this they engage in Pony nomics where they say okay well I'm going to promise to build more Apartments than I have cash to to build but as long as I have a good new sales funnel then I can get leverage from the bank on the cash I'm getting in from uh from new marks and I can build the houses that I promise to build uh in

in my prior years and so that's the game that they ran and so once the developers started lost access to credit then Confidence from the buyer like oh [ __ ] well is this person actually going to complete this house and because they didn't have any new sales and no Bank credit they couldn't complete the old apartments so there's something like I don't know how many millions of un of units promised to be delivered and the question is will these developers get enough government financing to do it so it's a different problem it's not

exactly just straight money it's they want they need a apartment so obviously the Chinese government doesn't want to get in the business of building apartments because if you build it like [ __ ] then they complain to you not the developer so you they've been trying to [ __ ] foot around the situation of let's give some money here and there let's try to incentivize lending but at the end of the day it's the market short millions of units of of Apartments who's going to build them right it's not it's it's a different flavor of a of a situation in China based on how the developers are

funded okay so in the United States uh we needed to make our banks solvent so we kind of just injected liquidity straight into the banks what you're saying is uh we need to still create like uh liquidity for these real estate manufacturers so but liquidity is being created either way is just like where is it going is maybe kind of the the the big difference but like I do kind of want to hang on the point of just like trying to measure how big this this is at the end of the day like if liquidity it's all about injecting liquidity how can we measure this size of these two

things like again like just as a uh how big the United States 2008 housing crisis was versus how potentially large this looming housing off the top of my head I can remember how many trillions of r andb value of apartments are basically uncompleted but it's you know it's probably in the half a billion no half a trillion to a trillion dollars worth of just like uncompleted apartments that need to be built right and so that's sort of the that's the one problem that obvious ly they Snowball

right because if the if I'm a customer and I my savings is in is in this apartment I'm not going to get it well then I'm not buying other stuff right I'm not going not traveling my consumer confidence is low it's the money multiplier drops and so I don't I don't go to the bank and borrow money anymore not that the bank wants to lend it to me because [ __ ] I just lost my apartment I don't know I I busted my ass to save for this thing and now the developer's gone bust and I'm not going to get it so I'm not spending so it's a multiplier effect on on that where you have these millions

of people who just they don't have the units that they promised to to get okay so massive uh liquidity injection then by uh the the Chinese government so like for people though that aren't Connecting the Dots here Arthur in terms of like why is that good for crypto right it's like your base case is you know more liquidity equals good for crypto but somebody might be hearing this and say but but Arthur isn't like Bitcoin isn't crypto illegal in China isn't it isn't it hard to get person so tell us about that what what is for someone who's who thinks that what how does it actually work in China so Bitcoin is not banned