Dialogue with Arthur Hayes: 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 conversation to discuss market risks, aggressive investment strategies, and annual forecasts. Arthur emphasized the strategy of holding Bitcoin and altcoins, and shared their family offices 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 doing nothing is the best strategy this year. In addition, they explored the cultural value and market potential of memecoins, predicted that Dogecoin might get an ETF, and discussed the impact of the US election on the market and potential risks in the future.

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

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

Investment strategy sharing: Hold on firmly, don’t be afraid; doing nothing is the best thing to do

Arthur: My investment strategy is to hold, dont sell, dont get scared, dont use too much leverage. Its simple, and everyone knows what they should do, but we dont usually do it because YOLO (one time out) is fun. But in the end, its simple. If you believe that central banks and governments are in debt, will continue to be in debt, will continue to print money, 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, where their team has done a great job creating a synthetic dollar with the intent to replace Tether and USDC. Ethena now has about $3 billion in circulation, which makes it the fourth largest dollar stablecoin. I think thats the best thing weve done this cycle, and I think were just at the beginning, the impact of Ethena on the ecosystem is just beginning. 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. These works were priced very low 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 wont leave the space, and that wealth will circulate in the space, whether its venture capital, or opportunities to build application layers. But really, people will go after those token assets. So Ive 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 are the implications for cryptocurrencies?

Raoul: We are entering the banana zone. The banana zone is a concept that Arthur and I talk about a lot. It is 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, which affects all asset prices, but cryptocurrencies are particularly outstanding. So the easiest way is to not screw up. Keep a core portfolio with the majority of 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 the portfolio, which is more risky but has greater rewards.

Looking back at the classic banana range of the last cycle, Solana, Avalanche, Luna, and Matic all performed well during 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 it’s part of the fun of it, because you can take risks and feel like you’ve really seized an opportunity, but in fact, most of the time you are just sitting back and watching.

Why are memecoins so popular? What is their value?

Arthur: I think memecoins are here to stay and will get even crazier as more money is printed. I am often in Singapore, which is a small place with a very homogenous society. Every time I walk in the shopping district on Orchard Road, I always see local Singaporeans queuing up at Chanel, LV, Gucci, etc., which are all mainstream big brands. They are always queuing up, waiting to go in and buy what they want, which costs up to several thousand Singapore dollars, and they do it frequently. So if people are willing to queue up to buy leather goods with the LV logo, they will definitely sit in front of their computers and trade any hot memecoin.

Because you dont need to understand cryptocurrencies, just like you dont need to understand fashion. People like it, I like it, its very human. So I think memecoins are here to stay, and for people who are just getting into cryptocurrencies, its the easiest thing to understand. Oh, this is a cool picture, this is a funny joke that I understand, everyone is in on this joke, I can make money by spreading this joke, okay, Ill 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 and I’m already doing the same thing in real life when I go to buy these expensive brand products and 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: I had coffee with Miao from Jupiter yesterday, and we talked about this. The interesting thing about memecoins is that they either have zero or very little utility. Bonk has some utility, Shiba Inu has some utility, but their real cultural value is the attention they get. Attention is upstream of everything else, and its very easy to understand. You dont need to put a value on them, you just need to know if they attract attention, if that attention is lasting, and if owning them gives me a certain feeling or status. Its the same with LVMHs Louis Vuitton handbags, its the same with fine wines, its the same with memes that you share on the internet. These are concentrated attention.

Share this years market operation strategies and future market forecasts

Raoul: I basically dont do much trading, I just dont have the time. If you notice a lot of aggressive trading is basically based on attention, and I dont have enough attention to allocate because Im too busy. So I keep a relatively simple strategy. I have Bonk and Doge, because I still think Elon will do something with Doge, thats it. I watch the space, everyone reads Ansems tweets, trying to figure out whats going on, but I just dont have enough attention to focus on these things. So you actually need to have a certain amount of knowledge to trade these.

Arthur: My laid-back life consists of running around the courts playing tennis or skiing on the slopes. So I don’t pay attention to which dogecoin is the hottest. I also own 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 considering getting into cryptocurrencies, they will apply ETFs 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 talked 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 doesnt go to jail first. I said, youre fine, Dogecoin has been around for a long time, and it has outperformed Bitcoin every cycle, which is amazing. So, Im pushing this behind the scenes, but I havent convinced Yan yet. But Ill keep trying. One of Hunter Horsley or Yan will cross the line. Its unlikely to be BlackRock, but well try.

Which memecoins are likely to succeed?

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

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

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

Raoul: My opinion is that it doesnt really have much of an impact.

Arthur: Actually, all candidates are the same. There is a group of stakeholders behind them supporting them. Money will continue to be printed after the election, so whether it is large-cap technology stocks or cryptocurrencies, they will continue to perform well. There may be some fluctuations, especially in the issue of Trumps verdict, but at the end of the day, no matter who is elected, they will print money. So, I dont think it will have much impact. They will all vote for the war budget. The US economy exists for war. So, its all the same, the difference is which candidate you like. I dont care what their slogans are, I just know that they will all print money, so any investment strategy that works now will continue to work after the election.

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

Arthur: The Fed is not independent now. Thats a false proposition. In reality, the Fed is dominated by the Treasury Department, and Janet Yellen is the most powerful person. She can do whatever she wants, and Jerome Powell is actually powerless. The Treasury Department is the dominant force, and they have been operating behind the scenes. If you look at some of the Fed research papers, such as the recent one from the Atlanta Fed on central bank swaps, they have basically been supporting international dollar borrowers, and the article details every time the Fed has printed money and given it to foreign institutions.

Raoul: If you look at Arthurs 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 dont 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 were no longer independent in the 90s.

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

Raoul: For me, there is one risk that is not so obvious. 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 1999, which would cause the market to overinflate and then have a big correction. That 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 models are incompatible with decentralized assets. This happens again and again. So, how might this cycle evolve? What are the centralized entities that we trust and drive the market now? ETFs, fund managers, what do they do? Custody their assets, probably just in Coinbase and a few banks. If one of these regulations passes, we will have hundreds of billions or even trillions of dollars in crypto assets custodied in less than 20 companies, which may be custodied in less than 5 institutions.

If youve ever worked in a bank, you know that the people who make the least money have the most important jobs, theyre in the back office doing things like forex reconciliation or making sure stocks settle. If you think about crypto custody in a traditional financial institution, they want to get into this now because they see Coinbase making a lot of money from BlackRock and others, and 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 might be a guy who makes $50,000 to $60,000 a year, who is overworked, has no respect, and knows nothing about cybersecurity. Its not their money. If I were going to hack crypto, I would hack these U.S. custodian banks because their cybersecurity is an afterthought. They have no idea what theyre doing because theyve never had custody of this kind of asset. If they lose these assets, they cant ask the Treasury or the Fed for a bailout. In crypto, no one can create Bitcoin or Ethereum to compensate you for your losses. So if I think about the risk, and its a 2 to 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 its unlikely to be Coinbase, because they know the rules of the game. But other new entrants, they dont understand the complexity of this type of asset. Another risk for me is the derivatives market, the entire cryptocurrency options market is almost concentrated in one derivatives exchange. This is risky because a large number of people use this single centralized platform to trade options. If this exchange has problems, we may have big problems. We need more options exchanges, platforms to spread the risk, because now the use of derivatives is increasing, and we dont 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 launching zero-day options for years because they couldn’t do real-time margin. When you sell a zero-day option, you essentially take on unlimited upside risk. CBOE didn’t launch these products despite strong clamor from brokers to launch them because they were 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 intraday margin calls, and CBOE would be unprepared for that. This could cause a market crash.

Raoul: These are not predictions, just to make everyone clear. These are just potential risk points we see, not to say that a certain company will definitely go bankrupt. At the end of each cycle, someone will explode, but we don’t know who it will be. If you leverage an asset with a volatility of 70%, you will explode, this is 100% guaranteed.

What are some undiscovered investment opportunities? Which projects are you optimistic about?

Raoul: I try not to do anything. One thing Im always watching is the exchange rate of Bitcoin to Ethereum. If this rate starts to go higher, it could 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 dont want to lose your coins in this range.

Arthur: I think Aptos could 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 transactions are very profitable in the banana range. These types of transactions have created huge gains in the last cycle and in the previous cycle, so this time will be the same. Most of these tokens have rebounded from their lows. They were all launched at the wrong time in the last cycle, but now the market environment is very favorable for some of them. I am not sure which projects are specific, but you can think of Celestia, Monad, etc.