Speech Topic: "Money Printing, AI, and Crypto: Fueling an Epic Bull Market Mania"

Recorded on site: Logicrw, BlockBeats

Content compiled by: Kaori, czgsws, BlockBeats

On September 13th, Arthur Hayes, co-founder and former CEO of BitMEX, gave a speech titled "Money Printing, AI, and Crypto: Fueling an Epic Bull Market Mania" at Token2049 in Singapore. BlockBeats reporters recorded, organized, and compiled the content of the speech, which is presented in full below:

In this speech, I will discuss debt and AI from a macro perspective, and then narrow it down to a micro perspective, briefly introducing why I am very fond of Filecoin. Once again, I remind everyone that this is my broad framework for the value of cryptocurrency, namely the liquidity of fiat currency and certain technologies in the ecosystem. In the past decade, one of these two factors has always been the reason for us to start a bull market, but we have not yet encountered a bull market where both of these aspects appear at the same time.

Now I want to explain why I believe the next bull market may start in early 2024. This will be the biggest bull market not only in the cryptocurrency field but also in the risk asset field since World War II and the Great Depression.

What is Gross Domestic Product (GDP) fundamentally? According to Robin Paul, it is population growth, productivity, and debt. I want to focus on babies (population and demographics) and debt (money printing). The simple explanation is that rich people don't have many children. There are many reasons for this phenomenon, but if you look at the relevant chart data, you will know that we are actually entering a population growth deficit, which brings a very big problem. In essence, we are borrowing from the future to build today, and then hoping that more people will fill this growth in the future so that they can continue economic activities.

Therefore, when there are not enough children, who can drive this growth to repay the debt? What solutions have the central bank and government proposed to address this issue?

How do we maintain GDP growth - printing money.

Since 1970, this is the World Bank's chart on global debt and GDP. We have increased from 110% to 360%. The worst part of this chart is not just the terrifying 360%, but also the acceleration. It took us 10 years to increase the growth rate by 100%, but during the COVID-19 pandemic, we increased it from 250% to 360% in just two years.

From a global perspective, we are currently in the late stage of the debt crisis. Why debt is unsustainable has specific reasons for each country, but at the global level, we can see that we are using accelerated debt issuance to make up for nonexistent growth.

Although we are in Singapore, we operate under the US dollar standard. The monetary policies of most countries reflect the US financial policies, so I have spent a lot of time discussing the Federal Reserve and financial policies.

If you are a holder of US Treasury bonds, this is a very scary chart, which shows the maturity profile of US debt. By 2026, the US must roll over nearly $8 trillion in bonds and find people willing to accept this debt at prevailing market yields. Now imagine if the whole world faced this problem of too much debt and insufficient population growth, how would they manage to do this? Who would buy these debts?

When the government has a pile of debt to issue, but no one is willing to buy it at an affordable interest rate, what should the government do? They will print money.

Therefore, if I look at the issue of legal currency liquidity from a global perspective and from the perspective of the United States as a reserve currency issuer, this will be the largest currency issuance market we have ever seen, but no one here is willing to buy these things at these yields.

Decentralized Storage in the AI Era

Okay, now let's shift our focus from legal currency to technology. What is the dominant topic today? It's AI.

Yesterday I attended a lunch meeting with many global asset management companies, family offices, and wealth salespeople. We discussed around the table, what was our most confident idea or theme? I think 75% of people mentioned something about AI. This is the trend.

In the year 2000, the internet was set to dominate the world. You know there's always something that captures our attention in each cycle of new technology that completely changes the human experience. In 1929, it was radio and railways. AI is no different, as the widespread use of computers and the rapid advancement of human civilization since the invention of the internet has led to a great deal of investor interest in what AI can do.

What changes will happen to our civilization if computers can think for themselves? There may be trillions of dollars worth of value created by AI. Chat GPT has been a major highlight in the past six months, and it is the fastest technology ever adopted in human history. Why are all these startups saying that we will apply the LLM model in a specific field of the economy to increase productivity for companies using our products?

So what does this mean? Currently, the largest stock in the AI industry is NVIDIA. Since the launch of its consumer products, NVIDIA's stock price has almost doubled, and its P/E ratio has reached 100 times. If you think about it carefully, this is definitely absurd. How much money does NVIDIA need to earn in 5 to 10 years to reach its current valuation? Some people say this is a bubble, and I agree with this view, but I think it will get worse.

It seems that we have a legal currency liquidity bull market driven by a shortage of babies and a large amount of debt, and we have a technology bull market driven by AI. I have written some papers trying to link cryptocurrency and AI. Fundamentally, I believe that AI is a personal economic unit. If you want to personify it, it doesn't care about human laws and regulations because the government cannot use force to kill an AI. Yes, you can try to destroy computers and so on, but this will almost destroy the social connections we have. Therefore, I believe that a single government is almost impossible to unilaterally punish an AI, so we will have pets and AI as reasons why we should have cryptocurrency.

So, what does AI need? AI needs computing power and data storage. When I consider my investment portfolio and how my family office can enter the AI field, I realize that I have missed the best time to invest in some of the emerging startups today. I will not get liquidity in 2026 or 2027, whether it is unlocked tokens or ITO windows, because it takes five to seven years for a company to mature enough to launch its own product. So I need to find something that can be implemented immediately.

Now, I could buy Nvidia stock at a P/E ratio of 100, but I could consider it from the perspective of data storage and its potential involvement with cryptocurrency. So let's focus on that. Some of the people in this room are venture capitalists, and I'm not saying you're fools, but the people who put their money in your hands might be.

So, what's next? A bunch of venture capital firms will say, "I want to create an AI fund." Then you have to pay all kinds of fees, and they'll turn around and see billions of dollars in investment on any sales material with AI. When they get this funding, they'll use it to buy PPUs and hot storage.

Therefore, if you don't want to profit from the AI frenzy, I want to enter the field of capital flow. These funds are flowing into these two areas because without them, no matter what AI solution you claim to have, it will essentially be unable to operate.

Why does AI need decentralized storage? If I trust that AI won't use a lot of data storage, shouldn't I use Amazon? By putting your data in a centralized company, that company can shut down your service due to government orders, change prices at any time because it's their data center, and cancel contracts at any time. What will AI do? Will it sue someone in court? That won't happen. Essentially, AI will create an opportunity for decentralized storage.

So, now I need a shitcoin. I hope to find a listed token that has completely collapsed, with a drop of over 90% from its historical high in 2021. The most active sellers have already sold out, so when this token starts to rise, it still has a lot of room for growth. The amount of funds needed to enter is not too much, and it needs to be related to the AI industry chain.

Selected Filecoin

Filecoin is considered a worthless virtual currency, which has dropped from its highest point of $300 to $3 now, with a decline of nearly 99%. However, people are still using it.

There is data stored on the Filecoin network and real customers are using this system. There is still a lot of room for development in the market. Although AWS is a leader in the market, it is a centralized solution. If end users value the benefits of decentralized data, then there is potential for growth in the decentralized storage market.

I invested in a Filecoin storage platform called Seal Storage, which is helping to onboard large data users onto the Filecoin network. They have a project called Atlas, which is a data project from the European particle accelerator CERN. They are using SEAL to reduce data costs, and SEAL earns Filecoin rewards by putting this data on the network. The University of California, Berkeley is also using SEAL for similar purposes, and SEAL has collaborative projects with NASA and other universities in the United States.

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