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

On-site Coverage: Logicrw, BlockBeats

Content Compilation: Kaori, czgsws, BlockBeats

On September 13th, Arthur Hayes, co-founder and former CEO of BitMEX, delivered a speech titled "Money Printing, AI, and Crypto: Fueling an Epic Bull Market Mania" at Token2049 in Singapore. BlockBeats reporters on-site recorded, organized, and compiled the speech. The full text is as follows:

In this speech, I will discuss debt and AI at a macro level, and then narrow it down to a micro level to briefly introduce why I am very fond of Filecoin. Once again, I want to remind everyone that this is my broad framework for the value of cryptocurrencies, 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 have occurred at the same time.

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

Fundamentally, what is Gross Domestic Product (GDP)? I got this from Robin Paul, which is population growth, productivity, and debt. I want to focus on babies (population and demographic structure) and debt (money printing). The simple saying 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. Ultimately, we are borrowing from the future, building today, and hoping that there will be more people in the future to fill this growth so that they can continue economic activities.

So, when there are not enough children, who can drive this growth to repay the debt? What solutions have central banks and governments proposed to solve this problem?

How do we maintain GDP growth—by 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 the acceleration is also chilling. It took us 10 years to increase the growth rate by 100%, and during the COVID-19 period, we only took two years to increase it from 250% to 360%.

From a global perspective, we are in the late stage of a debt disaster. Why is debt unsustainable? Every country has its specific reasons, 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 are under the U.S. dollar standard, and the monetary policies of most countries are a reflection of U.S. financial policies, so I spent a lot of time discussing the Federal Reserve and financial policies.

If you are a holder of U.S. government bonds, this is a very scary chart, which is the maturity profile of U.S. debt. By 2026, the U.S. must roll over nearly $8 trillion in bonds, and they must find people willing to accept this debt and the prevailing yield in the market. Now think about it, if the whole world is facing this problem, that is, too much debt and insufficient population growth, how will they do it? Who will buy this debt?

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

So, if I look at the liquidity problem of fiat currency from a global perspective and the perspective of the U.S. as the reserve currency issuer, this will be the largest money 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 from fiat currency to technology. What is the dominant topic today? It's AI.

Yesterday, I attended a luncheon with many global asset management companies, family offices, and wealth salespeople, and the most confident idea or theme we discussed around the table was what? I think 75% of people mentioned something about AI. That's the trend.

In 2000, it was the internet that was going to dominate the world, you know there's always something, 1929 was radio, railroads. Every cycle, we focus on some new technology that will fundamentally change the human experience. AI is no different, because of the proliferation of computers and the speed at which our civilization has been upgraded since the invention of the mainframe computer internet, you can understand why investors are so focused on what AI can do.

Computers can think for themselves, so what changes will our civilization undergo? There may be trillions of dollars' worth of value created by AI, and Chat GPT has been a highlight in the past six months, the fastest technology adoption in human history. Why are all these startups saying that we will apply LLM models in a specific area of the economy to increase productivity for companies using our products?

So what does this mean? The biggest stock in AI right now is NVIDIA, and since it made products available to the public, NVIDIA's stock price has almost doubled, with a P/E ratio of 100 times. If you think about it carefully, this is absolutely absurd. How much money does NVIDIA need to make in 5 to 10 years to reach its current valuation? Some people would say this is a bubble, and I agree with that view, but I think it will get worse.

So, it seems that we have a fiat currency liquidity bull market driven by a shortage of babies and a lot of debt, and we have a tech bull market driven by AI. I have written some papers trying to link cryptocurrencies and AI. Fundamentally, I think AI is a personal economic unit, and if you want to personify it, it doesn't care about human laws because the government cannot use force to kill an AI. Yes, you can try to destroy computers and so on, but that would almost destroy the social connections we have. So, I think it is almost impossible for a single government to unilaterally punish an AI, so, it's a double blessing, we will have pets and AI as reasons why we should have cryptocurrencies.

So, what does AI need? AI needs computing power and data storage. When I think about 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 companies today. I will not get liquidity in 2026 or 2027, whether it's unlocked tokens or ITO windows, because it takes a company five to seven years to mature enough to launch its own product. So I need to find something that can land immediately.

Now, I can buy NVIDIA stock at a P/E ratio of 100 times, but I can consider data storage and possibly a perspective related to the cryptocurrency industry. So let's focus on this. Some people in this room are venture capitalists, I won't say you are fools, but the people who put money in your hands may be fools.

So, what will happen next? A bunch of venture capital firms will say, I want to do an AI fund. So, you have to pay various fees, right, and then they will turn around, and you will see tens of billions of dollars in investment on any promotional material with AI. When they get this money, they will use it to buy PPUs and hot storage.

So, if you don't want to profit from the AI frenzy, I want to enter the field of fund flows. These funds are flowing into these two areas, because no matter what AI solution you claim to have, it will essentially not work without these things.

Why does AI need decentralized storage? If I believe that AI will not use a lot of data storage, shouldn't I use Amazon? You put your data in a centralized company, which can shut down your service at the government's command, 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. Fundamentally, AI will create an opportunity for decentralized storage.

So, now I need a shitcoin, I want a listed token that has completely collapsed, dropping over 90% from its historical high in 2021, and the most aggressive sellers have all sold off, so when this token starts to rise, it still has a lot of room for growth, and the funds entering it don't need much to make this token rise for 10 or 20 years, and it also needs to be related to the AI industry.

The Chosen One: Filecoin

Filecoin is considered a worthless cryptocurrency, dropping from a high of $300 to the current $3, a decrease of nearly 99%, yet people are still using it.

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

I have invested in a Filecoin storage platform called Seal Storage, which is helping to bring large data users into the Filecoin network. They have a project called Atlas, which is a data project of the European Organization for Nuclear Research (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 doing similar things with SEAL, and SEAL has cooperation projects with NASA and some other universities in the United States.

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