Full text of Arthur Hayes’ opinion: Bitcoin and dollar indicators, regulatory scrutiny after Ethereum merger |

Full text of Arthur Hayes’ opinion: Bitcoin and dollar indicators, regulatory scrutiny after Ethereum merger |

Isn’t it sad that Bitcoin has become a high-powered indicator of dollar liquidity? Isn’t it a bit of frustration that crypto assets are moving in lockstep with the Nasdaq 100 index of big U.S. tech companies? I would have thought that crypto assets should be people’s money, and have a negative correlation with the TradFi system. This article comes from the Medium article “Snippets” by BitMEX founder Arthur Hayes, which was organized, compiled and written by WuBlockchain, a columnist in the dynamic zone. (Recap:Founder of BitMEX: If the Third World War breaks out, can holding Bitcoin avoid inflation and capital controls?) (event background:BitMEX founder | Arthur Hayes: My expectations for U.S. monetary policy)

Do you believe in a decentralized and/or censorship-resistant web?

I expect that most Satoshi believers (who are probably most of my readers) will answer yes.

CZ: Binance Chain US Government: Ethereum Network

Do you believe in a decentralized and/or censorship-resistant web? I expect that most Satoshi believers (who are probably most of my readers) will answer yes.

To this I say: impossible. A lot of people may be keen to buy, hold and use BNB, ETH and/or other dApps, tokens, but most of them don’t actually care about the ideology behind these technologies.

BSC is not decentralized, and has never claimed to be, but that hasn’t stopped the explosion in on-chain activity, nor has it had any effect on the attractiveness of BNB, the fifth-largest token by market cap .


As of September 21, Lido Finance, Coinbase, and Kraken collectively controlled more than 50% of all staked ETH on the Beacon Chain. This means that they are the strongest validators and, in essence, they can decide which transactions are processed. What do these three centralized entities have in common? They are all American companies or DAOs invested by American venture capitalists.

According to Crunchbase, six of Lido Finance’s eight investors are US-based venture capital firms or have entities in the Americas.

This centralization of cyber power in the hands of centralized entities (which, I should remind you, are subject to U.S. laws and regulations) does not exist under a proof-of-work system. However, network users voluntarily choose to transition to proof-of-stake and stake their ETH, thereby choosing to accept this centralization and potential future censorship. The US government is not forcing anyone here.

Further reading:No one can escape! SEC interprets Ethereum’s jurisdiction: most nodes are in the United States, and transactions are counted in the United States

Further reading:The status quo of the 8 co-founders of Ethereum: Some people continue to “hold hands” with Ethereum, and some people confront it head-on!

Does anyone really care? No.

I’m sure Vitalik would argue on this that there are safeguards that help ensure decentralization – such as the way validators are punished for censoring transactions. It’s a nice idea, but let’s stress test it.

The game theory behind how to incentivize validators to reach consensus gets trickier after the proof-of-stake “upgrade”. I had back-and-forth discussions with Jonathan Bier, head of research at BitMEX, about the different penalties that could be faced by potential bad actors seeking to censor transactions, and I quickly realized that things were a little off. In a nutshell, the punishment system works like this:

If less than 33% of the network refuses to validate blocks, there is a way to slowly lose ETH. Slowly losing ETH means validators are penalized for reducing staking on nodes. If the stake falls below 16 ETH, the validator will be removed from the network. Since you cannot unstake ETH, this capital becomes dead capital. There is a quick way to lose ETH if more than 33% of the network refuses to validate blocks. Penalties worsen exponentially so quickly that dissenting validators will soon drop below the 16 ETH threshold and be kicked out of the network.

Here’s a hypothesis test of your ideological commitment – given the above, would you support the big centralized nodes of the Ethereum network if they changed the rules to ease penalties, or would you support blind compliance with censorship resistance ?

We’ve already seen a similar ideological test in 2016, when “The DAO” locked up a significant portion of all ETH, when almost everyone defaulted to forking the protocol so that people could get their money back instead of being loyal Ethereum’s so-called “code is law” spirit.

This rather serious violation of Ethereum’s “code is law” ethos has not even dampened the fervor of its supporters, and has had little negative impact on the network in the long run. ETH, the token that powers the network, has maintained its throne as the second largest market cap token without too many challenges, while Ethereum remains the most used blockchain network in existence (with almost as much as Bitcoin) 4 times the daily trading volume).

In all fairness, there are still plenty of very successful dApps using the web to seek to break censorship in areas such as finance. However, as dApps scale and become important financial players in the global ecosystem, their success will likely threaten entrenched interests, and if the network does not place a high priority on censorship resistance or decentralization, these threatened The parties will have countless levers to cut them to a minimum.

The pseudo-decentralization endured by the users of the two most valuable “decentralized” internet computers (BSC and Ethereum) in part reflects the ideological sacrifices people currently make every day when using major Web2 platforms . The cost of using these platforms is not high: you either give your data to the US (Facebook, Google, Amazon, Microsoft, Apple, etc.) or China (Tencent, Baidu, Weibo, Alibaba, Huawei, ByteDance, etc.) ). But even after realizing this dire reality, the vast majority of humanity continues to voluntarily surrender their data sovereignty to governments in exchange for entertainment, the ability to socialize and communicate online.

Early investors in the US and Chinese Web2 giants have created generational wealth, and the same goes for ETH holders. ETH as a financial asset – completely tethered to the US-dominated financial system and under the guise of “decentralization” – can still do very well in the near future. The question I want to address is whether truly decentralized financial and social dApps can exist at scale (i.e. with hundreds of millions of users) given the above. I don’t know the answer to this question, but when this question matters to the market, I wish institutional investors had been used as exit liquidity so that I could fully immerse myself in a real Satoshi world.

As I have said in various interviews, I think the only thing that matters in the short term (i.e. the next three to six months) is how the issuance of ETH per block falls under the new Proof-of-Stake model. In the days following the merger, the ETH emission rate dropped on average from +13,000 ETH to -100 ETH per day.

The price of ETH continued to rise as USD liquidity deteriorated, but given time to seep through changes in supply and demand dynamics. Check back in a few months and I suspect you’ll find that the sharp reduction in supply has created a strong and rising floor for prices.

I previously wrote that I bought a $3,000 ETH/USD strike December 2022 call option. I worry that I may not have enough time to invest in these options. Take a look at the table below.

ETH Net Issuance = ETH Issuance- [( ETH gas 使用量平均值/ 10⁹ ) * ETH 交易數]

Will removing the selling pressure of nearly $2 billion be enough to cause the price to double in more than three months? If my USD Liquidity Index goes higher then maybe I have a chance. But hope is not an investment strategy. I’m probably overestimating how the reduction in supply will drive prices up. Relative to Bitcoin, I believe ETH will continue to outperform. A more convenient trade is to buy options on ETH/BTC. But I already have a spot position and I love to trade.

do not follow the agency

“The bull market can only begin if institutions return”

This is a common point I’ve seen a lot lately. The reality is that institutions are Muppets chasing beta, buying at the top and selling at the bottom due to their compensation incentives. Institutional money managers and trustees are paid by accumulating large amounts of assets and charging management fees.

Many of these hard working people are puppets because that’s what they get paid for. But as they manage their funds, many recognize the value of cryptoassets and flock to it. As a trustee, you care about bonuses. But as the head of a family, you care more about compounding returns.

All that said, those who predict that institutional investor money will lead the next bull market are not talking about these investors’ personal portfolios.

In any environment, the primary goal of any organism is survival, and money managers are no exception. In their working lives, trustees hope to make it through the year for their next bonus. This means they will only buy cryptocurrencies if it is safe to do so. Safety is found when the price has risen multiple times from the bottom. When the market goes lower and they lose investors’ money, at least they can justifiably say they’re buying when everyone else is buying.

So if you’re waiting for institutional investors to rediscover cryptocurrencies and reignite the next bull run, you’re going to be a high chaser.

Harsh relevance

Isn’t it sad that Bitcoin has become a high-powered indicator of dollar liquidity?

Isn’t it a bit of frustration that crypto assets are moving in lockstep with the Nasdaq 100 index of big U.S. tech companies? I would have thought that crypto assets should be people’s money, and have a negative correlation with the TradFi system.

These are the sentiments of many market analysts immersed in how the TradFi market works. Many of these analysts are fully confident that the Fed and its central bankers will continue to raise short-term interest rates for the foreseeable future. Given these actions remove credit from the system, these strategists are bearish on long-term tech stocks and therefore very bearish on the future price of cryptoassets.

Bitcoin Price = USD Liquidity + Technology

The dollar’s liquidity position will be as good as it can be, which is the price driver that most people are watching. But censorship-resistant technology isn’t getting enough credit. Until these attributes prove valuable, it will continue to be untrusted.

These technical properties cannot be a priori, mainly due to the way we think about the future, we tend to refer to the recent past to predict the future. For most humans living in economically developed countries, recent history is “correct” from a financial services perspective, with fiat currencies and their accompanying financial systems valid.

As I pointed out in my recent article “For War”, recent history is economic peace between two major blocs (US/EU and Eurasia/Russia/China). If your passport is Russian, your dollars, euros, pounds, etc. are no longer yours. Russia now only allows fuel purchases in rubles, gold or currencies of “friendly” countries. The global financial and energy system is Balkanizing, which will lead to intense inflation. In this case, a global currency operated and owned by humans has infinite value. At this point, Bitcoin technology will show its true value and support the right side of the above value proposition.

Financial analysts completely ignore this part because they are human. You can’t value it until it has value, so in either model it’s given zero value. So while I fully agree that in the near future the price of Bitcoin will be in line with the liquidity of the U.S. dollar, as this economic war intensifies, I expect the value of Bitcoin technology will start to gain in value.


While the USD Liquidity Index does a good job of explaining Bitcoin’s recent moves, it has little predictive power. If we want to predict what might happen in the future for the Bitcoin price, we are concerned with the liquidity situation today relative to the recent situation.

As always, forecasting is an art, not a science. By curve fitting, I made assumptions about time. In this case, I want an increment that is not too volatile, but also moves fast to account for the rapidly changing nature of Bitcoin. I settled on a 3-month index. Components of the index are updated weekly (Fed Balance Sheet and Treasury General Accounts) and daily on weekdays (reverse repo swaps and standing repo balances).

The US typically has 252 trading days in a year, so if I want a 3-month impulse, that’s 63 trading days.

Full text of Arthur Hayes’ opinion: Bitcoin and dollar indicators, regulatory scrutiny after Ethereum merger |

Quite simply, if the delta is positive, I go long bitcoin, and if the delta is negative, I go short or short bitcoin.

This simple statement does little good for the trader. As traders, we care about inflection points. In November 2021, the delta was positive — that is, dollar liquidity increased compared to the previous three months — but it was the top of the market. If the delta is rising but slowing down, we would like to exit the long position and possibly short. If the impulse is falling but the rate of decline is decelerating, we want to exit the short position and possibly go long.

The current situation is choppy. USD liquidity conditions tightened substantially from November 2021 to July 2022. The chart clearly shows the $3 million drop, and the corresponding drop in Bitcoin price. That urge has slashed around 0% in recent weeks.

From a dollar liquidity standpoint, the rest of the year has seen the Federal Reserve focus on shrinking its balance sheet, with the U.S. Treasury issuing large amounts of debt to fund the government. Both actions remove liquidity from the system. This should result in an impulse drop and send Bitcoin lower to test its June low of $17,500.

The mitigating factor is that all this liquidity tightening will disrupt financial markets in the US and the world. A highly leveraged global economy based on the U.S. dollar cannot survive at current levels of activity with significantly reduced U.S. dollar liquidity. My guess is that there will be some problems with the way the Treasury market works. The Federal Reserve, Treasury, domestic U.S. banks and large foreign holders such as Japan and China are all selling bonds. Who would buy all these bonds at yields well below the government’s inflation gauge? If the Fed and Treasury want to ensure that the U.S. Treasury market, the most important to the global financial system, remains intact, they may have to abandon plans to significantly remove the dollar from the system. Politics is a passive activity, so we may have to see the U.S. Treasury market crash before it changes direction.

Rumour has it that the ‘strengthening the dollar’ policy being pursued by the Fed and the Treasury could be reversed in the fierce G20 battle in Bali on November 15-16. The EU, being an anti-Russian/China spearhead, cannot survive and the dollar strengthens when they now have to import more LNG tankers. This event also comes after the US midterm elections, so the political will to “fight” inflation may decline faster than TerraUSD.

The Fed has not changed their quantitative tightening or short-term interest rate policy as I have suggested in the past few articles. However, I never said I believed the Fed would adjust before the midterm elections.

When we look at the volatility of the USD Liquidity Index and its increments, the Bitcoin price that bulls should worry about is $17,500. The most likely course of action is to retest this low. Whether this line can be held depends entirely on the incremental trajectory of the USD Liquidity Index.

On ETH, we are only a week away from the merger. It appears the network is working fine, which is fine. The technology is hard, and it seems like congratulations to the Ethereum core developers for this incredible feat. As expected, the amount of ETH decreased by almost 13,000 per day.

Since I wrote two bullish articles on ETH, the price has capitulated. I still believe that the structural reduction in ETH supply will definitely lead to outperforming Bitcoin – but I have no confidence that ETH will hit five figures by the end of the year if the Fed and Treasury continue their USD liquidity reduction plans. To my chagrin, my December options expire worthless.

Having said that, am I lightening my portfolio against ETH and ERC-20 altcoins? Absolutely not! Because I hold stock, I don’t have to worry about time and cost. Obviously, there is an opportunity cost in short-term US Treasuries compared to holding fiat, but I have allocated a portion of my overall portfolio to it. I also go long interest rates through a range of exotic derivatives. In the crypto market, the wait is worth it, and I can be patient in structure.

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