First Mover Asia: Arthur Hayes Sees a ‘Balkanization of Finance’ Coming Soon as Crypto Rallies

Hear Alex Thorn share his take on “Bitcoin and Inflation: It’s Complicated” at Consensus 2023.

Good morning. Here’s what’s happening:

Prices: Bitcoin and ether are well within the green as they near highs not seen since the Covid-induced bull market.

Insights: For former BitMex CEO Arthur Hayes, traditional banking is broken and finance will never be the same.

Bitcoin and ether are well within the green as the Asia business day begins, with bitcoin pushing past a yearly high of $30,000, and ether beginning to test $2,000.

While bitcoin’s relationship to the current banking crisis has made it a clear winner over the last month, there are plenty of questions as to how the Ethereum network’s Shanghai upgrade is going to impact the price of ether.

Is it what ether needs to surge ahead? Or, is ether just following bitcoin’s gains?

Ether Capital CEO Brian Mosoff calls it a “non-event.”

“My suspicion is that this is going to be a non-event in terms of price,” Mosoff told CoinDesk TV’s “First Mover” on Monday. “I expect you will see more ETH get locked into staking, either from solo stakers or, again, you’ll see more structured products come to market.”

There’s also the fact that most of the staked ether is also being held at a loss, as CryptoQuant recently wrote in a report.

Meanwhile, the futures market is pricing in modest gains for ether on contracts that expire at the end of June.

New inflation data is scheduled to be released on April 12, which should show that the Fed has tamed the beast, and that’s always been bullish for crypto and risk assets.

“We are likely to see continued accumulation from longer-term investors interested in its currency debasement hedge properties, while short-term moves are dictated by shifting theories about what monetary liquidity will do,” Noelle Acheson, the author of the Crypto is Macro Now newsletter, recently wrote.

Arthur Hayes Isn’t Mincing Words About Banking

During the coldest days of 2022’s crypto winter, when the wreckage of FTX was still smoldering, VanEck forecast that bitcoin could drop to $10K-$12K by the first quarter of 2023.

“Bitcoin will test $10,000-$12,000 in Q1 amid a wave of miner bankruptcies, which will mark the low point of the crypto winter,” Matthew Sigel, head of digital assets research at VanEck, wrote at the time.

But VanEck was wrong about something major: the price of bitcoin.

2023 has been defined by being a mini-bull market. Year-to-date, bitcoin is up about 80%, currently just over $30K.

And that’s all in the face of crypto-friendly banks Silvergate and Signature collapse.

“It’s all driven by the collapsing of the Western banking system,” Arthur Hayes said in a recent interview with CoinDesk. “The world is recognizing the entire Western banking system is bankrupt, and they’re all f—ed.”

Bitcoin’s correlation with traditional assets is breaking as it serves as an asset outside the traditional fiat banking system, Hayes says, pointing to the S&P 500’s 7% gain year-to-date, versus bitcoin’s more than 80% increase.

And what does the Hayes portfolio look like as the Western banking system teeters?

Bitcoin, gold, property and maybe even some assets in RMB.

“I’m going to go into all these other things that are not connected to the banking system directly,” he said. “I want to own assets in Dubai and all these other regions that actually have a real economy other than just printing money.”

Hayes isn’t a total dollar doomer – his prediction is that it’s still going to be in use with the U.S. and her allies, but it will no longer be the world’s reserve currency. The next decade will see the balkanization of currencies, with the dollar making up 40-50% of trade (between 1999-2019 it accounted for 74% of Asia-Pacific trade, and 96% of trade in the Americas).

“The West will be a dollar block, and other non-aligned countries will use gold, Dirhams, CNY, rubles, whatever,” he said. “When you go to different places you’ll need to use a different currency, and everyone becomes an FX speculator more than they are today.”

What about the price of bitcoin?

Hayes doesn’t discount the possibility of bitcoin hitting $1 million, and has been a vocal supporter of Srinivasan on Twitter. But it might not happen for a while.

“I know it’s coming, and I think bitcoin just keeps climbing. Will it reach $70,000 this year? I doubt it,” he said. “In 2024 there will be the halving, and more banks that have gone bankrupt in the U.S. and Europe. You’ll probably also have a very explicit guarantee of all deposits in the Western world by central banks.”

At this point, Hayes argues, the market will know it needs to be in bitcoin, gold, ether, or other assets.

“Anything that isn’t stocks and government bonds,” he says.

How could you not be bullish on crypto?

Ethereum developers have started to refer to the blockchain’s upcoming hard fork – in this case, a key upgrade – as “Shapella.” Ether Capital CEO Brian Mosoff joined the conversation ahead of the two major Ethereum network upgrades expected to occur simultaneously on April 12. Plus, TRM Labs Head of Legal and Government Affairs Ari Redbord discussed the Treasury Department’s first analysis of illicit finance risks associated with DeFi.

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