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A Message from Alexander Höptner, CEO of 100x Group


Earlier this week, I had the honour of speaking to David Ingles on Bloomberg’s Daybreak Asia. We talked about 100x Group, my vision for BitMEX, and all the current happenings in crypto. If you missed it, you can watch it here.

It's an exciting time for the BitMEX platform. We’re in the midst of launching six new perpetual swap contracts for our traders this month, with DOTUSDT and UNIUSDT now live. Next Wednesday, we’ll list ADAUSDT - arguably the hottest Alt at the moment - and XLMUSDT. There’s definitely more to come. 

Listing the assets that matter has always been a priority for us. We think big because that’s what our users do too. It helps, of course, to always seek out different perspectives to challenge ourselves, remain creative, and stay intellectually stimulated. We have a piece for you today that fits the bill.

Here is the latest edition of Crypto Trader Digest from our co-founder Arthur Hayes.

- Alex (@AlexHoeptner)

From the Desk of Arthur Hayes

Pumping Iron


(Any views expressed in the below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)

I used to be an amateur bodybuilder. Sometimes friends who haven't seen me since university remark at how skinny I am. Twice a day workouts and protein shakes were my life during university. Bonus points for anyone who can locate photos from the annual Mr. and Mrs. Penn competitions from 2005 to 2008. The photos used to be on the internet but I can’t find them anymore.

The barbell investment strategy resonates uniquely with my past. It consists of constructing a portfolio comprised of beta to participate in the upside, and volatility hedges that compensate and eclipse losses on the downside. This strategy is the simple output of Nassim Nicholas Taleb’s musings about anti-fragility and engineering a life that exhibits positive convexity.

Managing to find cheap convexity is quite difficult. You might happen upon it by chance, only to have your vega disappear as time tiptoes forward. That is why entrusting a portion of your wealth to a skilled convexity fund manager is wise. I found such a fund, and the man in charge is a veteran OG trader. Every time I sit down for coffee with him, I feel like I’m getting bashed over the head with knowledge. I usually have to go home and brush up on my option Greeks to fully unpack the knowledge he dropped. Vanna and volga were the terms I recently googled after I got home from our latest meeting.

He is plugged into all the major dealing desks and sees structures that most retail and institutional investors will never witness. As he tells me, “we buy what the banks are selling.” The best part is, sell-side traders don’t really care about the long-term implications of the options structures they price because of an annual bonus cycle. If the bank blows up years down the line because of flawed pricing, it doesn’t matter since they got paid cash money years prior. This allows savvy vol funds to buy long-dated structures that are fundamentally mispriced. But everybody wins, so the dance continues.

In this world of central bank largess, all institutional money managers are grasping desperately for low risk yield. Therefore banks sell insurance and pension funds structured products with embedded options to enhance yield. The client is always selling volatility. The banks then have to recycle this, so they offload complex structures to sophisticated vol funds.

I routinely meet up with the fund manager to chat about his view on the markets. This sojourn to the financial fringes always leads to talk about the ways in which central bank policy is distorting the financial markets and society itself. He is steeped in our age’s economic cannon, as one of his university professors was the US Treasury Secretary Janet Yellen. He formally rejects most economic cannon as poppycock, but his understanding of how the plumbing works allows him to purchase the right long tail hedges.

Let Them Eat Cake

"In 2021, inflation is coming" – this statement is now common knowledge. Everybody knows, that everybody knows, that inflation will rise this year and into the future. As such, what will the market decide is the asset that everybody should buy to protect their portfolios from the ravages of inflation? I came into the meeting with the fund manager determined to find the answer.

After our hour-long conversation, it clicked when he said, “Arthur, you have the perfect barbell portfolio for this age— long crypto (via my interest in 100x), and long interest rate volatility via my fund. I wish I had met you 5 years ago.” 

We talked about Bitcoin for half the meeting. I asked him if he owned any, and he said no, but he tells all his clients they should own it. To him it is the purest expression of inflation because it is the one asset class that central banks are not directly or indirectly managing through their policy mandate. 

The next few thousand words will unpack our conversation, and at the end of this essay I hope you come away with the following:

  1. The cryptocurrency complex – led by Bitcoin – is the best hedge against hyperinflation because it resides outside of the mainstream financial system.  Even the best performing traditional asset will never eclipse the returns of the crypto complex during a period of inflation, simply because all assets in the mainstream financial system are manipulated by central banks so that they do not output the correct inflationary warnings signals.
  2. If policymakers decide to try to avoid the end game of hyperinflation, which has historically always been war and/or revolution, they will raise policy rates to push real interest rates into positive territory. That will crush asset values, including crypto. In this scenario, you want to be long government bond interest rates— usually via interest rate swaptions. 

Both scenarios are extreme, and the actions of global policy makers must be extreme due to the endogenous risk built up in the post WWII Bretton Woods / Petrodollar financial system. There will be no muddle through, it’s either or, and subsequently a violent whipsaw between the two modalities.

A Faustian Bargain

Our government fiat petrodollar system began in 1971 when Tricky Dick (aka President Nixon) ended the Bretton Woods system by removing the USD convertibility with gold. Then US and Saudi Arabia agreed that if Saudi priced all oil in dollars, the American military would protect the monarchy. Other OPEC nations followed suit, such that oil could only be bought and sold using USD - forcing all other nations to convert to USD on a massive scale in order to participate in what was arguably the most important market in the world at the time. The Petrodollar was born, allowing the US to retain its dominance as the world’s global reserve without having to be pegged to gold.

Unconstrained by the straightjacket of the gold standard, all currencies were suddenly floating against one another with no hard money anchor. All types of monetary folly were suddenly possible at a scale unprecedented in the history of human civilisation. With a newfound ability to set short and long-term interest rates at the extremes, central bankers of the major economies embarked on a journey to artificially control business cycles. Every time the economy wobbled, the Fed and its peers cut rates. They never let the system completely reset by forcing losses on those who profited in the boom.

The long OECD government bond has been one of the best risk adjusted trades ever since the early 1980’s. Just about every financial titan we worship today enacted a strategy that essentially levered up on long government bonds and rode them onto a 100-meter mega yacht.

“Risk Parity” is a prime example. Every time equity vol spikes, I lever up on government bonds. You can call me Ray Dalio and I’ll see you at Burning Man at 10 and Esplanade. The 2019 Roots stage was LIT. Thank you Bridgewater.

Latin Debt Crisis – drop rates to save the western banks from dodgy loans made to Central and South America.

US Savings and Loans Crisis – drop rates and guarantee bank deposits in S&L institutions that committed fraud in some cases with how they managed company and depositor funds.

Russian Debt Crisis / Asian Financial Crisis – drop rates to save western banks and hedge funds from dollar loans made to Russia and South East Asia.

Subprime Mortgage Crisis – drop rates to save the financial system from over investment in US subprime mortgage credit.

2012 Euro Crisis – drop rates to save a politically created union with a common currency but not a common government. Super Mario said he “will do whatever it takes”, and he meant it. Corzine was a bit too early in the trade; SFYL MF Global investors.

2013 Taper Tantrum   the Fed Chairman Bernanke tried to take the punchbowl away via signaling that in the future the Fed would allow its balance sheet to naturally shrink as bonds matured. The lack of a constant flow of future wampum caused yields to spike, and the Fed subsequently walked back such inflammatory language.

COVID-19 – drop rates and monetise government deficits to fiscally support the economy which governments shutdown in an attempt to halt the spread of COVID.

In many cases, these frequent financial crises were themselves caused by central bankers raising rates to normalise or beat off uncomfortably high inflation or financial asset appreciation. Raising rates causes a crisis where the remedy is to drop rates lower than before. Therefore, while all of these crises were painful, they never drove any meaningful changes to how we approach the management of our economies—and the solution to each just sowed the seeds for the next financial flare up.

Policy makers oscillate between printing money, which causes inflation, and raising rates, which causes asset losses and/or a financial crisis. 40 years of this back and forth has resulted in almost $20 trillion in zero- or negative-yield government and corporate debt, the lowest interest rates in the last 5,000 years, and the most amount of global debt ever in human civilisation…

Click here to continue reading this edition of Crypto Trader Digest

–  Arthur Hayes, Co-Founder of 100x Group (@CryptoHayes)

From BitMEX Research



London 2012 – The Second Bitcoin Conference
Abstract: In this nostalgic look back into Bitcoin’s history, we go back over eight years, to the London Bitcoin Conference of 2012. This report summarises the talks of the main speakers and tries to capture the radical anti-establishment political viewpoint which was dominant in the Bitcoin community at the time. We also describe some early precursors to technologies such as smart contracts and distributed exchanges, the main development priorities back then, plus the upbeat message given in the 2012 “State of the Coin” address.


The Growth of Bitcoin Merge Mining

Abstract: In this report we examine merge mining on the Bitcoin blockchain. In the last year or so, on average each Bitcoin block mined contains around two commitment hashes from other blockchains somewhere in the coinbase transaction, indicating that most miners are conducting multiple forms of merge mining. Currently over 90% of the Bitcoin hashrate appears to be engaging in merge mining of one type or another. There has been considerable growth in merge mining over the last few years and this may be of limited concern to some, due to the small potential security risks and increased mining centralisation pressure. Most of these risks could be mitigated away by blind merge mining, if these newer schemes are adopted.


Call Me Ishmael

Abstract: This report examines the concept of brainwallets and in which contexts they may be useful. As an experiment eight Bitcoin private keys were created, using passphrases from popular works of fiction and other media. All the funds were swept away in a short amount of time and in one case, remarkably, the funds were taken in around 0.67 seconds. The report concludes by arguing that brainwallets may not be a safe way to store coins, certainly not by using popular phrases
in published works.


Latest News from BitMEX

BitMEX Platform Hits US$1 Trillion in 365 Day Volume with Excellent Platform Performance

Trading volume on BitMEX eclipsed the equivalent of US$1 trillion over the past 365 days as we recorded two of the highest trading by volume months in our history in January and February 2021. This milestone follows the completion of our User Verification Programme in December, making the BitMEX platform the largest cryptocurrency derivatives exchange with a fully verified active user base. Over US$335 billion equivalent has been traded following the verification deadline.

Six New Altcoin Perpetual Swaps Launching on BitMEX in March

We’re introducing six new Altcoin/USDT quanto perpetual contracts to the BitMEX platform in March as we expand our product offering and list perpetual swaps for our users’ favourite coins. These will be: Cardano (ADA), Polkadot (DOT), EOS, yearn.finance (YFI), Uniswap (UNI), Stellar Lumens (XLM)

100x Group Provides Third Grant To Bitcoin Maintainer Michael Ford

100x Group is delighted to announce our continued financial support to Bitcoin Core maintainer Michael Ford. We’re proud to announce a third grant to Michael, of US$100,000, bringing our total financial support to US$250,000 over three years.

Social Spotlight

No articles in this email should be copied or reproduced in whole or in part. The information contained does not constitute research or a recommendation. 

Neither HDR Global Trading Limited nor any of its affiliates make any representation or warranty as to the accuracy or completeness of the statements or any information contained in these articles and any liability therefor (including in respect of direct, indirect or consequential loss or damage) is expressly disclaimed. This is not providing any financial, economic, legal, accounting or tax advice or recommendations. In addition, the receipt of this email is not to be taken as constituting the giving of investment advice nor to constitute such person a client of the BitMEX trading platform.

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