Why Don’t Bitmex’s Arthur Hayes’ and Ethereum Get along?

BitMEX founder Arthur Hayes has recently been in the news as a high profile antagonist of ether, going as far as describing it as a “two-digit shitcoin.” Some have accused him of using his platform to encourage users to short the number two cryptocurrency. So, what exactly is Hayes’ problem with ether and what is likely to happen going forward?

“Speculative Investment”

In a post on the BitMEX blog, Hayes recently recounted a 2017 holiday in Thailand where he says he was accompanied by “one of the best shitcoin traders in the game.” Riding the auto rickshaw back to the hotel, Hayes said he noticed the driver wearing a “pepe Frog” hat, which his partner took to signify a coming surge of popularity of Pepe Coin (MEME). According to Hayes, the investment in the then-unusual crypto asset turned out to be a successful bet in 2017.

According to Hayes, this short exchange illustrated the utter ludicrousness of the Ethereum-fuelled ICO boom of 2017 where all sorts of projects – useful or otherwise – received large amounts of funding, leading to the entrance of poorly-prepared VC hedge funds placing bets on a plethora of ICO projects. In his words:

“The real profit in 2017 was made by Ether holders, shitcoin projects, and promoters. The seed capital for many of the venerated crypto hedge funds emanated from outsized returns on holdings of Ether and token projects. Jealous traditional VCs transformed portions of their funds into poorly designed hedge funds so that they too could punt shitcoins. Everyone piled into the same deals, all thinking they ‘got it.’ That worked well all of 2017.”

The way Hayes sees it, VC funds have not actually realized the fantastic profits they assumed from the 2016 and 2017 ICO market, and they are woefully unprepared to handle any market losses. He believes that a large number of ICO projects have not in actual fact sold vast portions of their ETH holdings, which raises the specter of an impending exit rush that will exert immense downward pressure on the asset’s price.

Hayes excoriates VC investors who took part in the Ethereum-based ICO boom of 2016 and 2017, stating that their preferred model is to “mark to fantasy, show amazing returns on paper, and get paid.” In his view, the use of fundraising rounds as the sole secondary market validation of VC ICO investments is effectively a market manipulation game keeping ether artificially valued.

After using the ICO boom to artificially enhance their investment portfolios over the past couple of years, the market’s current state, where less funding was raised last month than at this point in 2017, will lead inevitably to an exit rush as a few VCs begin to realize that shitcoins are not coming back again.

Concluding this line of argument he stated:

“[VCs] will attempt to be a Monday morning quarterback, and that only adds to the VC investors’ anxiety. At a certain point, they go ‘fuck it,’ and dump everything they can. It is this moment, that Ether goes from a 3-digit to a 2-digit shitcoin.”

Shorting Ether?

In a subsequent post using an official BitMEX account, Hayes doubled down on his description of Ether as a “shitcoin,” adding for good effect that BitMEX now offers enhanced leverage for betting on Ethereum’s price using the platform’s popular crypto derivatives.

Many market participants, however, did not take kindly to Hayes’ shots at Ethereum. Popular Ethereum advocate Eric Conner said in a tweet:

“Why is the founder (@CryptoHayes) of one of the largest crypto exchanges (@BitMEXdotcom) telling his customers to short ‘that shitcoin named Ether’?’ Seems like blatant market manipulation.”

Hayes, on his part, is convinced that ether is not only destined for a substantial fall but that the fall will be systematic and far-reaching, due to what he describes as “investment centralization” generated from the monopoly of accredited investors.

The circle of ICO investors, which has shrunk substantially from open-market numbers to just a few dozens after the SEC’s saber-rattling on security token sales, is itself a problem for Ethereum because of how the financial industry works.

Hayes explains that despite the deep pool of funds accredited investors can offer, their sheer similarity to each other makes it inevitable that at the first sign of ERC-20 token dumping by one major investor, the rest of the investment pool will immediately follow suit due to fear of being left in a losing position while betting against the market.

Once this happens, Ethereum’s existence as a top level coin is finished, as a mass-market selloff of Ethereum assets – and eventually, ether itself – by the relatively small number of accredited investors holding most of the assets will take place, crashing Ether into the two-digit region.

Whether Hayes’ predictions for the future value of Ethereum will come to pass remain to be seen. What is known for now, however, is that the former Deutsche Bank and Citigroup trader is decidedly not a fan of Ethereum.