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Arthur Hayes: Fiat LiquIdity and AI Boom to Bring Investors Double Happiness

Crypto expert and former CEO of BitMEX, Arthur Hayes highlighted in a recent essay that a bull market in fiat liquidity, combined with an Artificial Intelligence (AI) surge, is poised to bring double happiness to investors.

The Fiat Liquidity Boom

Hayes’ theory is grounded in the actions of major Central Banks, including the US Federal Reserve, the People’s Bank of China, the Bank of Japan, and the European Central Bank (ECB). These financial giants, he argues, are poised to print more fiat currency in the next 2-3 years than ever before in human history.

The objective is to salvage their government bond markets and stave off economic turmoil. Governments throughout history have often resorted to printing money when facing overwhelming debt and stagnant productivity. This approach has ultimately led to the debasement of their currency and contributed to their decline.

The 1920s saw the commercialization of technologies developed during World War I, such as radios, while the aftermath of the 2008 Global Financial Crisis witnessed a surge in investment in Web 2.0, advertising, social media, and the sharing economy.

The current economic landscape is no exception, and the numbers are staggering. As prominent figures like Felix Zulauf, Jim Bianco, and Raoul Pal have pointed out, the world is accumulating an insurmountable debt pile. It’s only a matter of time before bondholders, from banks to individuals, seek alternative investments as government bonds yield negative real returns.

Arthur Hayes on AI Boom

But what sets this cycle apart from its predecessors is the destination of this newly minted fiat currency. Hayes predicts that the torrent of money will flow into the hands of technology companies, particularly those in the burgeoning field of AI. Just as previous fiat liquidity bubbles gave rise to Web 2.0, social media, and sharing economy startups, the current cycle is expected to see a massive influx of capital into AI-related ventures.

The fascination with AI stems from the possibility of astronomical returns. AI tech startups with sufficient investment and traction can attain profit margins close to 100%. This, Hayes believes, will render traditional banking systems obsolete for these successful AI firms. As a result, investors are eager to find the next Alphabet Inc’s (NASDAQ: GOOGL) Google, Amazon Inc (NASDAQ: AMZN) Microsoft Corp (NASDAQ: MAFT), or ByteDance equivalent in the AI sector.

The rush of capital into AI has already begun, but Hayes predicts it will escalate significantly as the global money supply continues to expand exponentially. While critics may point to past predictions and suggest that this time may be no different, Hayes remains focused on the long game.

Hayes highlighted that he buys assets today that he believes will surge in value, even if the market does not immediately respond in kind. His strategy is to ride the 2023-2026 cycle and reap the rewards later.

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Arthur Hayes: Fiat LiquIdity and AI Boom to Bring Investors Double Happiness