Arthur Hayes’ Crypto Winter Strategy: Earning 20% Yield While Waiting for the Bull Run

The crypto winter is here, and while many investors are running for cover, some seasoned veterans are strategizing on how to not just survive, but thrive. Among them is Arthur Hayes, the Co-Founder and former CEO of BitMEX. In a recent statement, Hayes revealed his approach to navigating the bear market: earning a substantial yield while patiently waiting for the crypto bull to return. Let’s dive into Hayes’ strategy and see what we can learn from his playbook.

Riding Out the Crypto Winter: Hayes’ Perspective

Hayes, known for his insightful market analysis, isn’t trying to predict the exact bottom of the current cycle. Instead, he’s focusing on a longer-term view. He acknowledges the impact of credit contraction and forced selling in the market but believes the tide will turn when central banks, particularly the US Federal Reserve, pivot back to expansionary monetary policies.

He stated:

“I’m not sure if $15,900 was the bottom of this cycle… I expect the Fed to activate the printer bank, and then Bitcoin and other risk assets will skyrocket.”

But while waiting for this potential shift, Hayes isn’t sitting idle. He’s actively seeking opportunities to generate yield in the current market conditions. This brings us to the core of his strategy: earning significant returns while positioning for the next bull market.

Unveiling Hayes’ Crypto Investment Strategy: Earning Yield in the Bear Market

So, how exactly is Hayes planning to “earn a yield” during this crypto winter? His strategy revolves around identifying specific types of cryptocurrencies and protocols that offer attractive returns even in a downturn. Let’s break down the key components:

• Bitcoin and Ether-like Beta: Hayes is interested in cryptocurrencies that exhibit price movements similar to Bitcoin and Ether. This means they tend to rise when the overall crypto market rises, offering exposure to the broader market upside.
• Revenue Generation for Token Holders: Crucially, the assets he targets must generate revenue that is distributed to token holders. This is the source of the yield he’s seeking.
• High Yield Target: Hayes sets a high bar for yield, aiming for significantly more than the 5% he could earn from traditional Treasury bills. He’s targeting returns closer to 20% annually.
• Focus on Price-to-Fee Ratio: To achieve this high yield sustainably, Hayes looks for projects with a low Price-to-Fee (P/F) ratio. This metric essentially compares a project’s market capitalization to the fees it generates, indicating potential undervaluation.

In essence, Hayes is looking for undervalued crypto projects that are actively generating revenue and sharing it with token holders. He sees this as a way to earn substantial returns while waiting for the broader market to recover.

Diving Deeper: Tokenomics and Protocol Selection

Hayes emphasizes the importance of tokenomics – the economic incentives and mechanisms built into a cryptocurrency’s design. He highlights that simply earning revenue isn’t enough; the revenue needs to be effectively distributed to token holders.

He points out that some protocols are better at this than others, with some distributing the majority of their revenue directly to token holders. This focus on revenue distribution is crucial for identifying projects that can provide sustainable yield.

Hayes notes that the 2022 crypto credit crunch has created unique opportunities. The market downturn has impacted even fundamentally sound projects, leading to depressed prices and potentially attractive entry points.

As Hayes explains:

“Investors rejected both good and bad projects as they sought fiat to repay loans. As a result, many of these projects have truly bombed in terms of price-to-fee ratio.”

This “bombing” of price-to-fee ratios is precisely what Hayes is looking to capitalize on. He sees this as a chance to acquire tokens of solid protocols at discounted prices, positioning himself for both yield and potential capital appreciation in the future bull market.

Examples in Hayes’ Portfolio: GMX and LOOKS

While Hayes doesn’t explicitly list all his holdings, he mentions “Superpowers like GMX and LOOKS” as examples in his portfolio. Let’s briefly understand why these projects might align with his strategy:

• GMX: A decentralized perpetual exchange on Arbitrum and Avalanche. GMX generates fees from trading activity, and a portion of these fees is distributed to GMX token stakers. This aligns with Hayes’ criteria of revenue generation and distribution to token holders.
• LOOKS: A community-first NFT marketplace that rewards traders, stakers, and creators. LOOKS also generates fees from marketplace activity, with a portion distributed to LOOKS stakers. Similar to GMX, it fits the model of revenue-generating protocols.

These examples illustrate the type of projects Hayes is targeting: DeFi protocols that offer real utility, generate revenue, and share that revenue with their token holders.

Why Not Just Bitcoin or Ether? The Yield Factor

You might wonder, why not simply hold Bitcoin or Ether? Hayes addresses this directly. While he acknowledges their potential for price appreciation, he points out that they don’t offer significant yield in themselves.

He states:

“I could buy Bitcoin or Ether, but neither provides a sufficient return. If I’m not getting enough yield, I’m hoping for a huge fiat price appreciation when the market turns.”

Hayes’ strategy is designed to bridge the gap between potential price appreciation and current market conditions. By focusing on yield-generating assets, he aims to earn returns even if the market recovery takes longer than expected. This “yield while you wait” approach is a key differentiator of his strategy.

Ethereum’s Enduring Dominance: Hayes’ Perspective

Beyond specific token selections, Hayes also offers his perspective on the broader crypto landscape. He believes Ethereum ($ETH) is likely to remain the leading smart contract platform in the next bull cycle.

He argues that while metrics like transactions per second are important, they don’t tell the whole story. Ethereum’s strength lies in its vast developer community.

According to Hayes:

“Ethereum is now unrivaled. Transactions per second and other metrics do not tell the whole story. Developer ability… Ethereum has thousands of developers. Only a few hundred will be significant in the next blockchain. This ecosystem is built by developers.”

He believes that the network effects and developer ecosystem built around Ethereum give it a significant advantage over competing blockchains. This suggests a continued focus on the Ethereum ecosystem within his investment strategy.

Survivorship Bias and Identifying Future Winners

In another interview, Hayes touched upon how he identifies potential winners for the next bull cycle. He suggests leveraging “survivorship bias” – focusing on assets that have already demonstrated resilience and market presence.

His approach is pragmatic:

“Will a top 20 market cap asset survive the next cycle if it is down 95%? Can it last two years? How much did they raise? If so, buy it… when crypto recovers and the next cycle begins, everything that fell the most will rise the most due to the path dependency of how returns work.”

This strategy involves identifying established projects that have fallen significantly in value but have the resources and community to weather the bear market. The logic is that these projects are likely to rebound strongly when market sentiment improves.

Key Takeaways and Actionable Insights from Hayes’ Strategy

Arthur Hayes’ crypto winter strategy offers valuable insights for navigating the current market. Here are some key takeaways and actionable points:

• Focus on Yield: Explore DeFi protocols and cryptocurrencies that generate real yield for token holders.
• Look for Undervalued Assets: Identify projects with low price-to-fee ratios, potentially indicating undervaluation due to market downturns.
• Prioritize Tokenomics: Understand how revenue is distributed to token holders and favor projects with sustainable tokenomics.
• Consider Established Projects: Explore top market cap assets that have fallen significantly but have strong fundamentals and communities.
• Ethereum Ecosystem: Recognize Ethereum’s dominance and explore opportunities within its ecosystem.
• Manage Risk: Remember that investing in crypto, especially during a bear market, carries significant risk. Diversification and careful research are crucial.

Conclusion: Positioning for the Next Bull Run

Arthur Hayes’ crypto winter strategy is not about predicting market bottoms or timing the perfect entry point. It’s about strategically positioning oneself to benefit from the eventual market recovery while earning substantial yield in the interim. By focusing on revenue-generating protocols, strong tokenomics, and undervalued assets, Hayes is demonstrating a proactive approach to navigating the crypto winter and preparing for the next bull run. While his strategy involves risk, it also highlights the potential opportunities that emerge in bear markets for those willing to do their research and think long-term.