Crypto Pioneer Arthur Hayes Brings Attention To Capital Flight From China: 5 Things To Know

Crypto Pioneer Arthur Hayes Brings Attention To Capital Flight From China: 5 Things To Know

capital flight

Arthur Hayes interview with Scott Melker, The Wolf Of All Streets Podcast, YouTube, Dec. 11, 2022, https://www.youtube.com/watch?v=8SfI5Mum_VA&t=1551s

Arthur Hayes, the co-founder of the BitMEX crypto exchange with a passion for Bitcoin, brought attention to capital flight from China in a recent Twitter thread, expressing his hopes that some of the money that has left the country “finds its way to Lord Satoshi and $BTC”.

At its height in 2019, BitMEX was worth billions of dollars, and it had a controlling market share in crypto-derivatives trading, moving $1 trillion worth. 

The Seychelles-based exchange is not regulated in the U.S., so it’s not available to U.S. residents or citizens. 

A graduate of the Wharton School of Business, Hayes started small, buying Bitcoin in one market and selling it in another at a premium. He and his partners created the Bitcoin Mercantile Exchange (BitMEX) in 2014, which described itself as offering leveraged contracts bought and sold in Bitcoin.

The former CEO of BitMEX, Hayes reportedly became the youngest Black American crypto billionaire in history.

In 2022, Hayes pleaded guilty to U.S. Bank Secrecy Act violations and was sentenced to six months of home detention, two years of probation, and a $10 million fine.

“His fortune fluctuates from hundreds of millions of dollars into the neighborhood of a billion, depending on prices, and he is investing it in a variety of ways,” New York Magazine reported in February 2023. “His family office, Maelstrom, has made between 10 and 20 investments in private companies, including a ‘meaningful’ stake in a robotic-sex-doll startup.”

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China’s currency has been slammed

China is seeing its biggest flight of capital in years, exacerbated by an ailing property market and slumping exports. Its currency has been slammed on all fronts as money leaves its financial markets, global companies look for China alternatives and overseas travelers stay away in droves, Bloomberg reported.

Hayes encouraged his 394,000 followers in a Sept. 19 Twitter thread to follow the money when it comes to China capital flight.

“Something is going on because $CNY has depreciated almost 15% YTD,” Hayes tweeted. “I asked Andrew Collier a china researcher what the best metric would be to quantify possible capital flight. He said to look at the difference between China intl net export earnings and the official foreign reserves.”

Capital flight: $520B has left China ‘to do something’ Hayes says

Year to date, China foreign reserves increased $32.407 billion but total next exports are $553.253 billion, Hayes wrote. “That means there is $520.846bn in money that has left China to do something.”

Some possibilities, Hayes suggested, are that China is buying a lot of gold, China is paying down U.S. dollar offshore debt of its banks and corporates, and “some wealthy comrades are fleeing the coop.”

Disappearing Chinese tech and business entrepreneurs (and their money) role in capital flight

The tendency for some high-profile Chinese tech and business entrepreneurs to disappear is unsettling for investors in the communist country, Financial Times reported. A Europe-based lawyer who works with wealthy Chinese families told FT that the business elite was worried about their safety and rumors of a wealth tax.

A December note from Goldman Sachs’ said that some Chinese entrepreneurs have stepped back from their roles at companies in recent years. These include Jack Ma of Alibaba, Colin Huang of Pinduoduo, Richard Liu of JD.com, Zhang Yiming of TikTok parent company ByteDance, Pan Shiyi and Zhang Xin of Soho China and Wu Yanjun of Longfor Group.

Former Australian prime minister and China expert Kevin Rudd said in a speech that some of China’s most successful entrepreneurs were voting with their feet. An economist in Hong Kong at a multinational bank told FT, “In the past, we saw money move first. Now people are trying to move. First the billionaires. Now the millionaires.”

China is not buying U.S. Treasuries, Hayes says

Bloomberg reported that China showed an August outflow of $49 billion in the capital account — the largest since December 2015. The exodus was set off by faltering growth in the world’s No. 2 economy and a widening interest-rate gap with the U.S. helped push the yuan to a 16-year low. Foreign investors’ ownership of Chinese sovereign bonds fell to a four-year low in August, while they ditched a record $12 billion of mainland shares in the month. Direct investment hit a $16.8 billion deficit in August, the worst since early 2016. The country’s covid restrictions and crackdown on the private sector kept investors away since mid-2022. And the number of China residents traveling overseas has outpaced the amount of visitors to the country.

“Most importantly what China is not doing is: BUYING MORE US TREASURIES!!!!!” Hayes tweeted. “As long as the $JPY (Japanese yen) weakens, the $CNY must weaken so that Chinese exports remain competitive vs. Japan. Wherever the Chinese capital is going, it will keep going in SIZE. I hope some finds its way to Lord Satoshi and $BTC”.

Hayes predicts a lower demand for U.S. assets

In an April 2023 blog post, Hayes told his 394,000 followers that he predicts a time when there are “various currency blocs, but no global reserve currency hegemony” and “there will be less demand for US financial assets,” which would set up Bitcoin for a key role.

“Do not let the financial media present this as an either/or decision between the dollar and the yuan. Do not let the lap dogs of the empire convince you that due to certain ‘deficiencies’ in the Chinese economy, there is no currency ready to dethrone the mighty dollar. They are playing at misdirection – in the coming years, the world will conduct trade in a multitude of currencies, and then save when needed in gold, and maybe sometime in the near future, Bitcoin,” he wrote.