Who is Arthur Hayes: A TradFi Maverick and A True Crypto Enthusiast
Arthur Hayes is an American entrepreneur and banker born in 1985. He is one of the co-founders of the cryptocurrency exchange BitMEX. BitMEX is one of the world's largest cryptocurrency derivatives exchanges, offering futures, options, and perpetual contracts for cryptocurrencies like Bitcoin. Hayes and the other founders of BitMEX invented the perpetual swap contract, which revolutionized the crypto trading landscape.
After graduating from the prestigious Wharton Business School of the University of Pennsylvania in 2008, Hayes worked as a trader at a bank. Upon discovering Bitcoin, he decided to immerse himself in the forefront of the cryptocurrency revolution and founded the exchange. At one point, his net worth exceeded $1 billion, making him one of the youngest African-American billionaires in history. However, in 2022, Hayes faced legal issues when he was charged with violating the U.S. Bank Secrecy Act. He later pleaded guilty and received a six-month home confinement sentence, two years of probation, and a $10 million fine. Hayes has now moved on from his turbulent past in the United States and focuses on his ventures in Asia.
This narrative, combining multiple sources, humorously recounts Hayes's life story. His excellent education, risk-taking mindset, pursuit of high returns, and adventurous spirit have shaped the person he is today.
Early life of the financial wizard
Arthur Hayes did not grow up in poverty, but his family was not considered wealthy either. He came from a middle-class family in Detroit, where both his parents worked for General Motors. Born in Detroit, his parents sent him to a private school in Buffalo, New York, to ensure he received a good education.
During his high school years, Hayes displayed his athletic talent. He was a member of the school's tennis team and participated in cross-country running, a long-distance race held in natural outdoor environments, typically not exceeding 12 kilometers. His athletic achievements earned him scholarships, and during college, he even placed a position in the "Mr. Penn" bodybuilding competition.
Even during his college years, ambition was evident in Hayes. After getting into the University of Pennsylvania in 2004, Hayes and his friends would hit the gym at 5:30 in the morning (right next to the Wharton School of Business) to work out. In interviews with NY magazine, Hayes mentioned that during those early morning hours, they would brainstorm their future, daydreaming of becoming billionaires.
“I think he saw himself being some kind of a financial wizard — a financier, more Gordon Gekko than Mark Zuckerberg.”
I wanted to be part of the China story
Arthur Hayes was never one to follow the beaten path. With his rebellious nature, he felt that going to Manhattan or Wall Street after graduation would make him no different from his peers, lacking a fresh and exciting path. Therefore, he decided to forge his way. During his junior year summer break in 2007, he managed to secure an internship opportunity at Deutsche Bank in Hong Kong. From then on, Hayes boarded a flight to Hong Kong, embarking on his journey in Asia.
“People in Buffalo stay in Buffalo. I didn’t want to stay in Buffalo,” Hayes told the journalist. “Why do the same thing that everyone else in my class is doing? I’m going to get the same result as everybody else.”
As an intern in Hong Kong, Arthur Hayes not only focused on his work but also took on the responsibility of buying lunch for his leaders. Interestingly, he made a substantial profit by charging significant tips on each meal. In one of his blog posts, he mentioned this experience, stating that everyone in the trading department was aware of his actions and approved.
“I charged a pretty hefty spread on every order such that I made a few hundred dollars per week profit. Lest you think I acted out of line, everyone on the desk knew what I was doing, and tacitly approved. Game respects game.”
Hayes was also a club rat, which helped him secure his first full-time job upon returning to Philadelphia for his senior year. As he approached graduation, Deutsche Bank appointed several recruiters to recruit from the University of Pennsylvania. During his interview, Hayes mentioned his love for nightlife in Hong Kong, and one interviewer even asked him about the nightlife in Philadelphia, to which he offered recommendations. Eventually, after a night of revelry at the Philly House, Hayes landed his first formal job as a trader at Deutsche Bank's branch in Hong Kong.
“Fast forward, we are all drunk as fuck in a Philly house club downtown. REKT.”
Hayes' flamboyant personality was evident even during his internship. In Hong Kong, some enterprises allow employees to dress casually on Fridays. This is called Casual Friday. At the bank where Hayes interned, the same rule applied. As an intern analyst, Hayes once wore a pink tight-fitting polo shirt, acid-washed faded jeans, and bright yellow sneakers on a Friday. A senior executive passing by his desk questioned his immediate supervisor, "Who the fuck is that?" The supervisor looked up and responded, "That's Hayes." From then on, the entire department discontinued Casual Friday. Hayes was pushing the boundaries and testing the limits of acceptable behavior.
In 2013, Arthur Hayes first learned about Bitcoin. At the time, he had already left Deutsche Bank and moved to Citigroup, only to be laid off soon after. His initial encounter with Bitcoin involved buying BTC on the Mt Gox exchange, and then depositing it on the ICBIT exchange (which pioneered coin-margin futures contracts). He later sold a BTC/USD coin-margin futures contract set to expire in June of the same year at a significant price premium, making a net profit of 200% and earning thousands of dollars. This success marked the beginning of his unstoppable journey.
Back then, China had strict capital controls, leading to a notable price difference for Bitcoin between the mainland and Hong Kong. Hayes exploited this opportunity by purchasing Bitcoin at a lower price in Hong Kong and selling it at a premium in mainland exchanges. He would withdraw his profits to a fake mainland bank account, cross the border to Shenzhen by minibus, withdraw all the cash, and carry it back to Hong Kong in his backpack. These repetitive transactions raised suspicions with Hong Kong authorities, and during one border crossing, he was detained by border officials on suspicion of engaging in suspicious Bitcoin transactions. To escape trouble, Hayes had to lie and claim he was a victim of such transactions, which eventually led to his release.
Rise of BitMEX
After the collapse of Mt Gox, which once held an 80% market share, the Chinese exchanges Huobi, OKCoin, and BTC China absorbed most of the market share. Overseas exchanges like Bitfinex, ICBIT, and Bitstamp also had a presence outside the Chinese market. With intense competition, each exchange had its survival strategy. Bitfinex relied on a p2p lending market and USDT, ICBIT invented inverse futures contracts (coin-margin contracts), and Bitstamp faced the challenge of a significant theft of 5 million USD, well that doesn't count as a good example. Coinbase catered to retail customers and had just opened its doors.
Despite such a competitive market, Arthur Hayes saw his own opportunity. Drawing from his expertise in futures contracts from his time at Deutsche Bank and Citigroup, he envisioned a Bitcoin derivatives exchange targeting exclusive professional traders accustomed to Wall Street stock trading. He imagined a niche exchange would look and feel like a Bloomberg Terminal.
Alongside Ben Delo and Sam Reed, both coding experts passionate about crypto, Hayes founded BitMEX in 2014 in Seychelles. The platform only accepted Bitcoin and aimed to offer a professional trading experience similar to Bloomberg terminals for trading Bitcoin. On its first day online, BitMEX achieved a remarkable $50 million in trading volume and made more than $1 billion in income in the first year of trading.
Although online day was exciting, the initial six months were challenging for BitMEX. In the spring of 2015, Hayes considered abandoning the venture. However, he and his partners decided to differentiate themselves by offering high-risk, high-return opportunities to attract users. They decided to increase the leverage on BitMEX to 50x, allowing users to open positions up to 50 times their collateral. Later, they even raised the leverage to 100x, far exceeding competitors and turning BitMEX into the go-to platform for high-leverage traders. The success of the ultra-high leverage became BitMEX's brand core, and eventually, the parent company was renamed into 100x Group.
In a YouTube video, Hayes mentioned that there were people who offer similar types of products but are focusing on degenerate gamblers, a.k.a. retail traders in bitcoin, so why don’t they do the same? However, at that time, retail traders lacked the financial knowledge and expertise seen in the current market. Many inexperienced traders, unfamiliar with derivatives, flocked to BitMEX but found themselves unable to understand the complexities of derivatives trading. As a result, when contracts expired, they often witnessed their funds vanish inexplicably, leading to losses and frustration for these inexperienced traders.
They would message Hayes with complaints that their contracts “all of a sudden went away!” (They had expired.) Customers frequently called the founders scammers.
Indeed, it was Ben Delo who first came up with the idea of improving the product by creating a non-expiring futures contract. The goal was to address the issues faced by retail traders, providing them with a solution to their problems. The founders, fueled by this inspiration, continued to explore the concept, brainstorming ideas even in noisy bars and jotting them down on napkins.
We had an idea for how to solve this. We set about getting to work, sometimes in the unlikeliest of places – scribbles on a cocktail napkin in a raucous bar and bouncing ideas back and forth on one of the most famous hiking trails in Asia.
The result was the birth of BitMEX's greatest and most iconic innovation: the Perpetual Swap, also known as the perpetual contract. This ingenious product managed to overcome the drawbacks of traditional futures contracts, which always had expiration dates, creating a constant challenge in a 24x7 market. Instead, the perpetual contract provided a solution that combined the benefits of traditional futures contracts, allowing both long and short traders to profit from price movements without worrying about contract expiration. It became a game-changer in the cryptocurrency trading space.
Perpetual Swap, also known as Perp, is a type of futures contract that doesn't have an expiration date. It cleverly utilizes funding rates to anchor the contract price to the spot price, allowing investors to enjoy the leverage benefits of futures trading without the hassle of contract expiration and rollover. For more information about Perp and perpetual contracts, please refer to the following link: "What is a Perpetual Contract?"
Since the launch of the first perp product, XBTUSD perp, by BitMEX in May 2016, more and more exchanges have followed in BitMEX's footsteps and introduced their own perpetual products. Bybit and OKEx introduced theirs in December 2018, while FTX and Binance followed suit in October and December 2019, respectively. Interestingly, when Binance launched its futures contract testnet, BitMEX even mocked them in a tweet: Congrats on the Testnet Futures launches at Binance. Glad to see you enjoyed reading our documentation as much as we enjoyed writing it!
Indeed, although perpetual contracts didn't immediately become popular, this excellent product eventually sparked a market revolution. Today, the derivatives market has surpassed $6.6 trillion in quarterly trading volume, with perpetual contracts accounting for over 90% of it.
In 2017, BitMEX was highly successful, making a lot of money and attracting offers for acquisition. However, the founders, including Arthur Hayes, turned down a $600 million valuation from a venture capital firm, choosing to retain their equity. During the following bear market, BitMEX's platform saw increased trading activity, and they earned significant revenue. In the summer of that year, BitMEX recorded a single-day trading volume of $8 billion, resulting in $4 million in revenue for the platform.
In 2018, Hayes embraced his successful image and returned to his hometown, the United States, in style. During a famous crypto event in New York called Consensus, he drew attention when three Lamborghinis, parked illegally outside the venue. Hayes humorously referred to this as "guerrilla marketing" and admitted that it might have been a bit "gauche". The luxury cars were rented, and incurred fines of around $1,000, reflecting Hayes' flamboyant and extravagant personality.
The overnight riches made Arthur Hayes a target of envy in the Crypto community, making many people believe he easily made money. At that time, there was a joke circulating in the cryptocurrency community: "Arthur always makes money, even when nobody else does" There was also a meme where it seemed like Hayes sent a message to his company's employees saying, "Run the stops for the remaining plebs, I need a new Ferrari" sarcastically hinting at his alleged market manipulation and trading against users.
However, Hayes didn't stop showing off. In late 2018, he tweeted a photo of himself standing beside an ambulance that BitMEX donated to Seychelles. He was wearing sunglasses, which seemed quite boastful. The photo's highlight was a sticker at the bottom that read, "My other car is a Lamborghini."
The 2019 Tangle in Taipei debate is another highlight when it comes to Arthur Hayes. From a few classic quotes in this debate, you can get a sense of how audacious he can be. During the intense debate between Hayes and the well-known economist and crypto-critic, Nouriel Roubini, they clashed over Bitcoin and BitMEX.
Their appearance alone showed their opposing views: Roubini in a suit represented the traditional conservative stance, while Hayes in ripped skinny jeans represented the rebellious vanguard. In less than 10 minutes, the arrogant Hayes made shocking remarks. When asked why BitMEX was registered in Seychelles, he replied, "I didn't want to bow down and take an ass-fucking from the U.S. government just because it’s regulated." When questioned about the difference between U.S. and Seychelles regulators, Hayes audaciously stated, "It just costs more to bribe them (U.S. gov)." And what about Seychelles? "A coconut."
The Chinese saying "闷声大发财" (meaning "Silence leads to wealth") seems to be quite the opposite of Arthur Hayes' approach. His excessive showboating and constant testing of dangerous boundaries have led him to make numerous enemies. After the 2019 Tangle in Taipei debate, he faced increasing backlash, including from the U.S. government.
Just one week after the show, on July 19, 2019, the U.S. Commodity Futures Trading Commission (CFTC) initiated an investigation into BitMEX, suspecting the exchange of providing trading services to U.S. users. According to U.S. laws, BitMEX, registered in Seychelles, is not allowed to offer services to U.S. users. The U.S. government was not pleased with this "hippy" who threatened its authority and disregarded the law, which is reminiscent of Jack Ma's outspokenness leading to Ant Group's failed IPO at a summit.
In less than a day, BitMEX experienced a massive net outflow of Bitcoin, totaling $73 million. Throughout the entire month of July, BitMEX's net outflow of BTC exceeded $500 million, reaching an all-time high and surpassing the previous record of $100 million in a single month.
Following these incidents, BitMEX faced a series of challenging problems. On November 1st, a large number of user email addresses were accidentally leaked, leading the situation to spiral out of control. Shortly after, hackers gained access to BitMEX's Twitter account and posted two mocking tweets: "Take your BTC and run. Last day for withdrawals," and "Hacked." These tweets were quickly deleted. Moreover, the hackers even created a new Twitter account and continued to leak user IDs and email addresses. However, BitMEX maintained that the funds were safe, trying to project a sense of security amid the chaos.
Mounting Regulation Begins
In 2020, BitMEX found itself embroiled in yet another legal battle. On May 16th, BitMEX was sued by BMA LLC (Bitcoin Manipulation Abatement), a company from California, accusing BitMEX, along with its executives including Hayes, of money laundering, fraud, and operating an unlicensed cryptocurrency exchange, among other criminal activities. The plaintiff emphasized that in 2019, approximately 15% of BitMEX's trading volume, around $138 billion, came from US users, claiming it to be the "highest record of illegal trades in the US."
Despite the lawsuit, BitMEX continued to face further troubles, including the shutdown of services in Japan and server outages.
However, the plaintiff had limited options to go after BitMEX since the exchange was deliberately registered in Seychelles to evade US regulations. BMA could only rely on customer email information to indirectly prove BitMEX's operations in the US, but the evidence was deemed insignificant. One of BitMEX's employee responses to this situation was defiant, using the fact of being registered in Seychelles to mock the plaintiff, indicating that they remained audacious in the face of challenges.
Unfortunately, the government decided to take serious action. Since the emergence of Bitcoin after the 2008 financial crisis, it has clearly raised concerns among governments worldwide. Whenever a crypto bull market arrives, central banks of various countries become afraid that Bitcoin might disrupt their financial systems, especially during the pandemic year of 2020. From MicroStrategy's aggressive accumulation of BTC to the Nigerian government's fear of losing control after its citizens invested $140 million in Bitcoin, leading to the ban of cryptocurrency transactions, and even to the high-profile actions of Elon Musk selling Tesla stocks to acquire Bitcoin – all these events sent signals that made the Federal Reserve feel extremely uneasy.
At this opportune moment, Hayes was drawing a lot of attention with his extravagant lifestyle, sudden wealth, and his race, making him the perfect scapegoat. He was young and flamboyant, became rich overnight, and engaged in controversial activities. It seemed like the ideal target for them.
In October 2020, as a new crypto bull market began, Hayes and two other BitMEX founders were jointly charged by the U.S. Department of Justice DOJ and the CFTC with similar accusations as before: BitMEX, without being registered in the United States, had a substantial number of American customers and was suspected of engaging in illegal money laundering activities, thus violating the 1970 Bank Secrecy Act, also known as the Currency and Foreign Transactions Reporting Act. Consequently, BitMEX became the first cryptocurrency exchange to be prosecuted for violating the Bank Secrecy Act.
The reason Hayes was targeted was that during his dealings with the CFTC earlier, he did not provide his clients' information as requested. According to reports, within 48 hours of the CFTC's lawsuit, over 45,000 BTCs were withdrawn and flowed to other exchanges.
Upon the incident, Hayes acted swiftly and resigned from his CEO position. He, along with Reed and Delo, jointly established the new entity, 100x Group, to manage BitMEX in a more secure manner. The new CEO, Alexander Hoptner, expressed readiness to face the prosecution.
Reports indicated that on the day of Hayes' resignation, BitMEX suffered a loss of approximately $400 million in user deposits, signaling a significant setback for the platform.
Surrender in Honolulu
On April 6, 2021, a private jet from Singapore slowly landed in Honolulu, Hawaii. Hayes was dressed in a casual T-shirt when he was arrested at the airport. FBI agents boarded the plane and verified his fingerprints and saliva. Then, wearing a bulletproof vest, the agents handcuffed Hayes and escorted him to the Court. This was Hayes' first visit to the United States since 2018, but it was a far cry from the time when he was driving a Lamborghini in New York.
Although Hayes turned himself in, he did not plead guilty in court, which was considered the best decision following his lawyer's advice. He was determined to fight back. Back in March, another co-founder, Ben Delo, had already surrendered to the Court in New York, also without pleading guilty. After Hayes' team paid a $10 million bail, he was detained and isolated for over a dozen days. Finally, after resolving a series of issues, Hayes boarded a flight back to Singapore and stayed there during the pandemic. Several months later, in August, BitMEX ultimately settled with the CFTC, agreeing to pay a fine of $100 million, seemingly avoiding more severe consequences.
Another founder (the Java programmer) Reed's situation was indeed more unfortunate. He was arrested in October while living in the suburbs of Boston, with his wife and three-month-old child. According to media reports, in the early morning at 6 a.m., over a dozen FBI agents and armed police officers forcefully banged on the door with guns drawn, handcuffing him to a chair. Subsequently, Reed was taken to a federal building downtown and detained in a damp, dark basement for a grueling ten hours, even with his ankles shackled.
In the end, whether due to the terror of prison life or for other reasons, Hayes eventually surrendered and admitted his guilt. In February 2022, Hayes and the other two co-founders pleaded guilty in court, acknowledging their "flouting" of the Bank Secrecy Act and failure to implement anti-money laundering provisions. They agreed to pay $10 million in fines each. The federal prosecutors in the Southern District of New York told the court that BitMEX was a "vehicle for money laundering and other criminal activities," engaging in over $200 million of suspicious criminal transactions, and failing to report any of it to the government. The prosecutors claimed that at one point, Hayes unfroze an account linked to suspected hackers, allowing them to withdraw assets that were suspicious to be stolen bitcoins. They further asserted that due to the company's lack of requirement for traders to provide account verification details, "the full scope of criminal conduct on BitMEX will never be known."
The attorney of DoJ Damian Williams said: "Arthur Hayes and Benjamin Delo built a company designed to flout those obligations; they willfully failed to implement and maintain even basic anti-money laundering policies."
Given the presented evidence, the prosecutors requested the court to impose severe penalties. Hayes himself attempted to show some remorse, stating, "While I have much to be proud of in terms of the accomplishments of BitMEX, I deeply regret that I had a part in this criminal activity." Additionally, his friend, Mike Novogratz, the current head of Galaxy Investment Partnership, testified in his favor, saying, "It should not be lost on anyone that Arthur is a young, successful black man in a country and industry that needs more of them,"
In May, the judge stuck to the lower bound of the sentencing guidelines and avoided incarceration entirely.
Shit Happens. Move on.
According to media reports, in 2022, Hayes was held in a luxurious three-bedroom suite on South Beach in Miami (which he owned), having a huge balcony with a panoramic view of Biscayne Bay. From here, Hayes could admire Miami's skyline, feel the sea breeze, and engage in daily activities such as yoga, workouts, basketball, and swimming (as he described, he was allowed a few hours of outdoor exercise every day). He even had fans recognizing him when he went out to buy coffee. Hayes has a passion for writing and rented a nearby WeWork office to handle work-related tasks and engage in writing. Occasionally, he would dine out and meet members of the local crypto-native community.
However, it is still evident from many aspects of his life that Hayes harbors a strong aversion towards the United States. Although his confinement there may seem like a vacation on the surface, he was actually very anxious and worried about getting kidnapped. "I’m more concerned about security in the U.S. because people have guns here," he said. He is even sensitive to the point of taking out his frustration on small insects like mosquitoes.
Hayes feels that the reflecting pool at the ground level is a "waste of space" due to the abundance of mosquitoes and midges, and he complains, "In Singapore, they kill the bugs." In the reports, he also listed many superficial shortcomings and complaints of the United States, such as the significant jet lag with other countries and the perceived unpalatable American food. His animosity towards the United States permeates to a deeper level of cultural aversion.
"I don’t plan on being back in the U.S. pretty much ever," he said, "I'm gone." making it clear that he has no intention of returning to the country.
Fast forward to early 2023, and Hayes has been playing in Hokkaido for a while. He prefers to ski alone, in neon-hued gear, enjoying the peace of a solitary chairlift. According to his self-report, we can feel that he has indeed laid down a lot: "I don’t know if I have an overarching vision for the future. It’s just, like, Survive. Don’t lose people’s bitcoin."
A bold young man with a top-tier education takes on a few years as a trader before launching a crypto exchange, quickly ascending to a billionaire. He dazzles on Twitter, emerging as the foremost figure in the insurgent industry. He attracts your attention even if you are not familiar with bitcoin. Yet, perhaps due to hubris, he starts to make mistakes. Despite residing overseas, the U.S. government becomes aware and issues an indictment of his violating the law. He negotiates the conditions of his return to the U.S., eventually yielding to federal authorities, confronting multiple felony charges. The change impacts both him and the crypto industry irreversibly.
Although the story may ring a bell, the tale is not of the notorious Sam Bankman-Fried. It is also about Arthur Hayes, a successful wealthy black young man who appeared earlier than Sam in crypto industry.
They also have so many differences in their life: SBF was a white little kid from a privileged level, and Hayes was a Black kid from Detroit. SBF always appears a disheveled figure, looking like immersed in a 20-hour daily computer regimen, while Hayes looks sculpted and self-disciplined.
The most significant distinction is: while SBF is believed to have effectively stolen billions of dollars from ordinary people, Hayes, on the other hand, has managed to remain free from accusations of improper appropriation, dishonesty towards his clientele, or engaging in unethical business practices.
Alright, that's the end of today's story. You guys should have learned what you want to learn here. We'll see you in the next episode.
What else do you want to learn?