When Arthur Hayes became a billionaire, there was no applause. There was no forbes article nor was there a loud cheer from our community. The former Investment banker with humble beginnings, and founder of the world’s biggest crypto margin trading platform, The Bitcoin Mercantile Exchange (Bitmex), is instead currently in hiding as he faces persecution by the US Department of Justice. He was the CEO and face of the company until October 2020, when the Commodity Futures Trading Commission of America (CFTC) declared Mr Hayes and his partners as conspirators in breach of the Banking Secrecy Act. They accused him of illegally operating a Cryptocurrency Derivatives Platform and included Anti-Money Laundering Violations. His actual crime, however, is that he refused to allow the CFTC to obtain the account information of all of Bitmex’s customers. As of the latest valuation Mr Hayes is estimated to be worth $3.6 billion and his company has facilitated the purchase of over $1 trillion in cryptocurrencies. In this article I will tell Mr Hayes’ story, and will explain why he is being targeted as a deterrent to crypto titans looking to stand up to regulators and the status quo.
How Humble Beginnings Shaped a Diamond
Arthur was born in 1985 Detroit, America (he is currently 35). According to a report by Vanity Fair, he is the son of two middle class African Americans who worked for General Motors. Their occupations meant he spent the majority of his youth between Buffalo and Detroit, their fortunes were heavily dependent on the company which was struggling. He was educated after his mother “moved mountains” to help him get a place at the prestigious private school ‘Nichols School’. He excelled in this environment becoming a sports star, top student and building the connection network crucial to his business. His mother said : “Nichols gave him the setting, the stimulation, and at one point, the scholarship to thrive.” In return he now sponsors scholarships for young black and talented children like him so they may also benefit in the way he did.
He was admitted on a scholarship to the prestigious University of Pennsylvania, Wharton School of Business which produced the most billionaires of any university in the world (18) with Elon Musk, Warren Buffet and Donald Trump included. He was awarded a graduate scheme contract at Deutsche Bank where he worked in the London office before moving to Hong Kong. Hayes was picked up by Citi Bank where he worked as a market maker for Exchange Traded Funds. Exchange Traded Funds are a security you can purchase made up of a collection of stocks in a specific underlying industry such as FANG, a compilation of high income tech stocks Facebook, Apple, Netflix, Google. A market maker holds the shares which they anticipate investors will attempt to buy and sell ensuring market liquidity is maintained and trades can be made instantly. This is one of the most complex roles in investment banking and Mr Hayes became a specialist in the mathematics of large financial exchanges . Despite this, around the time of the European recession in 2013 he was let go, struggling to find work he suddenly got an email from a friend about crypto.
Mr GQ of Crypto
After taking his time and researching the mechanics of crypto currencies he partnered with Oxford Educated Mathematician / Software Developer / Philanthropist Ben Delo and Experienced Programmer / Crypto enthusiast Samuel Reed (Both of his colleagues were also indicted and Reed paid bail of $5 million in November). They looked to build the best peer-to-peer trading platform to compete directly with Coinbase, Binance and Coinmama. They built a complex system using leveraged contracts, quanto futures and perpetual swaps. This allows users to trade Bitcoin as they would be able to trade any other derivative, as he said in 2015 : “I wanted to create a more professional exchange for people to trade Bitcoin, when I started trading in 2013 there was nothing like this”. Operating as a market maker Bitmex holds Bitcoin on behalf of companies which fear accepting the cryptocurrency on their balance sheet or method of payment exposes them to the risk of price volatility. After building one of the most complicated trading systems globally, investors flooded the Bitmex exchange. On its first day they made $50 million in trading and made more than $1 billion in income in the first year of trading (as stated in the indictment).
“We’re moving from an analog society in terms of money transfer to a digital one, that’s going to be hugely disruptive. And I saw a chance with Bitcoin and crypto to actually create a company that could benefit from this hugely chaotic transformation. And the great thing about Bitcoin is it’s permissionless.There’s a piece of software; me and my co-founders saw we had a business model; we didn’t have to ask permission to build this, and what other industry could three guys go and try to build an exchange that does billions of dollars a day turnover” – Hayes in an interview with the Forkast podcast in August, 2020.
When named in the Fortune Ledger 40 under 40 list, they noted he is the only titan in the Crypto industry who does not own any Bitcoin himself. Mr Hayes built his company purely focused on building a complex mathematical system that will ensure the security and efficiency to each customer. Besides his remarkable genius, Mr Hayes’ bold features and hardened physique have built him a cult following as the Mr GQ of crypto. It is said he regularly turns up to interviews in all plane clothes aside from a signature timepiece, usually a Hublot. Mr Hayes would post in depth about his lifestyle shortly before his disappearance off twitter with, under the name @cryptohayes. He is also heavily immersed in asian cuisine, having worked in Hong Kong during his early career. He spends the majority of his time on social media posting his favourite dishes, gym memes and the latest crypto growth statistics. The attention is not all desirable as his site has been one the most targeted by hackers.
Why the Department of Justice want to destroy him
In 2008 Bitcoin founder Satoshi Nakamoto created the technology for the purpose of building a new financial system which could not be controlled and manipulated by the hedge funds of wall street. During the 2008 market crash millions lost jobs and suffered while not a single wall street executive was held responsible. Bitcoin’s blockchain ledger technology ensures the system cannot be used to manipulate money and holds every individual accountable for their actions. Due to the complexity of cryptography only the original user can access his/her account (read this story on a man who lost $250 million in crypto). This has caused fear from Central Banks who believe the demand in cryptocurrencies will destroy the value of their national currencies. A few days ago Nigeria declared a ban on the purchase and trade of crypto currencies after Nigerians purchased $140 million worth of crypto in 2020. Yesterday Elon Musk declared Tesla will invest $1.5 billion in crypto, after reports of big institutions like Harvard University were transferring part of its balance sheet into crypto (here is a video on how you could do that for your company).
Today no one knows the exact location of Arthur Hayes, authorities believe him to be operating in Asia but with his social media presence has halted, there is no way of telling. The charges brought by the US Department of Justice (detailed in the case United States vs Hayes et al ) highlight the group’s refusal to register the company in the US; despite having ‘thousands of US based customers’, as the main violation of basic compliance standards. The CFTC charged him with the two aforementioned counts of ‘illegal operations’ and enabling money laundering activity under the Bank Secrecy Act. Bitmex is the first crypto exchange to be charged under the act and is the only case since. Hayes is believed to be facing up to 10 years in jail for his crimes. This is reportedly part of a campaign by regulators to promote new laws enforced on crypto exchanges (though, I mention again, yet to be enforced on any other major trading firm). The laws require all transactions above $10,000 must be reported as Know Your Customer (KYC) data. After stepping down as the CEO of Bitmex in October, Hayes and his co-founders created the holding company 100x Group to manage the operations of Bitmex. Recently Alexander Hoptner was appointed CEO to replace Hayes as Bitmex lost $400 million in deposits the day Hayes stepped down. Hoptner argues the company is looking to face the DOJ prosecution head on.
Mr Hayes is a black billionaire who made an honest income by creating an innovative product ahead of its time. Out of all the exchanges which do not abide by the CFTC rules (allegedly) he has been targeted in order to make an example, it may be no coincidence he also happens to be the youngest black billionaire in history. When Mr Hayes started his company he pursued ‘the promise that humans for the first time have a choice in how they transact money and a choice between a government central bank-led monitor system and one that’s led by open source software and math’. Over the last few months there has been a rejuvenated excitement about cryptocurrency as the price of Bitcoin recently hit $46,000. The fiat currency has almost quadrupled in price from its bottom price of $10,000 last year. If you had bought Bitcoin when I released my first article, you would have seen a 12,000% return in your original investment. But if last week’s Gamestop decisions showed anything, it’s that the system will always benefit the traditional players. That is why cryptocurrency is the only way people can force true change, wherever Mr Hayes is, we hope he is well and continuing to drive his vision for the future of crypto.