Former BitMex CEO Arthur Hayes Calls His Capital Maelstrom a Very Patient Fund

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Arthur Hayes and Akshat Vaidya are looking to beat bitcoin and ether returns, but they’re going to take their time doing it.

Hayes, the former CEO of crypto exchange BitMex, and Vaidya, the former head of corporate development at BitMex, founded Maelstrom Capital, where Vaidya is head of investments. In an interview with CoinDesk, Hayes and Vaidya said that Maelstrom is currently targeting infrastructure companies because that’s what makes sense in this part of the cycle.

“Nothing evolves like consumers do, but we’re not quite at the stage where there’s enough infrastructure to support that,” Vaidya said.

Maelstrom is set up as Hayes’ family office, using a pool of his crypto. Because there are no liquidity providers to answer to as this is Hayes money, there is no rush to deploy capital to earn management fees, so the company can be patient.

We want to identify projects that are actually quality, Hayes said. It’s not a spray and pray game because we don’t have outdoor vinyls.

Infrastructure deals have strong technology moats that cater to a large market, and it’s simple to understand the business: it’s “P” multiplied by the size of the market, Vaidya explains.

Compound, Aave, and Uniswap were all founded in 2017, but they didn’t appear on anyone’s radar until 2019 and weren’t mainstream until the 2020 summer of decentralized finance (DeFi).

At the time, no one cared about them due to the negativity around [initial coin offerings] and the massive bear market, Hayes said. This led to a flurry of projects claiming to be the next Uniswap, Compound or Aave, but many were based on something less substantial. Investors were ready to pour money into these projects, knowing they could exit within months of getting their tokens, Hayes added.

Hayes thinks the turning point for the projects he invests in now will likely come around 2024, when the market begins to question whether these projects have delivered on their promises, built their products, acquired customers and demonstrated that their technology works.

And with that come clone projects and their “me too” investors, much like what happened during the COVID-19 bull market of 2020-2021, when Uniswap, Compound, and Aave clones became au flush with capital.

In this part of the cycle, it’s important to make money but also to have done the work during the bear market to identify which companies are genuinely valuable and which are just knockoffs, Hayes said.

Some of them did well, and some of them were “[excrement] coins” which Hayes is not shy about investing in when the time comes, as this is how crypto grade returns are achieved when the market turns from bearish to bullish.

We’re not saying we’ll always invest in pure quality, we’ll invest in a full piece of [dog excrement] because we get our tokens today, he said. And in three months, we could throw them away because the narrative is there.

In 2020, the US Department of Justice alleged that Hayes violated the Bank Secrecy Act (BSA) and authorized money laundering on the BitMEX platform by failing to implement know-your-customer checks. (KYC) and anti-money laundering (AML). In February 2022, Hayes and BitMEX co-founder Ben Delo pleaded guilty to the charges.

The guilty plea means the evidence and arguments the government had on Hayes, et. al. have never been tested in the adversarial environment of a courtroom. BitMEX is not a US company and has not used US dollars either. As legal experts pointed out at the time, the only other instance where the BSA was used on a non-banking financial institution ended in a no-suit deferred prosecution agreement in exchange for lane repair.

So, of course, the long reach of US regulators is on Hayes and Vaidya’s mind.

The advantage of investing in infrastructure projects, especially at this cycle, is that many of them are not really in the sights of regulators to the extent that others might be, Vaidya said. .

There is no one to go after because there is no custody, he said. This company will never receive a Wells review.

All but one of Maelstroms’ portfolio companies, which do not have a token model, have been outside of the United States

Even when a project involves American founders, it’s domiciled in a friendly jurisdiction like Switzerland, Vaidya explains.

So no preference per se, but I think the market itself does what it wants, he said.

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