BitMEX founder Arthur Hayes recently skied in New Zealand and took an avalanche science course. He compared the "persistent weak layer" in the snow layer to the current tensions between Israel and Iran, believing that this geopolitical risk may trigger global markets at any time. Avalanche", affecting energy prices and supply chain stability.
As China starts monetary easing, the crypto market has high risk and reward opportunities. If the conflict in the Middle East escalates, it may have a devastating impact on Bitcoin and meme coins. I am also worried that the meme coins I invested in will be like dogs after being impacted. Worthless as shit. Nonetheless, Hayes is confident in Bitcoin’s long-term resilience and proposed investment strategies to deal with geopolitical risks.
Geopolitical pressure and Bitcoin’s anti-inflation properties
Hayes first pointed out that the geopolitical situation in the Middle East after World War II is the basis of the current global order, and uncertain factors such as triggering war are usually related to Israel. It was then mentioned that wars usually increase inflation. As the United States continues to borrow money to purchase weapons for Israel, the supply of US dollars may increase, thereby increasing the value of "anti-inflation" assets such as Bitcoin.
He said that since its launch, Bitcoin has performed well in the growth of the Federal Reserve's balance sheet. The current situation in the Middle East may further push up energy prices and strengthen Bitcoin's status as a "digital store of value" asset.
Analyze the role of China and Russia in the situation in the Middle East
Hayes said that the current war between Israel and Iran is regarded as a proxy war between the United States, Europe, China and Russia, and will not expand the scope of the war to other regions. China and Russia may be potential allies of Iran, but they will only provide material support and will not directly participate in the war. China may see this as an opportunity to expand the Belt and Road Initiative. Assuming that the Iranian regime is reorganized after the war, it will support China in further expanding its economic territory and utilizing Iran's minerals and energy.
Middle East conflict has limited impact on Bitcoin mining
Hayes analyzed the impact of conflicts in the Middle East on the market and proposed two scenarios: one is a small-scale conflict with limited impact and will not cause a major impact on the market; the other is a comprehensive escalation of the conflict that may trigger a market avalanche effect. Iran currently accounts for about 7% of the global Bitcoin mining computing power. Even if the mining facilities are damaged, the impact on the long-term price of Bitcoin will be relatively small.
He explained that when energy costs rise, all miners will face the same pressure and find ways to keep mining profits stable. In addition, the Bitcoin network design has the ability to self-regulate, and the mining difficulty will be adjusted as the computing power changes, ensuring that there is still mining profit despite fluctuations in energy prices. In the context of rising energy prices, the value of Bitcoin as a "digital reserve asset" may also rise, similar to the anti-inflation performance of gold during the oil crisis, making it more scarce and with the potential to preserve value.
Use history to prove that gold and Bitcoin resist inflation
Hayes also cited historical events to prove the anti-inflation properties of gold and Bitcoin. In 1973, Arab countries imposed an oil embargo on the United States because of its support for Israel in the Yom Kippur War, causing oil prices to soar. The Iranian revolution broke out in 1979, overthrowing the Western-backed Saudi Arabian regime and withdrawing Iranian oil supplies from the international market, causing a supply crunch in the global oil market.
The chart below is a crude oil and gold chart from 1973 to 1979, crude oil spot (white) and gold prices against the US dollar, indexed to 100 as a base. Over time, oil prices rose 412%, while gold prices came close to that, rising 380%.
Source: Lian News
The chart below shows the price of gold (expressed as the purchasing power of gold) and the S&P 500 Index (red), relative to the price of oil, indexed to 100 as a benchmark. Gold bought only 7% less oil, while stocks bought 80% less oil, indicating that when oil prices rise, the S&P 500's relative purchasing power weakens significantly and its performance is far less stable than gold's.
Source: Lian News
The United States continues to assist Israel and raises debt to raise funds to increase inflation.
Hayes also said that the United States has long expressed support for Israel's military operations in the Middle East regardless of whether they are controversial or not. This support is mainly reflected in military assistance. Since Israel cannot afford huge military expenses, the U.S. government borrows money to provide Israel with the weapons it needs.
He further said that since October 7, 2023, Israel has received approximately $17.9 billion in military aid. This debt-reliant model puts greater financial pressure on the United States and requires more sources of funds. With domestic savings rates low, the Fed is often required to assume these debts and expand its balance sheet to support government-issued debt.
He said this operating model is similar to that during the 2008 financial crisis and COVID-19, when the FED also printed large amounts of money to purchase Treasury bonds, causing the value of the U.S. dollar to be diluted and increasing the risk of inflation.
Bitcoin surpasses FED balance sheet to expand significantly
Hayes said that if tensions in the Middle East intensify, causing energy prices to rise and the FED to print more money, Bitcoin and other cryptocurrencies may become safe-haven assets, driving a new wave of gains. Take the chart below, for example, where the price of Bitcoin is relative to the FED's balance sheet, indexed to 100 as the base point. Bitcoin’s cumulative gain since inception has reached 25,000%, far exceeding the growth of the FED’s balance sheet.
It shows that Bitcoin has a strong anti-inflation ability when the money supply increases, and is regarded as a high-quality anti-inflation asset.
Source: Lian News
Arthur Hayes urges caution in trading
Hayes said that despite Bitcoin’s long-term upward trend, price volatility cannot be ignored. The conflict between Israel and Iran made him realize that in a short-term unstable environment, excessive meme currency holdings may bring greater risks, so he decided to reduce his position to cope with potential losses.
At the same time, Hayes suggested that in the current inflationary environment and geopolitical turmoil, assets should be allocated to assets that resist the depreciation of fiat currencies, such as Bitcoin or other assets that can maintain their value. In the face of uncertainty, you need to avoid trading based on your personal stance on the war and focus on protecting the purchasing power of your own capital to cope with possible future economic shocks.
[Disclaimer] There are risks in the market, so investment needs to be cautious. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions contained in this article are appropriate for their particular circumstances. Invest accordingly and do so at your own risk.
This article is reprinted with permission from: (Lian News)
