Arthur Hayes warns investors of risks from Middle East tensions affecting markets, suggesting Bitcoin may rise amid inflation and energy crises.
Arthur Hayes has issued a warning to investors amid the ongoing geopolitical tension. The BitMEX co-founder compared avalanche science to the current geopolitical situation, likening the post-WWI2 Middle Eastern geopolitical situation to a “persistent weak layer” (PWL) in financial markets.
Hayes mentioned that investors and traders are in a risky situation now that China has begun a money printing exercise, and major countries are lowering the price and increasing the quantity of money. Should the battle between Israel and Iran get more serious and result in the destruction of oil infrastructure in the Middle East, the closure of the Strait of Hormuz, or even the deployment of nuclear weapons, it could lead to the crypto market dumping massively.
Scenarios that Could Boost Bitcoin’s Value amid Ongoing Geopolitical Tensions
The former BitMEX CEO described two possible outcomes of the conflict and how they could affect the global economy. He suggests that if the conflict between Israel and Iran devolves into minor, retaliatory acts, the persistent weak layer holds, and markets remain relatively stable. However, if the situation escalates, then the entire financial market, particularly Bitcoin BTC $93 419 24h volatility: 1.7% Market cap: $1.86 T Vol. 24h: $25.14 B , will feel the heat.
Escalation of the war could lead to the destruction of Bitcoin mining rigs. However, in a country like Iran, where the mining rate is just 7%, Hayes believes if the mining rigs are affected in this region, it would have little or no effect on Bitcoin.
Hayes expressed concern about how energy markets would react in the event of a major war. If key oil and gas fields were destroyed, oil prices could skyrocket, driving up the cost of other energy sources as well. However, this could be a good one for Bitcoin, as it could go up in value as energy prices get higher.
Monetary Policy and Inflation: How War Could Trigger Federal Reserve Intervention and Bitcoin Gains
Beyond energy, Hayes identifies monetary risks tied to the conflict. The United States, steadfast in its support for Israel, would likely increase borrowing to fund military aid, leading to a sharp rise in debt issuance. In response, the Federal Reserve might expand its balance sheet, further inflating the US dollar supply.
Hayes predicts that Bitcoin, which has historically outperformed during periods of Federal Reserve balance sheet expansion, would again rise in response to inflationary pressures. He said:
“We know that war is inflationary. We understand that the US government must borrow money to sell bombs to Israel. We know that the Fed and the US commercial banking system will buy this debt by printing money and growing their balance sheets. Therefore, we know that Bitcoin will rise stupendously in fiat terms as the war intensifies.”
Investment Strategy amid Geopolitical Uncertainty
Hayes advises investors on how to deal with this unstable situation. He says that while Bitcoin will probably go up over time because of inflation and energy issues, the short-term volatility in crypto markets makes it crucial to size positions appropriately.
Hayes advises against investing based on moral stances or trying to predict the “right side” of the war, warning that such actions could lead to financial ruin.
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