As a seasoned crypto investor with over two decades of experience in global financial markets, I can’t help but feel a sense of unease amidst the ongoing geopolitical tension between Israel and Iran. The words of Arthur Hayes, co-founder of BitMEX, resonate deeply with me as he likens the current situation to a “persistent weak layer” in financial markets – a chilling reminder of the post-WWII2 Middle Eastern geopolitical situation that still casts long shadows today.
Arthur Hayes, one of the founders of BitMEX, has sounded an alarm for investors as tensions persist globally. He analogized the current geopolitical climate to avalanche science, stating that just like the post-World War II Middle Eastern geopolitical situation serves as a “persistent weak layer” (PWL) in global politics, similar vulnerabilities exist in financial markets today.
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
In simpler terms, the previous CEO of BitMEX outlined two potential outcomes of the Israel-Iran conflict and their potential impact on the global economy. If the conflict remains limited to small, retaliatory actions, economic markets are likely to stay relatively steady. However, if the situation intensifies, financial markets, including Bitcoin, could experience significant volatility.
The intensification of war might result in the damage of Bitcoin mining equipment. Yet, in a nation like Iran, where only 7% of mining occurs, expert Hayes suggests that any impact on these mining rigs would likely be minimal or negligible for Bitcoin.
Hayes voiced worry regarding the potential impact on energy markets if a significant war occurred. In such a scenario, the destruction of crucial oil and gas fields might lead to an unprecedented increase in oil prices. This surge would likely cause other energy costs to rise too. Yet, this situation could potentially benefit Bitcoin, as its value might escalate due to the upward trend in energy prices.
Monetary Policy and Inflation: How War Could Trigger Federal Reserve Intervention and Bitcoin Gains
Besides energy concerns, Hayes points out financial risks stemming from the conflict. Since the U.S. is a strong ally of Israel, it may need to borrow more money to provide military aid, which could significantly increase its debt issuance. In response, the Federal Reserve might choose to grow its assets, thereby increasing the supply of US dollars in circulation.
According to Hayes, Bitcoin, known for its past growth during periods when the Federal Reserve expands its balance sheet, is likely to increase once more due to rising inflationary pressures. In simpler terms, he believes that under such economic conditions, the value of Bitcoin could potentially go up again.
“It’s well-known that wars tend to cause inflation. We recognize that the U.S. government needs to borrow funds to supply weapons to Israel, which they will do by selling bonds. As the Fed and the commercial banking system in the U.S. buy these bonds by printing money and increasing their balances, we can infer that inflation is likely to rise. Given this context, many believe that Bitcoin’s value could significantly increase relative to traditional currencies as the war escalates.
Investment Strategy amid Geopolitical Uncertainty
As a crypto investor, I find myself navigating through the volatile market landscape. Following Hayes’ advice, I believe that Bitcoin, due to factors like inflation and energy concerns, will likely see an upward trend in the long run. However, given the short-term unpredictability of the crypto markets, it’s essential for me to carefully size my positions to manage risk effectively.
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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2024-10-16 15:49