BitMEX founder Arthur Hayes recently went skiing in New Zealand and attended an avalanche science course, where he likened the "persistent weak layer" in the snow to the current tense situation between Israel and Iran, arguing that this geopolitical risk could trigger a "snowslide" in the global market at any time, affecting energy prices and supply chain stability.
With China launching monetary easing, the cryptocurrency market has high-risk and high-return opportunities. Assuming the Middle East conflict escalates, it could have a devastating impact on Bit and meme coins, and he is also worried that the meme coins he has invested in will become worthless like dog shit if they are affected. Nevertheless, Hayes is full of confidence in the long-term resilience of Bit, and has proposed an investment strategy to deal with geopolitical risks.
(Middle East tensions, Bit follows US stocks to decline)
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ToggleGeopolitical pressure and Bit's anti-inflation characteristics
Hayes first pointed out that the geopolitical situation in the Middle East since World War II has been the foundation of the current global order, and the triggering of uncertainties such as war is often related to Israel. He then mentioned that war usually leads to inflation, and as the US continues to borrow money to buy weapons for Israel, the US dollar supply may increase, thereby increasing the value of "anti-inflationary" assets such as Bit.
He said that since the launch of Bit, it has performed well during the growth of the Federal Reserve's balance sheet. The current Middle East situation may further push up energy prices, strengthening Bit's position as a "digital store of value" asset.
Analyzing the role of China and Russia in the Middle East situation
Hayes said that the current war between Israel and Iran is seen as a proxy war between the US/Europe and China/Russia, and the war will not expand to other regions. China and Russia may be potential allies of Iran, but only in 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 will be reorganized after the war, and will support China to further expand its economic territory and utilize Iran's minerals and energy.
Middle East conflict has limited impact on Bit mining
In analyzing the impact of the Middle East conflict on the market, Hayes proposed two scenarios: one is a small-scale conflict with limited impact, which will not cause major shocks to the market; the other is a full-scale escalation of the conflict, which may trigger a market "snowslide" effect. Iran currently accounts for about 7% of the global Bit mining computing power, and even if the mining facilities are destroyed, the impact on the long-term price of Bit is relatively small.
He explained that when energy costs rise, all miners will face the same pressure and try to find ways to maintain stable mining profits. In addition, the Bit network is designed with self-regulatory capabilities, and the mining difficulty will adjust with the changes in computing power to ensure mining profits even with fluctuations in energy prices. Against the backdrop of rising energy prices, the value of Bit as a "digital reserve asset" may also rise, similar to the anti-inflationary performance of gold during the oil crisis, making it more scarce and with greater potential for value preservation.
Using history to prove that gold and Bit are anti-inflationary
Hayes also cited historical events to prove the anti-inflationary characteristics of gold and Bit. In 1973, Arab countries imposed an oil embargo on the US due to its support for Israel in the Yom Kippur War, causing oil prices to soar. In 1979, the Iranian revolution broke out, overthrowing the Western-backed Saudi Arabian regime and withdrawing Iran's oil supply from the international market, leading to a tightening of the global oil market supply.
The chart below shows the oil and gold charts from 1973 to 1979, with spot oil (white) and the gold price in US dollars, indexed to 100 as the base. Over time, oil prices rose 412%, while gold prices approached this increase, rising 380%.
The chart below shows the price of gold (in terms of its purchasing power) and the S&P 500 index (in red), relative to the movement of oil prices, indexed to 100 as a baseline. The amount of oil that can be purchased with gold has only decreased by 7%, while the amount of oil that can be purchased with stocks has decreased by 80%, indicating that when oil prices rise, the relative purchasing power of the S&P 500 is significantly weakened, performing much less stably than gold.
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The US continues to aid Israel, borrowing funds to increase inflation
Hayes also stated that the US has expressed support for Israel's military actions in the Middle East, regardless of their controversies, for a long time. This support is mainly manifested in military aid, as Israel cannot afford the huge military expenses, and the US government provides the necessary weapons through borrowing.
He further said that since October 7, 2023, Israel has received about $17.9 billion in military aid. This debt-reliant model has increased the fiscal pressure on the US, requiring more sources of funding. Due to the low domestic savings rate, the Federal Reserve often needs to take on these debts and expand its balance sheet to support the government's debt issuance.
He stated that this mode of operation is similar to the 2008 financial crisis and the COVID-19 period, when the Fed also massively printed money to buy government bonds, leading to a dilution of the dollar's value and an increase in inflation risk.
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Bit surpasses the Fed's balance sheet expansion
Hayes said that if the situation in the Middle East escalates, leading to a rise in energy prices, and the Fed prints more money, Bit and other cryptocurrencies may become safe-haven assets, driving a new wave of price increases. As shown in the figure below, the price of Bit relative to the Fed's balance sheet is indexed to 100 as a baseline. The cumulative gain of Bit since its inception has reached 25,000%, far exceeding the growth of the Fed's balance sheet.
This shows that Bit has strong anti-inflationary capabilities when the money supply increases, and is seen as a high-quality anti-inflationary asset.
Arthur Hayes calls for cautious trading
Hayes said that although Bit has a bullish long-term trend, its price volatility cannot be ignored. The conflict between Israel and Iran has made him aware that in an unstable short-term environment, holding too many meme coins may bring greater risks, so he has decided to reduce his positions to cope with potential losses.
At the same time, Hayes suggests that in the current inflationary environment and geopolitical turmoil, assets should be allocated to those that can resist the devaluation of fiat currency, such as Bit or other value-preserving assets. Faced with uncertainty, one should avoid trading based on personal positions on the war, and focus on protecting the purchasing power of one's own capital to cope with potential economic shocks in the future.
