How The Israel-Iran War Could Shake Crypto Prices, Explains Arthur Hayes
16 Outubro 2024 - 1:30PM
NEWSBTC
Arthur Hayes, the co-founder and former CEO of BitMEX, published an
essay titled “Persistent Weak Layer” on October 16, where he
examines the potential impact of escalating tensions between Israel
and Iran on the crypto markets. Drawing an analogy from avalanche
science, Hayes explores how the geopolitical situation in the
Middle East could act as a “persistent weak layer” (PWL) that might
trigger significant financial market upheavals, affecting Bitcoin
and crypto prices. How Will The Crypto Market React? Hayes begins
the essay by recounting his recent skiing trip, stating. “One of
the scariest conditions is a persistent weak layer (PWL), which
could trigger a persistent slab avalanche when stressed. He
parallels this to the Middle East’s geopolitical situation
post-World War II, suggesting it serves as a PWL atop which the
modern global order rests. “The trigger usually has something to do
with Israel,” Hayes observes. He emphasizes that the financial
markets’ primary concern is how energy prices will respond, the
impact on global supply chains, and the potential for a nuclear
exchange if hostilities between Israel and another Middle Eastern
nation, particularly Iran or its proxies, escalate. Related
Reading: Crypto Prices Go Up: A ‘Cautious Bullish’ Outlook Amid Fed
Worries And Market Volatility Hayes outlines two scenarios. In the
first, the Israel-Iran conflict fizzles into minor, tit-for-tat
military actions. “Israel continues assassinating folks and
decapitating dicks, and the Iranian response is telegraphed,
non-threatening missile strikes,” he describes bluntly. No critical
infrastructure is destroyed, and there are no nuclear strikes;
thus, the PWL holds. In the second scenario, the conflict escalates
dramatically, culminating in the destruction of Middle Eastern oil
infrastructure, closure of the Straits of Hormuz, or a nuclear
attack, leading to the PWL failing and causing an “avalanche in the
financial markets.” Expressing his concerns, Hayes states: “War is
uninvestable, as they say.” He faces a strategic choice regarding
his investment portfolio: whether to continue converting fiat
currency into crypto or to reduce his crypto exposure in favor of
cash or US Treasury bonds. “I don’t want to be under-allocated if
this truly is the start of the next leg higher in the crypto bull
market,” he explains. “Still, I also don’t want to incinerate
capital if Bitcoin drops 50% in a day because Israel/Iran triggered
a persistent slab financial markets’ avalanche. Forget about
Bitcoin; it always bounces back; I’m more worried about some of the
utter dogshit I have in my portfolio … meme coins.” Buy Or Sell
Now? To navigate this dilemma, Hayes conducts a scenario analysis
focusing on how the second, more severe scenario could impact
crypto markets, particularly Bitcoin, which he refers to as the
“crypto reserve asset.” He considers three primary risks: physical
destruction of Bitcoin mining rigs, a dramatic rise in energy
prices, and monetary implications resulting from the conflict.
Regarding the physical destruction of mining infrastructure, Hayes
identifies Iran as the only Middle Eastern country with notable
Bitcoin mining operations, accounting for up to 7% of the global
hash rate. Reflecting on the 2021 scenario when China banned
Bitcoin mining, he concludes that even the complete elimination of
Iranian mining capacity would have negligible impact on the Bitcoin
network and its price. Addressing the risk of a dramatic rise in
energy prices, Hayes considers the potential consequences if Iran
retaliated by destroying major oil and natural gas fields or
closing the Straits of Hormuz. Such actions would cause oil prices
to spike, driving up energy costs globally. Hayes argues that this
scenario would actually increase Bitcoin’s value in fiat terms.
“Bitcoin is stored energy in digital form. Therefore, if energy
prices rise, Bitcoin will be worth more in terms of fiat currency,”
he explains. Related Reading: SEC Strikes Again: Cumberland DRW
Charged For ‘Unregistered Crypto Operations’ He draws historical
parallels to the 1970s oil shocks. During the Arab oil embargo of
1973 and the Iranian Revolution of 1979, oil prices surged
significantly. “Oil rose 412%, and gold nearly matched its rise at
380%,” Hayes points out. He illustrates that while gold maintained
its purchasing power relative to oil, stocks lost substantial value
when measured against energy prices. Hayes suggests that Bitcoin,
as a form of “hard money,” would similarly preserve its value or
even appreciate relative to rising energy costs. Lastly, Hayes
examines the monetary implications, particularly how the United
States might respond to the conflict financially. He emphasizes
that US support for Israel involves providing weapons, funded
through increased government borrowing rather than savings. “The US
government purchases goods on credit and not from savings,” he
highlights, referencing data that shows US national net savings are
negative. He questions who will buy this debt and indicates that
the Federal Reserve and the US commercial banking system would
likely step in, effectively expanding their balance sheets and
printing more money. Hayes notes historical instances where
negative national savings corresponded with sharp increases in the
Federal Reserve’s balance sheet, such as after the 2008 Global
Financial Crisis and during the COVID-19 pandemic. “The Fed and the
US commercial banking system will buy this debt by printing money
and growing their balance sheets,” he asserts. He suggests that
this monetary inflation would significantly bolster Bitcoin’s
price. “Bitcoin has outperformed the rise in the Fed’s balance
sheet by 25,000%,” Hayes emphasizes, indicating Bitcoin’s strong
performance relative to monetary base expansion. However, he
cautions investors about the potential for intense price volatility
and uneven performance across different crypto assets. “Just
because Bitcoin will rise over time doesn’t mean there won’t be
intense price volatility, nor does it mean every shitcoin will
share in the glory,” he warns. Hayes reveals that he had invested
in several meme coins but reduced those positions dramatically
after Iran launched missile attacks. “When Iran launched its latest
barrage of missiles at Israel, I cut those positions dramatically.
My size was too big, given the unpredictability of how crypto
assets will react to increased hostilities in the short term,” he
admits. Currently, he holds only one meme coin, noting, “The only
meme coin I own is the Church of Smoking Chicken Fish (symbol:
SCF). R’amen.” At press time, BTC traded at $66,907. Featured image
created with DALL.E, chart from TradingView.com
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