Better times for Bitcoin may be ahead as the BitMEX co-founder feels that the current geopolitical tensions in the Middle East may only push the cryptocurrency higher. According to Arthur Hayes, the impact of the war would have a strong impact on the US economy in the form of increased government spending and monetary policy inflation rates.
Hayes believes that more borrowing will occur as military spending increases and that this borrowing will be met by greater balance sheet expansion by the Federal Reserve and commercial banks, which will ultimately hurt the US dollar.
Hayes is quick to note that at a time when traditional fiat currencies are weakening, Bitcoin will benefit as it acts as a hedge against inflation. The recent rise in the US Producer Price Index to 1.8% above market expectations defies inflation concerns and supports investors seeking safety from declining fiat money.
Arthur Hayes. Image: Jackie Robinson Foundation
Impact of War On Bitcoin & Monetary Policy
Hayes pointed to history to support his hypothesis, saying US intervention in wars tends to lead to money printing, which could benefit Bitcoin prices. He then goes on to state that there is an analogy that can be drawn between the energy crisis of 73 and how gold behaves as an asset that is difficult to respond to as inflation rates rise. Hayes said Bitcoin, often dubbed “digital gold,” could surge significantly due to the forces of inflation and money printing stemming from wartime spending.
BTCUSD trading at $67,199 on the daily chart: TradingView.com
He also highlighted the possibility of rising energy prices if conflicts in the Middle East become more deadly, especially if there are strikes or even minor damage to critical infrastructure such as oil fields or other critical facilities. In this scenario, inflation would worsen and tend to increase demand for Bitcoin as a form of “stored energy” in financial markets. Hayes, of course, warns that if more macro-level volatility occurs, this will also lead to market volatility.
Strategic Considerations for Investors
While he is bullish on Bitcoin, he cautions and is managing his risks carefully as he has withdrawn his exposure to smaller cryptocurrencies, in the hope that this will minimize losses as geopolitical tensions spiral out of control.
He pointed out that debt-financed and spending-friendly policies will not only continue to fund Bitcoin’s long-term growth but will also continue the historical trends demonstrated throughout history. He notes that if Bitcoin can outpace the growth of the Federal Reserve’s balance sheet over historical timeframes, then Bitcoin serves as a hedge against weakening fiat currencies.
Hayes cautions against impulsive trading due to political news: “You have to look after yourself and your capital.” People should invest their capital in stores of value such as Bitcoin, saving against declines in currency value and purchasing power during uncertain times. As geopolitical instability continues, Bitcoin is still well positioned for further growth.
Featured image from DALL-E, chart from TradingView
