BitMEX founder Arthur Hayes thinks he’s figured out how to play the 2024 crypto market as the world stares at the Middle East like a bomb ready to blow.
After skiing in New Zealand’s backcountry and getting a deep dive into avalanche science, Hayes saw parallels between the snowpack and the world’s financial markets.
“The Israel-Iran conflict is a persistent weak layer in the financial markets,” he says. He’s talking about a ticking time bomb, the same way a PWL (Persistent Weak Layer) sits in snowpacks waiting for the right stress to cause an avalanche.
Right now, that stress could be the Middle East. If things blow up, and Hayes thinks they might, it could crash everything.
But he’s ready for it, running through two scenarios that dictate how he’s positioning his portfolio with the trick he cracked.
War and energy prices are everything
Scenario one: The conflict doesn’t escalate. Israel and Iran throw a few punches, but nothing serious gets hit. Hayes sees this as the least dangerous outcome for markets, crypto included.
“Israel will keep decapitating and assassinating folks, and Iran will send its half-hearted missile strikes,” he says.
It’s not pretty, but it won’t mess with critical infrastructure. No nukes. No major oil disruptions. Crypto can hold steady, maybe even run higher with the global money printing going on.
Scenario two is full-blown war. The Straits of Hormuz get shut down, oil fields in the Gulf go up in flames, and crypto takes a massive dump. This is the nightmare scenario.
“Crypto markets could drop 50% in a day,” Hayes believes, if a nuclear device is set off or oil fields are destroyed. It’s all about energy prices.
If they spike, Bitcoin’s price in fiat terms will follow, but everything else could go to zero. Especially the “utter dogshit” Hayes says he keeps in his portfolio.
He’s torn. “Do I keep selling fiat to buy crypto or sit on cash and bonds?” he says. The dilemma is simple: miss out on the next crypto bull run or lose everything when war inevitably wrecks the market.
Hayes knows Bitcoin will bounce back; the shitcoins won’t. The choice is about surviving the short-term chaos.
Bitcoin mining rigs could survive a war
Hayes isn’t too worried about the physical destruction of Bitcoin infrastructure though. “Iran accounts for 7% of the global hash rate. Even if that drops to 0%, nothing happens,” he says.
He’s not wrong. The last time a major Bitcoin mining country (China) banned mining, the hash rate dropped by 63%.
Within eight months, miners relocated, and Bitcoin hit a new all-time high in November 2021. Hayes doesn’t see Iran’s potential destruction having any real impact on Bitcoin’s hash rate or price.
In fact, he’s more bullish than ever on Bitcoin if energy prices surge. “Bitcoin is stored energy in digital form,” Hayes states. If oil prices spike, the fiat price of Bitcoin will rise along with it.
Miners might struggle with rising costs, but difficulty adjustments will smooth things out. The Bitcoin network will keep running, no matter how bad things get in the Middle East.
How the Fed will pump Bitcoin higher
Hayes has his eye on one more thing. The Federal Reserve. War means inflation. Inflation means more borrowing. The U.S. is already shelling out billions for Israel’s military, with $17.9 billion in aid since October 2023.
To pay for the war, the Fed will print money, and that means Bitcoin will shoot up as the value of USD sinks.
“War is inflationary,” Hayes bluntly puts it. “The Fed’s balance sheet will rise again, just like after the 2008 financial crisis and the COVID-19 lockdowns.”
The more dollars the Fed prints, the higher Bitcoin will go. It’s simple math. Since its launch, Bitcoin has outpaced the Fed’s balance sheet by 25,000%.
Hayes sees this as the real opportunity. If the U.S. keeps printing money to fund its Middle East adventures, Bitcoin could explode in value.
But Hayes also told us he is cutting down his meme coin exposure, dropping positions left and right. He doesn’t want to be overexposed if the market crashes.
“When Iran launched missiles at Israel, I cut those positions dramatically,” he admits. Meme coins are jokes, and in a market driven by fear and war, they won’t survive. Right now, the only one he’s holding is Church of Smoking Chicken Fish (SCF). “R’amen,” he jokes.
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