Arthur Hayes explains how the US-Iran conflict could boost Bitcoin

Arthur Hayes believes that wars in the Middle East will often lead to lower Federal Reserve rates and over time Bitcoin will increase.

In a March 1 essay, BitMEX co-founder Arthur Hayes argued that the U.S. military escalation in Iran fits a four-decade-old pattern of U.S. intervention in the Middle East that eventually leads to an easing of the Federal Reserve.

According to Hayes, the longer the US gets involved in the conflict, the more likely the Fed will cut rates or print money to finance the war effort, a move he believes will boost the price of Bitcoin (BTC).

Hayes runs the gamut from the Gulf wars to the Fed rate cuts

In his analysis, Hayes pointed to the Gulf War of 1990, in which the FOMC minutes from August of that year noted that “events in the Middle East have made effective monetary policy very difficult” and led to rate cuts later in the year.

He also cited the Federal Reserve’s emergency meeting after the September 11, 2001 attacks, in which then-Chairman Alan Greenspan cut rates by 50 basis points, clearly citing the “heightened level of fear and uncertainty” affecting asset prices.

The crypto market is already reacting to the geopolitical news, showing its role as the only financial market open during the turmoil of the weekend. Bitcoin, the leading asset in the sector, initially fell from $66,000 to $63,600 within minutes of the first reports of strikes on February 28.

However, the asset quickly reversed course, reaching $67,000 later that evening following reports of the death of Ayatollah Ali Khamenei, Iran’s supreme leader. At the time of writing, BTC was trading around $66,800, up less than 1% on the day and 2.8% over the past week, although it has fallen more than 20% over the past month.

Hayes advises waiting before buying the Fed

While the market’s immediate reaction was chaotic, Hayes urges investors to move past the initial volatility and focus on the expected policy response. He noted that every US president since 1985 has been militarily involved in the Middle East, and the financial consequences have consistently been managed with cheaper money.

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For the former CEO of BitMEX, the “simple heuristic” for the rise or fall of Bitcoin is that the value of the “nation’s organization” always leads to monetary easing.

“The more Trump engages in outrageously expensive Iranian nation-building, the more likely the Fed will lower rates and increase the supply of money to support the latest Pax Americana adventurism in the Middle East,” he wrote.

Given that Bitcoin just posted its fifth straight month of losses, not seen since 2018, and that assets are down nearly 15% in February, Hayes offered a specific trading tactic for the current environment. Given the uncertainty about how much the US will engage and how much financial market pain it can tolerate, he advises a patient approach.

“The smart thing to do is wait and see,” the crypto trader said.

He also suggests that the optimal time to “save the truck and buy high-quality Bitcoin and shitcoins” is not during the first conflict, but immediately after the Fed actually cuts rates or resumes printing money to support the government’s goals in Iran.