Arthur Hayes argues that Middle East wars often trigger Federal Reserve rate cuts, boosting Bitcoin over time.
In a March 1 essay, BitMEX co-founder Arthur Hayes argued that the U.S. military escalation in Iran fits a four-decade pattern of American intervention in the Middle East that ultimately leads to Federal Reserve easing.
According to Hayes, the longer the U.S. engages in this conflict, the higher the likelihood the Fed cuts rates or prints money to finance the war effort, a move he believes will drive the price of Bitcoin (BTC) higher.
In his analysis, Hayes pointed to the 1990 Gulf War, where FOMC minutes from August of that year noted that “events in the Middle East had greatly complicated the formulation of an effective monetary policy,” leading to rate cuts later that year.
He also cited the Federal Reserve’s emergency meeting after the September 11, 2001, attacks, where then-Chair Alan Greenspan cut rates by 50 basis points, explicitly pointing to a “heightened degree of fear and uncertainty” impacting asset prices.
The crypto market has already reacted to the unfolding geopolitical news, showcasing its role as the only financial market open during the weekend turmoil. Bitcoin, the most prominent asset in the sector, initially plummeted from $66,000 to around $63,600 within minutes of the first reports of strikes on February 28.
However, the asset just as quickly reversed course, jumping to $67,000 later that evening following reports of the death of Iranian Supreme Leader Ayatollah Ali Khamenei. At the time of writing, BTC was trading at around $66,800, slipping by less than 1% on the day and up 2.8% over the past week, although it remains down more than 20% across the last month.
While the immediate market reaction has been chaotic, Hayes is urging investors to look past the initial volatility and focus on the anticipated policy response. He noted that every U.S. president since 1985 has engaged militarily in the Middle East, and the financial fallout has consistently been managed with cheaper money.
For the former BitMEX CEO, the “simple heuristic” for Bitcoin’s rise or fall is that the cost of “nation-building” invariably leads to monetary easing.
“The longer Trump engages in the extremely costly activity of Iranian nation-building, the higher the likelihood the Fed lowers the price and increases the quantity of money to support Pax Americana’s latest bout of Middle Eastern adventurism,” he wrote.
Considering that Bitcoin has just suffered through its fifth consecutive month of losses, a streak not seen since 2018, with the asset shedding nearly 15% in February, Hayes has provided a specific trading tactic for the current environment. Given the uncertainty over how long the U.S. will remain engaged and how much financial market pain it can tolerate, he advises a patient approach.
“The prudent action is to wait and see,” said the crypto trader.
He also suggests that the optimal time to “back up the truck and buy Bitcoin and high-quality shitcoins” is not during the initial conflict but immediately after the Fed actually cuts rates or resumes money printing to support the government’s objectives in Iran.
