Arthur Hayes Explains How US-Iran Conflict Could Boost Bitcoin

Arthur Hayes says that wars in the Middle East often cause Federal Reserve rate cuts, boosting Bitcoin over time.

In the story of March 1, the founder of BitMEX Arthur Hayes argued that the increase of US troops in Iran fits a decade-long pattern of American intervention in the Middle East that leads to the reduction of the Federal Reserve.

According to Hayes, the longer the US holds on to this conflict, the more likely the Fed will cut rates or print money to support the war, a move he believes will increase the value of Bitcoin (BTC).

Hayes Draws Line From Gulf Wars to Fed Rate Cuts

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

He also cited the emergency meeting of the Federal Reserve after the attacks of September 11, 2001, in which former Chairman Alan Greenspan lowered rates by 50 basis points, clearly pointing to the “increasing level of fear and uncertainty” affecting asset prices.

The crypto market has already reacted to ongoing geopolitical issues, reflecting its role as the only financial market open during the weekend turmoil. Bitcoin, the sector’s most prominent asset, initially fell from $66,000 to around $63,600 within minutes of the first reports of the February 28 strikes.

However, the stock quickly retreated, jumping to $67,000 later that evening following reports of the death of Iran’s Supreme Leader Ayatollah Ali Khamenei. At the time of writing, BTC was trading around $66,800, down less than 1% on the day and up 2.8% over the past week, although it remains down more than 20% over the past month.

Hayes Advises Waiting For Fed Before Buying

While the immediate market reaction was chaotic, Hayes urges investors to look beyond the initial volatility and focus on the expected policy response. He noted that every US president since 1985 has been involved militarily in the Middle East, and the recession has always been managed with cheap money.

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For the former CEO of BitMEX, the “simple heuristic” for the rise or fall of Bitcoin is that the cost of “building a nation” leads to a decrease in currency.

“The longer Trump hangs on to the costly task of Iranian nation-building, the more likely the Fed will cut rates and raise the money supply to support the latest Pax Americana of Middle East adventurism,” he wrote.

Considering that Bitcoin recently suffered its fifth consecutive month of losses, a streak not seen since 2018, with the asset shedding nearly 15% in February, Hayes offered some strategy for trading the current environment. Given the uncertainty of how long the US will last and how much financial market pain it can endure, he advises a patient approach.

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

He also suggests that the right time to “back up the truck and buy Bitcoin and high-quality shitcoins” is not during the first conflict but immediately after the Fed lowers rates or resumes printing money to support the government’s intentions in Iran.