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

Arthur Hayes argues that wars in the Middle East often trigger interest rate cuts by the Federal Reserve, 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 U.S. intervention in the Middle East that ultimately leads to easing by the Federal Reserve.

According to Hayes, the longer the US engages in this conflict, the more likely the Fed is to cut rates or print money to finance the war effort. He believes that the price of Bitcoin (BTC) will rise.

Hayes draws a line from Gulf Wars to Fed rate cuts

In his analysis, Hayes be to the 1990 Gulf War, when the August FOMC minutes of that year noted that “events in the Middle East had greatly complicated the formulation of effective monetary policy,” leading to interest rate cuts later that year.

He also cited the emergency meeting of the Federal Reserve after the attacks of September 11, 2001, where then-Chairman Alan Greenspan cut interest rates by 50 basis points, explicitly pointing to a “heightened level of fear and uncertainty” affecting asset prices.

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

However, the price reversed just as quickly, rising to $67,000 later that evening after reports of the death of Iranian 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 the price is still down more than 20% over the past month.

Hayes recommends waiting for the 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 U.S. president since 1985 has been militarily involved in the Middle East, and the financial fallout has consistently been met with cheaper money.

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For the former CEO of BitMEX, the “simple heuristic” for Bitcoin’s rise or fall is that the costs of “nation building” invariably lead to monetary easing.

“The longer Trump engages in the extremely costly activities of Iranian nation-building, the more likely the Fed will lower the price and increase the supply of money to support Pax Americana’s latest bout of adventurism in the Middle East,” he wrote.

Considering that Bitcoin just suffered its fifth consecutive month of losses, a streak not seen since 2018, with the asset losing almost 15% in February, Hayes has offered a specific trading tactic for the current environment. Given the uncertainty about how long the US will remain involved and how much pain the financial markets can tolerate, he advises a patient approach.

“The sensible action is to wait and see,” the crypto trader said.

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