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

Arthur Hayes says wars in the Middle East often trigger rate cuts from 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 is part of a four-decade-long pattern of U.S. intervention in the Middle East that ultimately leads to Federal Reserve easing.

According to Hayes, the longer the United States engages in this conflict, the more likely it is that the Fed will cut rates or print money to finance the war effort, a move he believes will drive up the price of Bitcoin (BTC).

Hayes draws a line between Gulf Wars and Fed rate cuts

In his analysis, Hayes pointed to the 1990 Gulf War, where the FOMC minutes from August of that year noted that “events in the Middle East had greatly complicated the formulation of effective monetary policy,” leading 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, explicitly noting an “increased degree of fear and uncertainty” affecting asset prices.

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

However, the asset just as quickly reversed its trend, 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 at around $66,800, down less than 1% on the day and up 2.8% over the past week, although it remains down over 20% over the past month.

Hayes advises waiting for the Fed before buying

Even though the immediate market reaction was chaotic, Hayes urges investors to look beyond the initial volatility and focus on the anticipated policy response. He pointed out that every US president since 1985 has engaged militarily in the Middle East and that the financial fallout has always been managed with cheaper funds.

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For the former BitMEX CEO, the “simple heuristic” for Bitcoin rising or falling is that the cost of “nation building” invariably leads to monetary easing.

“The longer Trump engages in the extremely expensive activity of Iranian nation-building, the more likely it is that the Fed will lower prices and increase the quantity of money to support the latest episode of Pax Americana 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 nearly 15% in February, Hayes offered a specific trading tactic for the current environment. Given uncertainty about how long the United States will remain engaged and how much financial market distress it can tolerate, he advises taking a patient approach.

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

He also suggests that the optimal time to “turn back and buy high-quality Bitcoin and 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.