Arthur Hayes, former CEO of BitMEX, examines how escalating tensions between Israel and Iran could affect the crypto markets in his essay "Persistent Weak Layer". Hayes uses the analogy of a persistent weak layer in an avalanche to highlight how geopolitical instability could trigger market upheavals, impacting Bitcoin prices.
Hayes outlines two scenarios: minor, calculated military actions or severe escalation leading to the destruction of Middle Eastern oil infrastructure, possibly triggering a financial avalanche. He stresses that war is uninvestable and faces a dilemma of balancing crypto and cash in his investment portfolio.
The essay delves into risks like the destruction of Bitcoin mining rigs, dominated by Iran, suggesting a minimal impact on the Bitcoin network if eliminated. He considers the impact of spiking energy prices, hypothesizing that higher energy costs might actually increase Bitcoin's value relative to fiat currency.
Hayes draws parallels to historical oil shocks, indicating that Bitcoin, akin to "hard money", might maintain or increase its value against rising energy prices. He discusses US monetary implications, highlighting potential inflation bolstering Bitcoin prices due to increased government borrowing for military support.
Despite potential for price volatility, Hayes cautions that not all crypto assets will benefit equally, revealing his reduced positions in meme coins amidst mounting geopolitical tensions. BTC was trading at $66,907 at the time of writing.
