Arthur Hayes lays out possible conflict scenarios that could affect Bitcoin (BTC)

Major cryptocurrencies such as Bitcoin, Ethereum and the rest of the market experienced significant declines in early October due to increased geopolitical tensions between Iran and Israel, leading to fears about the stability of digital assets as a “safe haven”.

Although prices have recovered since mid-October, lingering concerns about market volatility remain.

Valuation of Bitcoin Amid Growing Global Geopolitical Risks

In his latest blog post, BitMEX co-founder Arthur Hayes reflected on the precarious state of global geopolitics and its potential impact on financial markets, including Bitcoin and crypto. He likened the situation to a persistent weak layer (PWL) in avalanche science, something that remains dormant but can be triggered by stress, leading to catastrophic results.

Hayes said two scenarios are currently in play. First, where the conflict remains contained, causing minor market disruptions. Meanwhile, in the second scenario, the conflict escalates, possibly leading to the destruction of Middle Eastern oil infrastructure or even nuclear attacks.

In the latter scenario, the former CEO of BitMEX expressed the fear of a financial market avalanche, which could lead to a sharp fall in Bitcoin and other cryptocurrencies.

“I will assess the effects of the second scenario as it specifically affects crypto markets, but especially Bitcoin. Bitcoin is the crypto reserve asset and the entire crypto capital market will follow suit.

Hayes said he is conflicted about whether to continue investing in cryptocurrency amid widespread money printing and reflation, or to reduce and safeguard his capital in anticipation of a potential market crash. He emphasized the need for careful analysis of scenarios, while pointing out the risks associated with speculative investments such as meme coins, especially during volatile geopolitical situations.

Despite amassing several meme coins, Hayes admitted to cutting those positions dramatically after Iran launched its latest missile barrage against Israel.

No long-term impact if Iran’s mining infrastructure is destroyed

Some reports suggest that Iran contributes up to 7% of the global Bitcoin hash rate. If a scenario arose in which Iran’s mining operations were eliminated due to domestic problems such as energy shortages or missile attacks from a war with Israel or the US, Hayes argues that this would have no real impact on the Bitcoin network.

It paralleled China’s mining ban in 2021, which temporarily reduced the global hashrate by 63%. Even after such a remarkable decline, the hash rate fully recovered within eight months and the price of BTC continued to rise, reaching a new all-time high in November 2021.

As such, if Iran’s mining rigs were destroyed, the remaining global mining operations would make up for the lost hash rate over time. Therefore, even the complete destruction of Iran’s mining infrastructure would not affect Bitcoin’s long-term network security or price.

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