- Former BitMEX CEO Arthur Hayes believes the world is on the brink of a new “mega-local inflationary cycle.”
- In such conditions, investors should consider shifting from stocks and bonds to gold.
- Bitcoin surpasses precious metals due to the absence of national control.
Investing in cryptocurrencies is “the best way to preserve wealth.” In this regard, bitcoin is preferable to gold due to the lack of national control, stated former BitMEX CEO Arthur Hayes.
In his new essay Zoom Out, the expert analyzed three major cycles starting from the Great Depression of the 1930s to the present day, focusing on Pax Americana.
He explained his choice by stating that the entire global economy is a derivative of the financial policy of the ruling empire:
- 1933-1980: ascending local cycle of Pax Americana;
- 1980-2008: global cycle of Pax Americana Hegemon;
- 2008 — present: local cycle of Pax Americana versus the Middle Kingdom.
Hayes identified two types of periods — local and global. The former is characterized by authorities suppressing “savers” to finance wars, while the latter involves financial deregulation and the development of global trade.
The local period is inflationary, while the global one is deflationary.
Investment Strategies
According to the former BitMEX CEO, wise investments throughout life boil down to three categories:
- If you believe in the system but not in those who manage it, you invest in stocks.
- If you believe in the system and those who manage it, you invest in government bonds.
- If you believe neither in the system nor in those who manage it, you invest in gold or another asset that does not require a state to exist, such as bitcoin.
In Hayes’s view, stocks are a court-supported legal fantasy. These securities require a strong state to exist and maintain their value over time.
During a local inflationary period, an investor should hold gold, whereas in a global deflationary environment, stocks are preferable.
The Current Cycle
The expert believes the current cycle began in 2008 amidst events in Georgia. The development of the confrontation between the West (the US and its vassals) and Eurasia (Russia, China, Iran) continued in the form of proxy wars in Ukraine and Israel-Lebanon-Syria. The parties ensure that all aspects of the national economy are prepared to support military efforts, he added.
In this analysis, it means that “savers” will be obliged to support their countries’ wartime expenditures. They will face financial repression. The banking system will allocate most of the credit to the state to achieve certain political goals.
This time, capital can freely exit the system. At the start of the current local cycle, bitcoin offered another currency without a state. The key difference between it and gold is that the ledger of the first cryptocurrency is maintained using a cryptographic blockchain, and money moves “at the speed of light.”
Hayes noted that in conditions of monetary easing, businesses direct resources to buy back shares and relocate production to other countries with lower labor costs. As a result, the American military machine has become dependent on the US, he stated.
The former BitMEX CEO noted that in such circumstances, either the state will directly order banks to lend to a particular industry/company, or institutions will be forced to buy government bonds at yields below market rates. In the latter case, authorities can distribute subsidies and tax benefits to “necessary” enterprises.
“In any case, the yield on savings will be below nominal growth and inflation. The only way to escape, if capital controls are not introduced, is to invest in an off-system store of value, such as bitcoin,” Hayes emphasized.
In the previous cycle, investors should have monitored the size of the central bank’s balance sheet, but in this one — the budget deficit and the total volume of non-financial bank credit.
Why Bitcoin?
The former BitMEX CEO is confident that the world is on the brink of a new mega-local inflationary cycle, primarily for nation-states, and thus maintains confidence in digital gold.
The expert cited a forecast for the US budget deficit in the 2024 fiscal year ($1.92 trillion), which will exceed $1.7 trillion over the previous 12 months. This figure will be the highest level since the COVID-19 era due to a 27% surge in spending.
Hayes urged not to worry about a recession in Pax Americana amid a budget deficit of 7.3% of GDP.
“There will be no recession. This does not mean that most ordinary people will not find themselves in a difficult financial situation. […] Investing in cryptocurrencies is the best way to preserve wealth. I am confident that today will resonate with the 1930s-1970s. […] A devaluation is coming through the expansion and centralization of credit distribution through the banking system,” he explained.
Back in June, Hayes and Real Vision CEO Raoul Pal identified strong altcoins, highlighting the potential of Solana (SOL) and Aptos (APT).
Earlier, the former BitMEX head urged opening a long position on bitcoin and later on shitcoins due to the start of a rate-cutting cycle.
Prior to that, Hayes predicted a rise in the first cryptocurrency to $70,000 by the end of summer.