Arthur Hayes, BitMEX co-founder, recently dissected the financial landscape in a noteworthy essay titled “Zoom Out,” and uncovers striking similarities between the economic turmoil of the 1930s-1970s and the present-day financial scene. His primary focus is the consequences these past and present economic scenes have on the Bitcoin and cryptocurrency markets. Hayes firmly believes that an insightful comprehension of past economic patterns can offer a detailed framework for predicting a resurgence in the Bitcoin and cryptocurrency markets.
Hayes dived headfirst into an analysis of the major economic cycles from the Great Depression right through the economically vibrant mid-20th century and the economically stagnant 1970s. He labels these shifts as “Local” and “Global” cycles, emphasising their relevance in unravelling the overarching macroeconomic forces at the helm.
The “Local” cycles thrive on a strong national focus – a climate where economic protectionism and financial repression take precedence. Such cycles birth from government reactions to severe economic crises, which place national recovery over global collaboration, often culminating in inflation as a result of fiat currency devaluation and ramped-up government spending.
In contrast, “Global” cycles are hallmarked by periods of economic liberalisation, encouragements for international trade and investment, frequently giving rise to deflationary pressure owing to increased efficiency and competition in global markets.
Each cycle’s influence on different asset classes is systematically dissected by Hayes. He notes that non-fiat assets such as gold have shown strong performance during “Local” cycles, due to their inherent quality as a hedge against inflation and currency devaluation.
Drawing a parallel to Bitcoin’s genesis in 2009 and the economic climate of the 1930s, Hayes conjectures that much like how the financial crisis of the early 20th century catalysed groundbreaking monetary policies, the economic downturn of 2008, partnered with subsequent quantitative easing, laid the groundwork for Bitcoin’s inception.
Hayes hypothesizes that Bitcoin, being birthed during the resurfacing “Local” cycle, characterised by the global recession and considerable interventions by central banks, mirrors past periods of stress for traditional finance systems. During these periods, alternative assets like gold climbed the ladder to prominence. He goes further into the analogy between gold in the 1930s and Bitcoin right now, explaining how gold was a safety net during times of rampant inflation and economic instability.
He suggests that Bitcoin, courtesy of its decentralised and state-independent qualities, is strategically poised to play a similar role in the volatile economic environment today.
Hayes points to the impending surge in the US budget deficit, forecasted to reach a monumental $1.915 trillion in fiscal 2024, as a contemporary parallel to the fiscal expansions characteristic of past “Local” cycles. The growing deficit – appreciably greater than in prior years and unprecedented outside of the COVID-19 era – is linked to increased government spending akin to past periods requiring government-injected economic stimulants.
Hayes uses these fiscal indicators to propose that much like how past “Local” cycles drove up the valuation for non-state assets, the current fiscal and monetary policies are likely to intensify Bitcoin’s allure and value.
Hayes confidently believes that the same dynamics which surged the value of assets such as gold during past economic turmoil are currently aligning to strengthen the value of Bitcoin. He reasons that in an environment where fiscal and monetary conditions are lax and projected to continue being permissive – holding onto crypto is the perfect strategy to protect wealth.
He concludes, “With the current climate echoing that of the 1930s to 1970s, given the liberty to switch freely between fiat and crypto, I think it is the best move to make considering the impending debasement through the centralised expansion of credit allotment via the banking system.”
As of the latest report, Bitcoin exchange rate stands at $62,649.
Despite falling below $63,000, Bitcoin’s overall momentum remains a key topic of discussion in the market.
