In his recent essay titled “Zoom Out,” Arthur Hayes, co-founder of crypto exchange BitMEX, delves into a comprehensive analysis that draws intriguing parallels between economic upheavals of the 1930s to 1970s and today’s financial landscape. Hayes focuses specifically on the implications for the Bitcoin and crypto bull run. He begins his analysis by exploring major economic cycles ranging from the Great Depression through the mid-20th century economic booms to the stagnant 1970s. Hayes categorizes these cycles into “Local” and “Global” cycles, emphasizing the broader macroeconomic forces at play.
Local Cycles are characterized by intense national focus, where economic protectionism and financial repression prevail. These cycles often emerge as responses to severe economic crises, prioritizing national recovery over global cooperation. This leads to inflationary outcomes due to fiat currency devaluation and increased government spending. In contrast, Global Cycles are marked by economic liberalization, encouraging global trade and investment. This results in deflationary pressures due to enhanced competition and efficiency in global markets.
Impact on Asset Classes
Hayes carefully examines the impact of each cycle on asset classes, noting that during Local cycles, non-fiat assets like gold historically perform well as hedges against inflation and currency devaluation. Drawing a parallel between the creation of Bitcoin in 2009 and the economic environment of the 1930s, Hayes argues that Bitcoin emerged during a renewed Local cycle, mirroring past periods where traditional financial systems were under stress, and alternative assets like gold gained prominence.
Expanding on the analogy between gold in the 1930s and Bitcoin today, Hayes highlights how gold served as a safe haven during times of economic uncertainty and rampant inflation. He posits that Bitcoin, with its decentralized and state-independent nature, is well-suited to serve a similar purpose in today’s volatile economic climate. Hayes emphasizes that Bitcoin operates outside traditional state systems, making it an indispensable asset for preserving wealth amidst currency devaluation and fiscal instability.
Hayes points out the significant surge in the US budget deficit, projected to reach $1.915 trillion in fiscal 2024, as a modern indicator paralleling past Local cycles. This deficit, attributed to increased government spending, indicates loose fiscal and monetary policies. Hayes uses these indicators to suggest that current policies are likely to enhance the appeal and value of Bitcoin. He believes that Bitcoin will regain its value due to aligning dynamics similar to those that drove the value of gold during past economic upheavals.
Hayes rhetorically questions why he is confident that Bitcoin will regain its momentum and why the world is amidst a new mega-local, nation-state first, inflationary cycle. He believes that the loose fiscal and monetary conditions will continue, making hodling crypto the best way to preserve wealth. Hayes is confident that the current period will resemble the 1930s to the 1970s and that moving from fiat to crypto is advisable due to impending debasement through credit expansion and centralization.
Hayes’ analysis provides a thought-provoking insight into the potential revival of the Bitcoin and crypto bull run amidst shifting economic landscapes. As Bitcoin continues to garner attention as a safe haven asset in times of economic uncertainty, Hayes’ perspective offers a compelling narrative on the future of cryptocurrencies.
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