Arthur Hayes: The flames of war in the Middle East rise, Bitcoin is bullish

Original Title: iOS Warfare

Original Author: Arthur Hayes

Original Compilation: Peggy, BlockBeats

Editor's Note: From the Gulf War to the global war on terror, and then to the "surge" in Afghanistan, the U.S. military actions in the Middle East have almost spanned the international political cycles of the past few decades. Accompanying these wars are not only geopolitical conflicts and massive financial expenditures but also a frequently overlooked variable: monetary policy.

This article reviews several key wartime nodes since 1990, outlining the subtle relationship between war, fiscal pressure, and Federal Reserve policy: after multiple Middle Eastern conflicts, the Federal Reserve often stabilizes the economy and financial markets through interest rate cuts or easing policies. Based on this, Arthur Hayes (co-founder of BitMEX) presents a market-oriented observation: when geopolitical conflicts escalate and fiscal spending expands, a loose monetary environment often follows, which may have significant implications for risk assets, including Bitcoin.

Here is the original text:

Under the guidance of the "most peace-loving president" in American history, Donald J. Trump, the U.S. "Department of War" partnered with OpenAI to launch an offensive proxy AI weapon: a new and deadly Apple iOS. Once this operating system is implanted into a country's network infrastructure, it attempts to instigate a "regime change." Such regime changes are often accompanied by indiscriminate bombings of military and civilian infrastructure, resulting in massive casualties, with costs often reaching hundreds of billions, or even trillions, of dollars.

After the local political resistance is crushed, a new political elite, supported by the U.S., emerges. They draw funds from American taxpayers while also extracting resources from the local society, depositing these funds into their asset pools in private wealth accounts at JPMorgan Chase. Over time, public dissatisfaction with this "Vichy-style regime" supported by the U.S. accumulates, often culminating in violent uprisings that replace it with a more localized, and often more reactionary, oppressive, or even bloodthirsty political structure.

Thus, this entire "sales cycle" is completed, and OpenAI can smoothly launch the next generation of products. Are you already eager for an OpenAI IPO priced with a "future price-to-earnings ratio of infinity"?

Since 1985, the year my consciousness began recording human experiences in this so-called "quantum continuum," "American peace" (Pax Americana) has almost never ceased its crusade against oil-producing countries in the Middle East and key geopolitical nodes of oil and gas pipelines in the name of "justice." Take a look at this chart generated by Perplexity's latest computer model and feel its "grandeur."

From a macro perspective, this chart attempts to present the human costs of war. It focuses on three indicators: the share of spending on the Department of Veterans Affairs (VA) in the U.S. federal budget, the nominal total spending of the federal government, and the effective federal funds rate. Additionally, the chart marks a series of representative (but not exhaustive) missile strikes or full-scale war events initiated by the U.S. against Middle Eastern countries.

Data shows that the growth rate of spending on veterans is nearly twice that of the overall federal budget. More importantly, and this is the focus of this article, almost every time "American peace" (Pax Americana) initiates a significant "selective war" in the Middle East, the Federal Reserve tends to quickly lower the cost of funds. Despite every U.S. president during my lifetime trying to convince the public that those Middle Eastern wars, which appear like video games on evening news, do not inflict real pain on the only "important humans" in the universe—American soldiers—the data clearly indicates that America's obsession with military adventures in the Middle East is consuming American lives in an extremely costly manner.

The so-called "ovarian lottery" allowed me to be born on this continent, defined by humans with crooked lines, known as "America." In the past forty years of my life, whether under a "red team" Republican president or a "blue team" Democratic president, missiles have been launched at some "deserving of attack" country in the Middle East, or even full-scale wars have been initiated. It seems that once elected president, senior bureaucrats take you into some super-secret room, clamp your testicles with pliers, and make you swear: during your term, at least one Middle Eastern country must feel the "fiery temperature of democracy," or else face the consequences.

Whether you believe in the various popular conspiracy theories explaining why the U.S. bombs a certain Middle Eastern country, this chart presents a fairly clear fact during my lifetime: since 1985, every U.S. president has engaged in military conflict with one or more Middle Eastern countries. Therefore, when President Trump now talks about potentially "assassinating" Iran's Supreme Leader Khamenei and openly supporting the "people's revolution" to overthrow the Iranian theocracy, we investors must consider: how will our investment portfolios be affected as Trump embarks on the "political rite of passage" that every U.S. president has experienced?

Considering that I am just a simple-minded crypto bro with a bit of "toxic masculinity," I judge that the logic of Bitcoin's rise and fall is actually very simple.

The longer Trump invests in the extremely costly endeavor of "nation-building" in Iran, the more likely the Federal Reserve is to lower the cost of funds and increase the money supply to finance a new round of military adventures for "American peace" in the Middle East.

To validate this hypothesis, let’s review the historical policy actions of the Federal Reserve following each significant military conflict in the Middle East since 1985.

1990 Gulf War: "Father" (President George H.W. Bush)

At the first FOMC meeting after the war broke out, the Federal Reserve chose to keep interest rates unchanged but hinted that if the war lasted too long, monetary easing might be necessary.

Here is a direct quote from the FOMC statement, compiled by Perplexity for me.

August 21, 1990: "The rising uncertainty from events in the Middle East and the potential for economic performance to fall short of expectations make the formulation of effective monetary policy extremely complex." "Several members believe that developments are likely to point in one direction—namely, that at some point, it will be necessary to ease policy to counteract the weakening economic trends that are already evident before oil prices rise."

Subsequently, the Federal Reserve cut interest rates in November and December 1990, describing the war as an important source of uncertainty affecting decision-making in a more subtle manner. The Gulf War ultimately ended in March 1991.

"A significant decline in business and consumer confidence likely reflects not only developments in the Middle East itself but also uncertainty about future changes in the region and their impact on oil prices."

In other words, the Federal Reserve chose to ease policy even against the backdrop of rising inflationary pressures from soaring oil prices.

2001 Global War on Terror (GWOT): "Son" (President George W. Bush)

The "Global War on Terror" quickly unfolded after the collapse of the Twin Towers in New York. Shortly thereafter, Iraq and Afghanistan became targets of cruise missile strikes. To stabilize economic confidence, the Federal Reserve almost immediately accelerated the pace of interest rate cuts.

At an emergency meeting following the attacks, then-Federal Reserve Chairman Alan Greenspan, known as "the Maestro," stated: "Clearly, the events of last week have at least brought a higher degree of fear and uncertainty, which has put significant downward pressure on asset prices and increased the probability of asset price deflation, with obvious implications for the economy. Therefore, I propose to lower the federal funds rate target by 50 basis points."

Essentially, if economic confidence under the "American peace" system wavers and leads to falling asset prices, the Federal Reserve must act swiftly. And the usual "prescription" is cheaper and more abundant money.

Another statement from the Federal Reserve also reveals a fact: when necessary, the Federal Reserve will fulfill its duty to assist the government in financing the war machine.

November 6, 2001: FOMC Statement

"Although the reallocation of resources for security may temporarily limit productivity gains, the long-term outlook for productivity growth and the overall economy remains positive."

2009 "Surge": "Holy Spirit" (President Barack Obama)

Ordinary people in Iraq, Syria, and Afghanistan might have thought that a Nobel Peace Prize-winning president would not rain hellfire on their countries. But it turned out that this expectation was merely an illusion, and false hope is often the most lethal.

Although Obama did not initiate a new large-scale war in the Middle East, he did expand troop levels in the Afghan War (the so-called "surge"), as he viewed it as a "just war."

Given that the Federal Reserve had already lowered interest rates to zero by the end of 2008 and began large-scale "printing money" through quantitative easing (QE), there were almost no further monetary policy actions available when Obama expanded troop deployments to the Middle Eastern theater. The cost of funds was nearly zero, and liquidity was almost infinitely supplied. The U.S. war machine and its contractors naturally feasted on this.

2026 Iran: "Messiah" (President Donald Trump)

Fate seems to have played a rather ironic joke: after surviving an assassination attempt during the 2024 presidential campaign, Trump almost seems to have "come back to life." As Kanye sang: "Jesus walks." Now I guess I can talk about Kanye—after all, he has "bowed down," right?

Trump's performance in office, as well as the re-election prospects of his "red team" Republican members in the November elections, will largely depend on whether financial asset markets rise or fall, and whether oil prices decrease or increase. Since the overthrow of the Iranian Shah Pahlavi in 1979, pushing for regime change in Iran has been a long-standing obsession of the elite political class in both U.S. parties. In this context, the Federal Reserve has complete political "legitimacy" to significantly ease monetary policy. If the Federal Reserve fails to fulfill its duty by providing financing for the plan to "rebuild Iran as a U.S. vassal state" through cheaper and more abundant money, it would be seen as "unpatriotic."

Trading Strategy

At this moment, we do not know how long Trump will maintain his interest in reshaping Iran's political structure—this could cost hundreds of billions or even trillions of dollars. We also do not know how much political pain he can endure before choosing to back down in the face of geopolitical and financial market pressures.

Therefore, a more cautious approach is to wait and see how the situation develops.

The real time to "go all in" is when the Federal Reserve lowers interest rates or resumes money printing to align with the government's policy objectives in Iran. At that point, it would be time to buy a large amount of Bitcoin and quality altcoins like $HYPE.

Take care, friends.