- Arthur Hayes, BitMEX Co-founder, presents a compelling argument linking the recent crypto market rally to increased U.S. military spending, rather than the much-talked-about Bitcoin ETF anticipation.
- As institutional investors shift their assets from bonds to alternative investments like gold and crypto, Hayes emphasizes the importance of understanding the underlying causes driving market movements.
Understanding the Market Dynamics
The cryptocurrency market has recently experienced a notable rally, capturing the attention of investors and analysts alike. Arthur Hayes, the co-founder of the BitMEX derivatives exchange, offers a unique perspective, attributing this surge not to the widely speculated Bitcoin ETF anticipation, but to the increased U.S. military expenditure and its associated impacts.
A Deep Dive into the Causes
In his thought-provoking essay titled “The Periphery,” published on October 24, Hayes delves into the intricate relationship between U.S. foreign policy, military spending, and the subsequent reactions in the financial markets. He draws a connection between President Joe Biden’s commitment to supporting Israel in its conflict with Hamas, and the burgeoning U.S. military budget, predicting an imminent explosion in government borrowing and military expenditures.
“With America’s military budget poised for a substantial increase, it’s only logical to foresee a corresponding surge in government borrowing. The financial implications of war are colossal, with virtually no upper limit to the potential depletion of resources,”
The Shift in Institutional Investment
Hayes observes a strategic move by institutional investors, as they gradually distance themselves from bonds and treasury bills, anticipating the ramifications of the expanded U.S. military spending. He posits that these investors are now on the lookout for more lucrative returns from alternative asset classes.
“If traditional safe havens like long-term U.S. Treasury bonds are no longer deemed secure, investors will inevitably seek refuge in alternatives. This is where assets like gold, and more significantly, Bitcoin, come into play, potentially experiencing a surge as global wartime inflation fears intensify,”
Comparative Market Movements
At a time when Bitcoin experienced a remarkable 19.5% increase over a week, many attributed this rally to progress in BlackRock’s application for a Bitcoin-focused ETF. The overall capitalization of digital assets concurrently rose by 12.6%. Hayes, however, highlights the simultaneous rally in gold, which has seen an 8.6% increase since October 4, trading at $1,975 per ounce according to Market Index, underscoring his argument that the market movements are more closely tied to geopolitical tensions and military spending than ETF speculations.