News
Bitcoin’s Bull Run Is Tied to Economic Echoes of the 1930s-1970s: Hayes
Arthur Hayes, the co-founder of cryptocurrency exchange BitMEX, recently offered a comprehensive analysis in his latest wise“Zoom Out,” drawing compelling parallels between the economic upheavals of the 1930s-1970s and the current financial landscape, focusing in particular on the implications for the Bitcoin and cryptocurrency rally. His in-depth examination suggests that historical economic patterns, if properly understood, can provide a blueprint for understanding the potential resurgence of the Bitcoin and cryptocurrency rally.
Understanding Financial Cycles
Hayes begins his analysis by exploring the major economic cycles from the Great Depression, through the economic booms of the mid-twentieth century, to the stagnation of the 1970s. He categorizes these transformations into what he calls “local” and “global” cycles, which are essential to understanding the larger macroeconomic forces at play.
Local cycles are characterized by intense national focus where economic protectionism and financial repression prevail. These cycles often result from government responses to severe economic crises that prioritize domestic recovery over global cooperation, typically leading to inflationary outcomes due to devaluation of fiat currencies and increased government spending.
Global cycles, in contrast, are characterized by periods of economic liberalization, in which global trade and investment are encouraged, which often leads to deflationary pressures due to increased competition and efficiency in global markets.
Hayes carefully examines the impact of each cycle on asset classes, noting that during local cycles, non-fiat assets such as gold have historically performed well due to their nature as hedges against inflation and currency devaluation.
Hayes draws a direct parallel between the creation of Bitcoin in 2009 and the economic environment of the 1930s. Just as the economic crises of the early 20th century led to transformative monetary policies, the 2008 financial crash and subsequent quantitative easing set the stage for Introduction of Bitcoin.
Why Bitcoin’s Bull Run Will Resume
Hayes argues that Bitcoin’s emergence during what he calls a renewed local cycle, characterized by global recession and significant central bank intervention, mirrors past periods when traditional financial systems were under stress and alternative assets like gold gained prominence.
Expanding on the analogy between the gold of the 1930s and today’s Bitcoin, Hayes explains how gold served as a safe haven in times of economic uncertainty and rampant inflation. He argues that Bitcoin, with its decentralized and state-independent nature, is well-suited to serve a similar purpose in the current volatile economic climate.
“Bitcoin operates outside of traditional state systems, and its value proposition becomes especially apparent in times of inflation and financial repression,” Hayes notes. This characteristic of Bitcoin, he argues, makes it an indispensable asset for those seeking to preserve wealth amid currency debasement and fiscal instability.
Hayes highlights the significant increase in the US budget deficit, which is expected to reach $1.915 trillion in fiscal year 2024, as a modern indicator that parallels the fiscal expansions of past local cycles. This deficit, significantly higher than in previous years, marks the highest level outside the era of COVID-19It is attributed to increased government spending, similar to historical periods of government-induced economic stimulus.
Hayes uses these fiscal indicators to suggest that, just as past local cycles have led to an increase in the value of non-state assets, current fiscal and monetary policies are likely to increase the attractiveness and value of Bitcoin.
“Why am I so sure that Bitcoin will regain its appeal? Why am I so sure that we are in the midst of a new mega-local, primarily nation-state, inflationary cycle?” Hayes asks rhetorically in his essay. He believes that the same dynamics that have driven the value of assets like gold during past economic upheavals are now aligning to bolster the value of Bitcoin.
He concludes: “I believe that fiscal and monetary conditions are flexible and will continue to be so, and therefore holding cryptocurrencies is the best way to preserve wealth. I am sure that today will rhyme with the 1930s-1970s, and that means that since I can still freely move from fiat to cryptocurrencies, I should do so because devaluation through the expansion and centralization of credit allocation through the banking system is coming.”
At press time, BTC was trading at $62,649.
Featured Image from YouTube / What Bitcoin Did, Chart from TradingView.com