Arthur Hayes, the co-founder of crypto exchange BitMEX, recently offered an in-depth analysis in its latest release essay, “Zoom Out,” drawing compelling parallels between the economic upheavals of the 1930s and 1970s and the current financial landscape, focusing primarily on the implications for Bitcoin and crypto’s bull run. His in-depth research suggests that historical economic patterns, when properly understood, can provide a blueprint for understanding the potential revival of the Bitcoin and crypto bull run.
Understanding financial cycles
Hayes begins his analysis by exploring the major economic cycles, starting with the Great Depression, through the economic boom of the mid-20th century, and into the stagnant 1970s. He categorizes these transformations into what he calls ‘local’ and ‘global’ cycles, which are crucial for understanding the broader macroeconomic forces at play.
Local cycles are characterized by an intense national focus where economic protectionism and financial repression prevail. These cycles often arise from government responses to severe economic crises that prioritize national recovery over global cooperation, typically leading to inflationary outcomes due to the devaluation of fiat currencies and increased government spending.
Related reading
In contrast, global cycles are characterized by periods of economic liberalization, during which global trade and investment are encouraged, often leading 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 non-fiat assets such as gold have historically performed well during local cycles due to their nature as a hedge against inflation and currency devaluation.
Hayes draws a direct parallel between the creation of Bitcoin in 2009 and the economic climate of the 1930s. Just as the economic crises of the early 20th century led to transformative monetary policy, the financial crash of 2008 and subsequent quantitative easing paved the way for the introduction of Bitcoin.
Why the Bitcoin Bull Run Will Resume
Hayes argues that Bitcoin’s rise during what he identifies as a renewed local cycle, marked by the global recession and significant central bank interventions, reflects past periods when traditional financial systems were under pressure and alternative assets such as gold became increasingly important.
Hayes builds on the analogy between gold in the 1930s and Bitcoin today, explaining 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 today’s volatile economic climate.
Related reading
“Bitcoin operates outside 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 looking to preserve wealth amid currency devaluation and fiscal instability.
Hayes points to the significant increase in the U.S. budget deficit, which is expected to reach $1.915 trillion in fiscal year 2024, as a modern indicator that parallels the fiscal expansions of previous local cycles. This deficit, which is significantly higher than in previous years and marks the highest level outside the COVID-19 era, is attributed to higher government spending, similar to historical periods of government-induced economic stimulus.
Hayes uses these fiscal indicators to suggest that, just as previous local cycles have led to higher valuations of non-sovereign assets, current fiscal and monetary policies are likely to increase Bitcoin’s appeal and value.
“Why am I confident that Bitcoin will regain its mojo? Why am I confident that we are in the midst of a new mega-local, nation-state-first inflationary cycle?” Hayes asks rhetorically in his essay. He believes that the same dynamics that drove the value of assets like gold during previous economic upheavals are now adapting to strengthen Bitcoin’s value.
He concludes: “I believe that fiscal and monetary conditions are and will remain loose, and therefore hodling crypto is the best way to preserve wealth. I am convinced that today will rhyme with the 1930s to 1970s, and that means that since I can still move freely from fiat to crypto, I must do so because a humiliation is coming due to the expansion and centralization of credit allocation through the banking system.”
At the time of writing, BTC was trading at $62,649.
Featured image from YouTube / What Bitcoin Did, chart from TradingView.com