Arthur Hayes, the founder of the crypto exchange BitMEX, recently provided a comprehensive analysis in his latest essay, “Zoom Out,” drawing strong parallels between the economic turmoil of the 1930-1970s and today’s financial situation, particularly focusing on outcomes. of Bitcoin and the crypto bull run. His in-depth analysis shows that historical economic patterns, when properly understood, can provide a blueprint for understanding the potential revival of Bitcoin and the crypto bull run.
Understanding Financial Cycles
Hayes begins his analysis by looking at major economic cycles from the Great Depression, through the mid-20th century, to the stagnant 1970s. He divides these changes into what he calls “Local” and “Global” cycles, which are central to understanding the dynamics of many economies at work.
Local Cycles are characterized by large national concentrations where economic protectionism and financial repression prevail. These cycles often result from government responses to major economic crises that prioritize national stability over global cooperation, often leading to inflationary effects due to devaluation of fiat currencies and increases in government spending.
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Global Cycles, in contrast, are characterized by periods of economic liberalization, when global trade and investment are encouraged, often leading to inflationary 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 depreciation.
Hayes draws direct parallels between the creation of Bitcoin in 2009 and the economic situation of the 1930s. Just as the economic crises of the early 20th century led to monetary policies, the financial crash of 2008 and subsequent price easing set the stage for the launch of Bitcoin.
Why the Bitcoin Bull Run Will Begin Again
Hayes argues that the emergence of Bitcoin during this time points to a renewed Local cycle, characterized by a global economic recession and significant central bank intervention, mirrors past times when traditional financial systems were under pressure, and alternative assets such as gold rose significantly.
Extending the analogy between gold in the 1930s and Bitcoin today, Hayes explains how gold served as a safe haven during times of economic uncertainty and rampant inflation. He suggests that Bitcoin, with its decentralized and sovereign nature, is well-suited to serve a similar purpose in today’s volatile economic climate.
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“Bitcoin operates outside of traditional government systems, and its value proposition is particularly evident in times of inflation and financial stress,” Hayes notes. He says this aspect of Bitcoin makes it a valuable asset for those looking to preserve wealth amid inflation and financial volatility.
Hayes points to the large increase in the US budget deficit, which is expected to reach $1.915 trillion in fiscal year 2024, as a modern indicator that is consistent with the fiscal expansion of previous domestic cycles. This deficit, much higher than in previous years, marking the highest level outside of the COVID-19 era, is due to increased government spending similar to historical periods of government-induced economic stimulus.
Hayes uses these financial indicators to suggest that since past Space cycles have led to an increase in the valuation of non-government assets, current fiscal and monetary policies are likely to improve the attractiveness and value of Bitcoin.
“Why am I confident that Bitcoin will regain its mojo? Why am I convinced that we are in the midst of a new mega-local, national first, deflationary cycle?” Hayes asks casually in his story. He believes that the same forces that drove the value of assets like gold during past economic crises are now coinciding to strengthen the value of Bitcoin.
He concluded, “I believe that monetary and financial conditions are not good and will continue to be loose, therefore, hodl’ing crypto is the best way to preserve wealth. I’m sure today will match the 1930’s to 1970’s, and that means, as long as I can switch from fiat to crypto, I have to because the decentralization of credit distribution through the banking system is coming. “
At press time, BTC traded at $62,649.
Featured image from YouTube / What Bitcoin is Doing, chart from TradingView.com
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