In his recent essay titled “Zoom Out,” Arthur Hayes, the co-founder of crypto exchange BitMEX, delves into the intricate relationship between historical economic cycles and the current financial landscape. Hayes presents a compelling analysis that draws parallels between the economic upheavals of the 1930s-1970s and the potential implications for the ongoing Bitcoin and crypto bull run. By examining the major economic transformations from the Great Depression to the stagnant 1970s, Hayes categorizes these cycles into “Local” and “Global” cycles, highlighting their impact on macroeconomic forces.
Local cycles, as outlined by Hayes, are characterized by intense national focus, which often results in economic protectionism and financial repression. Government responses to severe economic crises prioritize national recovery over global cooperation, leading to inflationary outcomes such as the devaluation of fiat currencies and increased government spending. Hayes notes that during Local cycles, non-fiat assets like gold historically perform well as hedges against inflation and currency devaluation.
In contrast to Local cycles, Global cycles are marked by economic liberalization, encouraging global trade and investment. This trend often leads to deflationary pressures due to increased competition and efficiency in global markets. Hayes emphasizes the impact of these cycles on asset classes, pointing out the historical performance of alternative assets like gold during times of economic uncertainty and inflation.
Hayes draws a direct parallel between the creation of Bitcoin in 2009 and the economic environment of the 1930s. Just as past economic crises led to transformative monetary policies, the financial crash of 2008 and subsequent quantitative easing set the stage for the introduction of Bitcoin. He argues that Bitcoin’s decentralized and state-independent nature positions it as a valuable asset during times of inflation and financial repression, similar to the role gold played in the 1930s.
With its value proposition becoming evident in times of economic volatility, Bitcoin has the potential to serve as a safe haven asset for individuals seeking to preserve wealth amidst currency devaluation and fiscal instability. Hayes highlights the significance of Bitcoin operating outside traditional state systems, emphasizing its appeal in today’s economic climate characterized by loose fiscal and monetary conditions.
Hayes expresses confidence in Bitcoin’s ability to regain its value and asserts that we are in the midst of a new inflationary cycle, reminiscent of the economic dynamics from the 1930s to the 1970s. He predicts that the current fiscal and monetary policies, marked by increased government spending and loose credit allocation, will enhance the appeal and value of Bitcoin. Hayes concludes that holding onto crypto assets is the best way to preserve wealth in the face of debasement through the expansion and centralization of credit allocation.
At the time of writing, Bitcoin is trading at $62,649, reflecting the evolving dynamics of the financial landscape and the potential for Bitcoin to emerge as a transformative asset in the coming economic revolution.
