Controversial cryptocurrency figure Arthur Hayes is back with another dose of crypto market analysis, this time taking aim at runaway US military spending and its impact on Bitcoin.
In a new blog post titled “The Periphery” , the co-founder of the BitMEX cryptocurrency derivatives exchange argues that America’s open-ended commitment to support allies like Israel and Ukraine in regional conflicts will bankrupt the nation.
Hayes believes this increased defense spending will force the Federal Reserve to ramp up money printing, saying “Once everyone realizes the game we are playing, the Bitcoin and crypto bull market will be in full swing.”
The trading guru points to recent bond market volatility as a sign that investors are losing faith in US debt, explaining that “a ‘bear steepener’ in the yield curve, with long-term rates rising faster than short-term rates, indicates concerns over future borrowing costs.”
“If US defence spending is entering ludicrous mode, then there will be trillions more borrowed to support the war machine,” wrote Hayes.
According to Hayes, hedging activity by banks caught on the wrong side of interest rate swaps will exacerbate the spike in long-term yields. At the same time, an inflated military budget will compel the US Treasury to issue more debt across all maturities.
The BitMEX co-founder also notes that recent gains in safe-haven assets like gold and Bitcoin, even as yields climb, show “investors are preparing for higher inflation due to increased government spending.”
The US, which spends more on its military budget than the next 10 countries combined, has seen its federal budget deficit nearly double to $1.7 trillion in the 2023 fiscal year. Meanwhile, US payment on debt has risen to nearly $659 billion, nearly doubling in two years.
The spending taps aren’t coming off another time soon, either. On Friday, October 20, President Biden’s administration formally requested over $100 billion in emergency funding from Congress, covering military support for Ukraine and Israel, humanitarian aid for these nations and Gaza.
While an approval of a spot Bitcoin ETF could certainly ignite a crypto rally, Hayes believes there are larger forces at play, saying “This is Bitcoin discounting a future, very inflationary global world war situation.”
With a bleak macroeconomic outlook, he recommends rotating out of short-term Treasuries and into Bitcoin and Ether as a hedge, stating “This is the trigger, and it’s time to start rotating out of short-term US Treasury bills and into crypto.”
Once widely respected as an insightful macro trader, Hayes has courted controversy since co-founding BitMEX in 2014. The exchange, known for its high-leverage crypto derivatives trading, has faced numerous legal issues.
In 2020, Hayes stepped down as CEO after being charged by US authorities for violating banking laws. He remains active as a market commentator, frequently criticizing central bank policies in his blog and interviews.
In May 2022, Hayes was sentenced to six months of home detention for violating the Bank Secrecy Act by failing to implement anti-money laundering measures. Hayes profited from illicit U.S.-based trading and failed to report suspicious transactions, ultimately leading BitMEX to become a potential money laundering platform.