Top cryptocurrencies such as Bitcoin, Ethereum, and the rest of the market saw significant declines in early October due to rising geopolitical tensions between Iran and Israel, sparking fears about the stability of digital assets as a “safe haven.”
Although prices have since recovered by mid-October, lingering concerns about market volatility persist.
Evaluating Bitcoin Amidst Mounting Global Geopolitical Risks
In his latest blog post, BitMEX co-founder Arthur Hayes reflected on the precarious state of global geopolitics and its potential impact on financial markets, including Bitcoin and crypto. He compared the situation to a persistent weak layer (PWL) in avalanche science – something that remains dormant but can be triggered by stress, leading to catastrophic outcomes.
Hayes said that currently, two scenarios are at play. First, where the conflict remains contained, leading to minor market disruptions. Meanwhile, in the second scenario, the conflict escalates, possibly causing the destruction of Middle Eastern oil infrastructure or even nuclear attacks.
In the latter scenario, the former BitMEX CEO expressed fears of a financial market avalanche, which could eventually trigger a sharp drop in Bitcoin and other cryptocurrencies.
“I will evaluate the effects of the second scenario as it impacts crypto markets specifically, but mostly Bitcoin. Bitcoin is the crypto reserve asset, and the entire crypto capital market will follow its lead.”
Hayes said that he finds himself conflicted about whether to keep investing in crypto amid widespread money printing and reflation or scale back and safeguard his capital in anticipation of a potential market crash. He stressed the need for careful scenario analysis, while simultaneously pointing out the risks tied to speculative investments like meme coins, especially during volatile geopolitical situations.
Despite stacking up several meme coins, Hayes admitted to having cut those positions dramatically after Iran launched its latest barrage of missiles at Israel.
No Long-Term Impact if Iran’s Mining Infrastructure Is Destroyed
Certain reports suggest that Iran contributes up to 7% of the global Bitcoin hash rate. If a scenario emerges where Iran’s mining operations were wiped out due to internal issues like energy shortages or missile strikes from a war with Israel or the US, Hayes argues that this would have no real impact on Bitcoin’s network.
He drew a parallel to China’s mining ban in 2021, which temporarily reduced the global hash rate by 63%. Even after such a notable decrease, the hash rate fully recovered within eight months, and BTC’s price continued to rise, reaching a new all-time high in November 2021.
As such, if Iran’s mining rigs were destroyed, the remaining global mining operations would compensate for the lost hash rate over time. Thus, even the complete destruction of Iran’s mining infrastructure would not affect Bitcoin’s long-term network security or price.
