Arthur Hayes on the Connection Between Geopolitical Tension and Expansive Monetary Policy

Artur Hays, co-founder of the cryptocurrency exchange BitMEX, offers an original perspective on the relationship between Middle Eastern conflicts, government spending, and the monetary policy of the U.S. Federal Reserve System. His analysis is based on decades of historical data and provides important signals for investors monitoring Bitcoin price movements.

Main Hypothesis: Military actions generate fiscal pressure

According to Artur Hays, there is a clear pattern in American economic history: when the United States engages in armed conflicts in the Middle East, especially large-scale government restructuring operations, significant fiscal burdens arise. These burdens require funding, which inevitably leads to changes in monetary policy.

Hays notes that spending on supporting veterans of military actions increases nearly twice as fast as overall federal expenditures. In addition to direct military costs, there are financial consequences: rebuilding local infrastructure, maintaining military bases, providing aid to allies, and supporting new political elites in the region.

Pattern: The Fed responds to crises with easing policies

The core idea of the analysis is that the U.S. Federal Reserve (Fed) consistently reacts to military crises by lowering interest rates or implementing quantitative easing programs. Artur Hays supports this hypothesis with an analysis of four historical periods.

1990: Gulf War

When the first U.S. operation in the Middle East began in the post-Cold War period, the Fed was cautious but quickly shifted course. At the FOMC meeting on August 21, 1990, it was noted: “The increased uncertainty related to Middle East events and the possible consequences in the form of weaker economic activity make the development of effective monetary policy extremely difficult.” Committee members were concerned about the potential for significant oil price increases, which could cause inflationary pressures.

The result was a consistent cycle of lowering the federal funds rate throughout November and December 1990. This strategy aimed to offset weak economic activity and stabilize asset prices amid instability.

2001: Global War on Terror

After the September 11, 2001 attacks, the Fed took emergency measures. The then-chairman Alan Greenspan virtually immediately cut the federal funds rate target by 50 basis points, citing the need to stabilize financial markets. Greenspan emphasized that falling asset prices and deflationary pressures required “easier money” as treatment.

In the following years, as the U.S. launched military operations in Afghanistan and Iraq, the Fed continued to steadily lower rates, initiating a period of cheap capital that lasted until 2004.

2009: Troop surge in Afghanistan

Although President Barack Obama did not start a new large-scale war, he significantly increased troop levels in Afghanistan. By then, the Fed was already in an extreme stimulation mode: the rate was near zero, and the agency had begun an aggressive quantitative easing (QE) program.

Hays highlights that during this period, the cost of capital effectively approached zero, and market liquidity became nearly unlimited. The U.S. military-industrial complex, its contractors, and financial institutions reaped unprecedented benefits from this rare convergence of military shared interests and monetary easing.

Current situation: Iran scenario and monetary policy

Artur Hays considers the scenario of possible U.S. intervention in Iran as the next step in a pattern repeated over four decades. Depending on how deeply Washington becomes involved in restructuring Iran’s political system, costs could reach several trillion dollars.

If this scenario unfolds, the Fed will have strong incentives to loosen monetary policy. As Hays notes, ignoring the Fed’s implicit commitments to finance government spending would be seen as “unpatriotic” by the political elite of both parties.

Why this matters for Bitcoin investors

Artur Hays bases his trading decisions on this historical pattern. His logic is simple: expanded monetary policy by the Fed, triggered by costly military adventures, puts pressure on the cost of capital and expands the money supply. This creates a favorable environment for rising risk asset prices, including cryptocurrencies.

However, Hays recommends patience. The true moment to enter the Bitcoin market is not at the start of a geopolitical conflict but after the Fed officially signals easing policies. When the Fed activates rate cuts or restarts QE programs, it will be a signal to buy quality assets, including Bitcoin and leading altcoins.

Final conclusions

Artur Hays demonstrates that understanding the dynamics of the relationship between geopolitical tension, government spending, and monetary policy can be a valuable compass for navigating markets. His analysis does not offer quick solutions but instead urges investors to observe changes in the political landscape and monetary signals before making significant bets on the crypto market.