In the second scenario, the conflict escalates dramatically, culminating in the destruction of Middle Eastern oil infrastructure, closure of the Straits of Hormuz, or a nuclear attack, leading to the PWL failing and causing an “avalanche in the financial markets.” Expressing his concerns, Hayes states: “War is uninvestable, as they say.” He faces a strategic choice regarding his investment portfolio: whether to continue converting fiat currency into crypto or to reduce his crypto exposure in favor of cash or US Treasury bonds.“I don’t want to be under-allocated if this truly is the start of the next leg higher in the crypto bull market,” he explains.“Still, I also don’t want to incinerate capital if Bitcoin drops 50% in a day because Israel/Iran triggered a persistent slab financial markets’ avalanche.
To navigate this dilemma, Hayes conducts a scenario analysis focusing on how the second, more severe scenario could impact crypto markets, particularly Bitcoin, which he refers to as the “crypto reserve asset.” He considers three primary risks: physical destruction of Bitcoin mining rigs, a dramatic rise in energy prices, and monetary implications resulting from the conflict.
Drawing an analogy from avalanche science, Hayes explores how the geopolitical situation in the Middle East could act as a “persistent weak layer” (PWL) that might trigger significant financial market upheavals, affecting Bitcoin and crypto prices.
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