Arthur Hayes: Almost zero trading in Q1, the AI unemployment wave and the Iran war have kept me on the sidelines
Original Author: Arthur Hayes
Original Translation: Shenchao TechFlow
Introduction: BitMEX founder Hayes rarely admits that he hardly traded in the first quarter. He believes the market is standing on the edge of two cliffs: AI will destroy the job prospects of American white-collar workers, leading to a deflationary collapse, and the Iran war could completely rewrite the dollar's hegemony. Bitcoin may drop first, but ultimately it will outperform all mainstream assets.
(This article only represents the author's personal views and should not be used as a basis for investment decisions, nor should it be considered investment trading advice.)
Want to know more? Follow the author on Instagram, LinkedIn, and X.
Due to the very light trading of the Maelstrom fund in the first quarter, many brokers occasionally contact me to ask for my views on the market and what they can do for us. My answer is: "This is a non-trading zone." Other than slowly increasing our long positions on Hyperliquid, we hardly made any trades in the first quarter. Two factors combined created a trading dead zone, at least for our pure long positions.
The surge of AI agents will destroy the job prospects of ordinary knowledge workers in the developed economies of the West (mainly the U.S.), which will trigger a deflationary financial collapse. I wrote about this topic in "This Is Fine." Since that article was published, to turn Iran into the latest dumpster, U.S. President Trump, with the support of Israeli Prime Minister Netanyahu, launched a selective war against Iran. The war has lasted nearly seven weeks, and the only important question is how the flow of goods and commodities through the Strait of Hormuz will be arranged.
I always declare when I express views on war or geopolitics that I am just a simple skiing enthusiast and a crypto player who dances to house music. I have no insider information on what wars or global leaders will do. But I can read mainstream propaganda narratives and use AI agents to perform simple calculations with publicly available information. I try to filter out the noise and focus on what matters for my portfolio. Fortunately, I do not live in the Levant or the Middle East, so my life and freedom are not at risk.
In my simplified worldview, there are three scenarios to consider; actually four, but the fourth, nuclear war, is uninvestable, so there's no need to write about it. I will present each one and then delve into how they might affect Bitcoin prices. I don't know the probabilities of each scenario. But what I want to figure out is whether there exists a portfolio configuration that can outperform hydrocarbons and their derivatives like food and fuel prices in the best case, and in the worst case, although underperforming hydrocarbons, can still outperform all major asset classes.
Scenario One: Return to Normal
In this scenario, the war ends immediately, and the pre-war status quo is restored. However, the long-term trend of replacing expensive digital symbol-manipulating knowledge workers with cheaper and more efficient AI agents continues. The U.S. economy is most vulnerable because about 70% of its GDP is driven by consumer spending. Consumers finance materialistic consumption with bank credit, and these loans become assets on the banks' balance sheets. If ordinary knowledge workers lose their ability to repay, these banks will effectively be insolvent and will require massive money printing from the central bank.
Scenario Two: Tehran Toll Booth
In this scenario, the U.S. military is unwilling or unable to stop Iran from restricting ships passing through the Strait of Hormuz. Iran fulfills its promise to allow "friendly" ships to pay 2 million RMB, cryptocurrencies, sanctioned dollars, or other diplomatic arrangements to pass through the strait. The worst-case scenario for U.S. financial hegemony is that countries now have to find ways to obtain RMB. Given that most countries have a trade deficit with China, the only way to raise RMB on a large scale is to sell dollar assets (like U.S. Treasuries or U.S. tech stocks), buy physical gold, and then sell the gold for RMB through the Shanghai or Hong Kong gold markets. Among the top ten economies by GDP, only Brazil and Russia have a trade surplus with China, ranking ninth and tenth respectively. In contrast, the U.S. has the largest trade deficit of all economies, financed by an equally large capital account surplus. However, as countries sell dollar assets to raise RMB or buy commodities at extremely high prices in the spot market, the empire's capital surplus will mathematically decline. A financialized U.S. economy needs foreign capital to finance government spending; without it, the numbers won't add up. Ultimately, falling bond prices or rising yields and declining stock prices will require money printing to finance the government.
Scenario Two Point Five: Stars and Stripes Blockade
Interestingly, after U.S. and Iranian negotiators failed to reach a permanent ceasefire agreement, on Sunday, April 12, Trump announced that the U.S. Navy would blockade all ships entering and leaving the strait. Perhaps this blockade will evolve into a pirate baron toll, where ships must pay double tolls to both Iran and the U.S. and then shout "God is great" and "Hallelujah." Or perhaps too many exemptions issued to this or that country afterward will make the blockade just a moldy Swiss cheese. The above point still stands; if holding dollars cannot guarantee that pirates won't sink your ship, why hold dollars at all?
Scenario Three: Empire Strikes Back
In this scenario, the U.S. Air Force and Navy do what they should do, destroying the Islamic Revolutionary Guard's ability to disrupt shipping in the Strait of Hormuz through punitive long-range bombing. The strait reopens, and any ship can pass safely without additional fees. The restoration of powerful imperial hegemony eliminates the need for countries to use any currency other than the dollar, nor do they need to bid for expensive goods in the spot market, at least for a few days. The problem is that ending Iran's control over the strait likely means the complete destruction of that country. Or, as Trump said, "send them back to the Stone Age." Many Americans, who have been indoctrinated since birth that Iran is the most evil country on Earth, cheer for this tough stance against the number one enemy. However, destroying Iran in this way means that as Iran takes its last breath, they will fulfill their promise to take the other goods and energy production of the Gulf region to the grave with them. Spices will absolutely not flow, and global central banks will have no choice but to print money to save the global financial system as commodities soar.
If you live in some broken countries, your local currency will experience hyperinflation against the dollar or the ruble. The U.S. and Russia will be the only large swing producers left capable of filling the gap left by a scorched earth in the Middle East. There will be famine and widespread social unrest. So, while your Bitcoin may be worth an infinite number of some worthless fiat currency, if you cannot escape in time, your well-being will be at serious risk.
Before I continue discussing Bitcoin's performance in each scenario, let’s quickly browse some chart porn to provide visual evidence for my words.
Return to Normal
Given that I have detailed this scenario in "This Is Fine," let me repost some charts and tables provided in that article:
In summary, the severity of the AI agent deflationary collapse is comparable to the 2008 U.S. subprime crisis.
The consumer credit delinquency rate has risen, and the layoff party hasn't even really started.
Tehran Toll Booth
Essentially, if this scenario occurs, it marks the end of petrodollars and the rise of a new global reserve currency or a basket of currencies. Currently, the Islamic Revolutionary Guard is very flexible in payment terms. But if they consolidate their power over the strait, why continue to accept dollar payments when the U.S. is doing everything it can to limit their ability to use dollars? Ultimately, I believe they will not allow payments in dollars. RMB and gold are likely to become the two main currencies for sovereign trade.
If goods cannot be transported without paying in RMB, why save in dollars? Given that most major economies have a trade deficit with China, the only way to raise RMB is to sell dollars, buy gold, and then purchase RMB. From now on, countries must save trade surpluses in gold rather than U.S. Treasuries or stocks.
To highlight the growth of RMB usage in trade, I want to focus on a few charts released by Luke Gromen that show a quasi-RMB-gold standard quietly emerging.
Step One: Sell dollar assets (Treasuries) and buy gold.
Since the war began, foreign holdings of securities at the Fed have net decreased by $63 billion. I use this as a directional proxy for foreign holdings of Treasuries and other dollar securities like stocks.
What did sellers do with these dollars?
Non-monetary gold has been the largest U.S. export for four out of the past five months, with a year-on-year increase of 342%.
They used these dollars to buy gold and export it out of the U.S. This is how the U.S. manufacturing renaissance looks; the only thing leaving the U.S. is barbaric relics. Sorry to all those who thought they could get back high-paying factory jobs thanks to Trump. Another presidential term has led blue-collar workers to be screwed without lubrication.
Step Two: Sell gold for RMB.
Swiss refineries receive American gold and re-mint it into bars suitable for delivery to China.
Step Three: Pay the Tehran toll.
When Treasury Secretary Mnuchin says, "Either pay in dollars or be sanctioned again," he is serious. Due to sanctions imposed by the U.S. about fifteen years ago, Iran cannot use the SWIFT payment network. Transferring RMB into the dirty hands of the Islamic Revolutionary Guard requires using China's fiat currency CIPS messaging system. As you can see, trading volume surged significantly after the war began.
This series of charts shows the flow from selling dollar assets to buying gold, ultimately funding RMB payments for Tehran or other suppliers. It doesn't matter that the dollar remains the dominant currency used in trade. The market is forward-looking
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