tensions in the Middle East

Tensions in the Middle East and global economic uncertainty are driving up the price of Bitcoin, gold, and oil. Furthermore, Arthur Hayes predicts that an increase in energy costs could further raise the value of Bitcoin in fiat currency.

Let’s see all the details below. 

The escalation of geopolitical tensions pushes the price of Bitcoin and oil 

As anticipated, the geopolitical tensions in the Middle East are fueling a significant growth in the price of commodities, including oil, gold, and even cryptocurrencies like Bitcoin. 

According to Arthur Hayes, co-founder of the cryptocurrency exchange BitMEX, the increase in oil and energy prices, caused by an escalation of the conflict between Iran and Israel, could have direct repercussions on the cryptocurrency market.

Leading consequently to a rise in the value of Bitcoin. Hayes published a post on his blog on October 16, 2024, in which he outlined his predictions.

According to him, if the main oil and natural gas fields in the Middle East were to come under attack, energy prices could increase drastically.

This scenario would affect not only the costs of oil, but also the price of Bitcoin, which could grow proportionally. 

“What happens to the fiat price of Bitcoin? Pump,”

stated Hayes confidently. Additionally emphasizing that the energy stored in digital form, like Bitcoin, will increase in value as the energy itself becomes more expensive.

The analysis by Hayes is based on a key concept: Bitcoin is stored energy in digital form. This means that if energy prices rise, the value of Bitcoin in terms of fiat currency grows proportionally. 

This theory is based on the idea that Bitcoin mining, or the process of extracting the cryptocurrency, directly depends on energy consumption. Therefore, in a context where energy becomes more valuable, Bitcoin could also become more valuable.

In particular, Hayes highlighted that the profitability of Bitcoin mining tends to vary based on changes in the difficulty of the extraction process, which is influenced by the network’s hash rate. 

If the cost of energy rises, some mining operators might be forced to shut down their machines, thus reducing the overall hash rate of the network. 

This, in turn, would lower the difficulty of mining. Thus making Bitcoin extraction easier and potentially profitable for other operators, despite the high energy costs.

A historical comparison: the oil crises of the ’70s

To support his analysis, Hayes drew a parallel with the significant gains in commodities that occurred between 1973 and 1982, during the oil crises caused by the Arab oil embargo and the Iranian revolution. 

During that period, oil prices increased by 412%, while gold grew by 380%. This clearly reflects a correlation between commodities and periods of geopolitical instability.

Although Bitcoin was not present during the oil crises of the 1970s, Hayes highlighted that the cryptocurrency has already shown some correlation with commodities during inflationary periods. 

In these contexts, investors tend to seek safe-haven assets to protect their capital from the erosion of the purchasing power of fiat currencies.

The conflict in the Middle East is not only a matter of regional security, but it also has significant implications on global energy markets. 

If oil from the Middle East were to be removed from the market, Hayes predicts that the Bitcoin blockchain will continue to operate without interruption. 

Specifically, maintaining at least its value relative to energy and probably increasing in value in terms of fiat currency.

This ability of Bitcoin to operate independently from geopolitical and energy factors is one of the reasons why it is often considered a sort of digital safe haven. 

In times of economic and geopolitical uncertainty, many investors turn to Bitcoin as an alternative to traditional currencies, whose economies can be more easily influenced by global events.

Evolution of the price of Bitcoin and commodities

The recent developments in the energy and financial markets seem to confirm part of Hayes’s predictions. 

The oil prices fell this week, with West Texas Intermediate (WTI) recording a drop of 3.7%, bringing the price to 71.09 dollars per barrel on October 17, according to Oilprice.com.

However, Bitcoin has gained over 8% in the same period, surpassing $68,000 in early trading on October 18, marking a significant bull compared to the previous weeks.

The gold market also experienced a similar trend. Gold reached a new all-time high, hitting $2,711 per ounce on October 17. 

All this because driven by the growing demand for safe-haven assets by investors concerned about the uncertainty over the upcoming elections in the United States and the rising tensions in the Middle East. 

As stated by Nitesh Shah, commodity strategist at WisdomTree, 

“Gold is often the place to go in times of uncertainty”.