Bitcoin (CRYPTO: BTC) sits in a “no-trade zone” according to BitMEX co-founder Arthur Hayes, who outlines three scenarios that could force the cryptocurrency out of its current range as AI-driven deflation collides with Iran war dynamics.
The No-Trade Call
Maelstrom did minimal trading in the first quarter apart from slowly increasing its long position in Hyperliquid, Hayes said.
Two developments combined to produce a trading dead zone: AI agents destroying knowledge worker jobs and creating deflationary pressure, and the Iran war entering its seventh week with uncertainty around commodity flows through the Strait of Hormuz.
Hayes believes the quantity of money determines Bitcoin’s price, not its price. Bitcoin has no cash flows, so the discount rate derived from central bank policy rates is irrelevant.
But given Bitcoin’s fixed supply, its value in fiat terms depends on the total amount of fiat in existence.
Scenario One: Back To Normal
The war ends immediately and the pre-war status quo returns. However, the secular trend to replace expensive knowledge workers with cheaper AI agents continues unabated.
Hayes shared an anecdotal story about a crypto-gaming entrepreneur who automated his engineering workflow with AI agents.
One person shipped his six-month roadmap in four days. As a result, 50% of his staff will be laid off in the next few weeks.
“As the models obtain more specific domain expertise, all mediocre knowledge workers are at risk of losing their jobs,” Hayes said.
Bitcoin might bounce a bit after the situation reverts to pre-war status quo, Hayes said.
However, the AI agentic deflation bomb still ticks below the surface. Until the Fed provides liquidity to plug the black hole in banks’ balance sheets caused by consumer credit defaults, Bitcoin will not meaningfully rise.
Scenario Two: Tehran Toll Booth
Iran restricts flow through the Strait of Hormuz and makes good on its promise to allow ships to transit by paying a $2 million toll in Chinese yuan, crypto, or sanctioned dollars.
Nations would sell dollar assets to raise yuan and pay the toll, causing treasury and stock prices to fall.
Hayes said to watch the MOVE Index, which measures U.S. bond market volatility. When it rises above 130, some form of money printing will occur.
As volatility rises and big tech stock prices fall, Bitcoin will struggle to rally meaningfully, Hayes said. Only when things get bad enough will Bitcoin rise as expectations of a bailout become consensus.
Scenario Three: Empire Strikes Back
The U.S. Air Force and Navy destroy Iran’s ability to interdict shipping via a punitive bombing campaign.
The problem is that ending Iranian control most likely means the complete destruction of the country.
“Destroying Iran in this fashion means in Iran’s last gasp, they will make good on the promise to take the rest of the Gulf region’s commodity and energy production to the grave with it,” Hayes said.
The rally in Bitcoin inspired by money printing might be short-lived because the destruction of the Iranian state materially raises the prospect of WW3, Hayes warned.
Image: Shutterstock
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