In avalanche science, PWL (particularly weak layer) is a crucial concept in snowpack. This snow layer can be extremely weak over a long period of time and poses a great avalanche risk. This unstable snow layer often lies dormant deep beneath the snowpack until it is triggered by additional pressure, such as from skiers or more snowfall. Knowing the existence of PWL is crucial to predicting avalanches, as they often lead to large, deep and deadly avalanche events.
Looking at the international political arena, the geopolitical situation in the Middle East has been the cornerstone of the global order since World War II. The triggering factors are often closely related to Israel's movements. From the perspective of the financial market, we should not only pay attention to the fluctuations in energy prices and the adjustments in the global supply chain, but also think about whether the escalation of tensions between Israel and other countries in the Middle East (especially Iran and its proxies) will lead to the exchange of nuclear weapons.
For investors and traders, this is a period full of risks and opportunities. Major economies around the world are implementing monetary stimulus policies, reducing prices and increasing money supply. This seems to provide an opportunity to take long-term risks, and the cryptocurrency market is undoubtedly an area worth paying attention to.
However, if tensions in the Middle East continue to escalate, especially if it involves the destruction of Persian Gulf oil fields, the blockade of the Strait of Hormuz, or even the detonation of a nuclear bomb or nuclear device, it will have a huge impact on the cryptocurrency market. As people often say, war is not an area to invest in.
Faced with such a scenario, investors need to make an important decision: continue to sell fiat currencies to increase their cryptocurrency positions, or reduce their cryptocurrency holdings and switch to cash? If this is the beginning of the next round of cryptocurrency market rise, we don’t want to miss the opportunity by reducing our positions too early. But if Bitcoin falls sharply in the short term due to financial market turmoil caused by tensions in the Middle East, we don’t want to bear too much capital loss.
In addition to paying attention to Bitcoin, we also need to pay attention to other altcoins in the portfolio. The performance of these meme coins is equally critical, and they may bring additional returns or risks to our investment. When allocating the Maelstrom portfolio, we need to carefully consider every decision to achieve a balance between risk and return.
In general, the current market environment is full of challenges and opportunities. We need to pay close attention to international political developments and changes in financial markets to make wise investment decisions.
Scenario 1: In the Middle East, tensions between Israel and Iran escalate into a small-scale military confrontation. In this scenario, Israel takes a series of actions, and Iran responds with non-threatening attacks. This series of events does not cause damage to critical infrastructure, nor does it trigger any nuclear HE strikes.
Scenario 2 shows that if the conflict escalates further, it could lead to the destruction of some or all of the oil infrastructure in the Middle East, the blockade of the Strait of Hormuz, and even HE attacks. The continued vulnerability in this scenario is maintained in the first scenario, but cannot be maintained in the second scenario, which may eventually lead to the collapse of financial markets.
We are particularly concerned about the second scenario because it poses a potential threat to my portfolio. I will conduct an in-depth assessment of the impact of this scenario, especially its impact on the crypto market, especially Bitcoin. As a crypto reserve asset, Bitcoin's trend plays a leading role in the entire crypto capital market.
My concern is that with the Hawkish promise to deploy the THAAD system in Israel, Israel may up the ante and plan a larger strike. Although Israel has publicly stated that it will not attack Iranian oil or HE facilities, I have a strong feeling that they are planning to carry out such an operation.
Recently, the Eagle Sauce announced that it would send more troops to Israel and deploy advanced anti-missile systems. This highly unusual move is apparently intended to enhance Israel’s air defense capabilities in the face of Iranian missile attacks.
Risk analysis: In the first assumption, we need to consider the physical damage that Bitcoin mining devices may suffer. War is extremely destructive, and as an important physical manifestation of cryptocurrency, the security of Bitcoin mining devices is of vital importance.
In summary, we need to pay close attention to the dynamic conflicts in the Middle East and conduct in-depth analysis of their possible impacts. Only through scientific analysis and prudent decision-making can we better respond to potential crises and protect our investment portfolios as well as global peace and stability. In the past record, there has never been an attack directly against other nuclear powers. This highlights the special situation of the United States, as the only country that used nuclear weapons to bomb cities and successfully forced Japan to surrender at the end of World War II. This can explain to some extent why physical conflicts have been mainly confined to the Middle East so far.
Turning to another question, we noticed that some countries in the Middle East are actively conducting Bitcoin mining activities. According to different media reports, Iran seems to have become one of the most active countries in this field, with its Bitcoin mining activities booming. According to different sources, Iranian Bitcoin miners account for up to 7% of the global hash rate. However, even considering this important status, if the hash rate of its mining activities dropped to 0% due to internal energy shortages or missile attacks, this would not have any substantial impact on the global Bitcoin network. Therefore, although Iran occupies an important position in this field, fluctuations in its mining activities do not have a significant global impact.
In mid-2021, China took steps to ban Bitcoin mining, causing the hash rate to drop rapidly by 63%. However, this situation has recovered significantly in just eight months, regaining the May 2021 highs. This is due to the improvement of the economic environment and the relocation of miners out of China or the entry of other global players, allowing their hash rate to increase. It is worth mentioning that Bitcoin hit a new historical price high in November 2021. The significant reduction in network hash rate has not had a significant impact on prices. Therefore, even if Iran suffers external destruction and the global hash rate drops by 7%, it will have almost no impact on Bitcoin.
Another issue we must consider regarding the risk of a sharp rise in energy prices is what would happen if Iran destroyed major oil and gas fields in retaliation. The Western financial system, which is overly dependent on hydrocarbons, would face a mortal threat in this scenario. Although Iran may not be able to completely destroy Israel, this does not prevent it from striking at the West. If Iran intends to strike at the Western economy, it would have to destroy hydrocarbon production and prevent oil transporters from passing through the Strait of Hormuz. This would lead to a sharp rise in oil prices and could trigger a chain reaction in all other energy prices.
For Bitcoin, its fiat price will rise as a result. Because Bitcoin is energy stored in digital form, its value in fiat currency will be relatively higher when energy prices rise. Although the profitability of mining remains unchanged in the context of rising energy prices, as all miners face the same energy price increases, governments may invoke force majeure clauses and cancel contracts, which may pose a challenge for large industrial miners. However, if the hash rate decreases, the difficulty of mining will also decrease accordingly, which provides new entrants with the possibility of mining and making profits in the face of rising energy prices.
For a historical example of the resilience of hard currencies to energy shocks, we can look back at the performance of the gold market from 1973 to 1982. In that period of October 1973…the Arab oil embargo began in retaliation for the United States’ support for Israel in the Yom Kippur War. In 1979, the Iranian Revolution swept through, successfully overthrowing the Shah regime, which had long relied on Western support. The establishment of a new regime, the theocratic Ayatollah regime, forced Iran’s oil supply to withdraw from the global market. This series of events had a profound impact on the international energy market.
Here is the price of gold (gold) compared to the S&P 500 (red), divided by the price of oil, with the index being 100. Gold is buying only 7% less oil, while oil is buying 80% less gold.
Assuming either party removed Middle Eastern hydrocarbons from the market, the Bitcoin blockchain would continue to execute and the price would at least maintain its relative value to energy and would certainly rise in fiat currency terms.
Now that I have discussed physical risk and energy risk, let’s move on to the last one, currency risk.
Risk 3: Currency
The key question is how the United States responds to the conflict. Both major political parties in the United States firmly support Israel. No matter how many innocent men, women and children the Israeli army kills in the process of destroying Iran and its proxies, the American elite political group will continue to support it. The United States supports Israel by providing weapons. Since Israel cannot afford the weapons needed to wage war against Iran and its proxies, the Eagle Sauce lends money to JUN gun dealers such as Lockheed Martin to purchase DNA drugs for Israel. Since October 7, 2023, Israel has received $17.9 billion in military aid.
The Hawkish government buys with credit, not with savings. That is the message conveyed by the above graph. Providing free weapons to Israel requires the bankrupt Hawkish government to increase borrowing. The question is, who will buy this debt if national savings are negative? The green arrows show the situation where the Hawkish national net savings are negative. Luke Gromen correctly points out that these arrows correspond to the following:
Given the crucial role that Eagle Jam plays in supporting Israeli military operations, it must maintain its military support by raising additional funds. Similar to what happened during the 2008 Global Financial Crisis (GFC) and following the COVID-19 lockdowns, the balance sheet of the U.S. Federal Reserve System or the balance sheet of the commercial banking system will expand significantly in response to increasing debt issuance. So how will Bitcoin respond to another massive increase in the Federal Reserve’s balance sheet?
As a professional trader, we must always remain rational and objective, and not let personal positions or subjective cognition affect trading decisions. Trading based on the "correctness" of one party is extremely dangerous and may even lead to capital losses, because the risks of financial pressure, direct confiscation of assets, and destruction brought by war are everywhere.
To ensure the safety of ourselves and our families, we should avoid getting involved in any conflict that could lead to a financial crisis. Instead, it is wiser to invest our money in instruments that can protect against the depreciation of fiat currencies. Such an investment method can maintain the purchasing power of funds and provide a stable guarantee for our future.
It is worth noting that from the data of the IP addresses of miners submitting blocks, China is still one of the main regions for Bitcoin mining. This fact reminds us that digital currencies are becoming increasingly important in the global economy. Therefore, for traders, rational allocation of digital assets, especially mainstream digital currencies such as Bitcoin, may be a strategy worth considering to resist the risks of inflation and currency depreciation. However, this does not mean that we should ignore other potential investment opportunities, but rather comprehensively consider various factors and make more comprehensive and prudent investment decisions.
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