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Arthur Hayes eyes Fed easing bid as Iran strikes continue to echo into crypto markets

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Arthur Hayes eyes Fed easing bid as Iran strikes continue to echo into crypto markets

BTC swings about 8% in hours after Iran strikes, stays on a 5‑month losing streak as Hayes ties prolonged conflict to future Fed easing.

Summary

  • BTC slid from roughly $68k toward $63k on Feb. 28 airstrikes, then rebounded near $68k after reports of Khamenei’s death, an intraday swing of about 8%.
  • BTC is on track for a 5th consecutive monthly loss, its longest red streak since 2018, with February down about 14–15% and price nearly 48% off the $126k peak.
  • Hayes argues every major US Middle East campaign since 1985 has been followed by Fed easing; he plans to scale into BTC only after clear rate cuts or renewed QE.

BitMEX co-founder Arthur Hayes published an analysis on March 1 examining potential connections between U.S. military involvement in Iran and cryptocurrency markets, according to his essay.

Hayes outlined what he characterized as a four-decade pattern of U.S. intervention in the Middle East followed by Federal Reserve monetary easing. The analysis suggested that extended U.S. engagement in conflict could increase the probability of Fed rate cuts or expanded money supply to finance military operations, which Hayes projected could affect Bitcoin prices.

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The essay referenced historical precedents, including the 1990 Gulf War, when Federal Open Market Committee minutes from August of that year stated that “events in the Middle East had greatly complicated the formulation of an effective monetary policy,” preceding rate cuts later that year. Hayes also cited the Federal Reserve’s emergency meeting following the September 11, 2001 attacks, when then-Chair Alan Greenspan reduced rates by 50 basis points, referencing a “heightened degree of fear and uncertainty” affecting asset prices.

Cryptocurrency markets responded to recent geopolitical developments during weekend trading hours when traditional financial markets were closed. Bitcoin declined sharply within minutes of initial reports of strikes on February 28, according to market data. The asset subsequently reversed direction following reports regarding Iranian Supreme Leader Ayatollah Ali Khamenei’s death.

Hayes’ analysis noted that every U.S. president since 1985 has conducted military operations in the Middle East, with subsequent financial impacts addressed through monetary policy adjustments.

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“The longer Trump engages in the extremely costly activity of Iranian nation-building, the higher the likelihood the Fed lowers the price and increases the quantity of money to support Pax Americana’s latest bout of Middle Eastern adventurism,” Hayes wrote in the essay.

Bitcoin has recorded five consecutive months of losses, a streak last observed in 2018, according to market data.

Hayes recommended a cautious trading approach given uncertainty regarding the duration of U.S. engagement and market tolerance levels. The former BitMEX CEO suggested that optimal purchasing opportunities for Bitcoin and other cryptocurrency assets would occur after the Federal Reserve implements rate cuts or resumes quantitative easing measures to support government objectives in Iran, rather than during initial conflict periods.

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Crypto World

Aave’s TVL Falls $8B After $293M Kelp DAO Hack

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Aave’s TVL Falls $8B After $293M Kelp DAO Hack

Total value locked on decentralized lending protocol Aave dropped by nearly $8 billion over the weekend after hackers behind the $293 million Kelp DAO exploit borrowed funds on Aave, leaving roughly $195 million in “bad debt” on the protocol and triggering withdrawals.

Data from DeFiLlama shows that Aave’s TVL fell from about $26.4 billion to $18.6 billion by Sunday, losing the top spot as the largest DeFi protocol. 

Aave v3’s lending pools for USDt (USDT) and USDC (USDC) are now at 100% utilization, meaning that more than $5.1 billion worth of stablecoins cannot be withdrawn until new liquidity arrives or borrows are repaid. 

$2,540 is available to be withdrawn from the $2.87 billion USDT pool on Aave v3 at the time of writing. Source: Aave

Aave’s TVL fall shows how rapidly risk from a single security incident can spread throughout the broader, interconnected DeFi lending market, potentially leading to a severe liquidity crisis.

The incident began on Saturday when hackers stole 116,500 Kelp DAO Restaked ETH (rsETH) tokens worth about $293 million from Kelp DAO’s LayerZero-powered bridge and used them as collateral on Aave v3 to borrow wrapped Ether (wETH).

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Crypto analytics platform Lookonchain said the move created about $195 million in “bad debt” on Aave, which contributed to the Aave (AAVE) token tanking nearly 20% from $112 on Saturday at 6:00 pm UTC to $89.5 about 25 hours later. 

Lookonchain noted that some of the largest crypto whales to withdraw funds from Aave were the MEXC crypto exchange and Abraxas Capital at $431 million and $392 million, respectively.

Source: Grvt

Several crypto networks and protocols tied to rsETH or the LayerZero bridge have paused use of the bridge until the problem is resolved, including DeFi platform Curve Finance, stablecoin issuer Ethena and BitGo’s Wrapped Bitcoin (WBTC).

Aave has frozen several rsETH, wETH markets

Shortly after the Kelp DAO exploit, Aave said it froze the rsETH markets on both Aave v3 and v4 to prevent any suspicious borrowing and later stated that rsETH on Ethereum mainnet remains fully backed by underlying assets.

WETH reserves also remain frozen on Ethereum, Arbitrum, Base, Mantle and Linea, Aave said.

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This incident marks the first significant stress test of Aave’s “Umbrella” security model, which was introduced in June 2025 to provide automated protection against protocol bad debt while enabling users to earn rewards.

Related: Aave DAO backs V4 mainnet plan in near-unanimous vote

Earlier this month, the Bank of Canada found that Aave avoided bad debt in its v3 market by using overcollateralization, automated liquidations and other strategies that shifted risk to borrowers.

In comments to Cointelegraph, Aave defended its liquidation-based model, framing it as a core safety mechanism that protects lenders while limiting downside for borrowers.

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It comes as Aave parted ways with its longest-standing DeFi risk service provider, Chaos Labs, on April 6, following disagreements over the direction of Aave v4 and budget constraints.

Magazine: Are DeFi devs liable for the illegal activity of others on their platforms?