There has been a spike in crude oil prices recently as a result of the Russia-Ukraine conflict. Here’s what this might mean for bitcoin.
Isn’t Bitcoin (BTC) an inflation hedge? That is what many cryptocurrency analysts believe. So, theoretically, the bitcoin market would benefit as a result of Russia’s invasion of Ukraine, which has caused crude oil to reach its highest price since 2008.
But it’s not that easy. High oil prices may give the Federal Reserve an additional reason to be concerned about inflation, putting additional pressure on the US central bank to tighten monetary policy from its current ultra-easy conditions.
In recent months, bitcoin has fallen in response to hawkish Fed announcements, seemingly in lockstep with stocks.
Some crypto analysts are beginning to wonder if bitcoin will decouple from stocks and begin to trade more like a safe haven asset, similar to gold – that is, an asset whose price will benefit or simply hold its value when stocks fall in value.
“I’m wondering if bitcoin is starting to show the first signs of maturity as a safe haven,” said Quantum Economics analyst Jason Deane. “If that is the case, this could theoretically result in a positive outcome for the asset.”
Bitcoin is having its best week of the year so far in 2022, with a 12 percent gain since Feb. 27. After falling to $30,000s following news of the invasion, the latest rally pushed bitcoin into $40,000s. As of today’s press time, the bitcoin price was just under $43,000.
Prices of crude oil
Oil prices rose to their highest level since 2008 earlier Thursday, with the US benchmark West Texas Intermediate crude reaching $116.57 per barrel at one point during the trading session.
A growing number of economists are concerned that higher oil prices will raise gas prices for motorists while also potentially raising costs for manufacturers and the transportation industry. Inflation, which is already at its highest level in four decades, could be exacerbated by such a dynamic.
In an address to the House Financial Services Committee on Wednesday, Federal Reserve Chair Jerome Powell stated that the central bank will raise interest rates by 0.25 percentage points at its next regularly scheduled meeting later this month.
High inflation, a tight labor market, and strong economic demand, according to Powell, are reasons why the Fed should begin tightening monetary policy.
In his remarks on Wednesday, he made no direct mention of oil. On Thursday, he is scheduled to testify before the Senate Banking Committee.
“We believe the Russia-Ukraine conflict will exacerbate global and U.S. inflation pressures by driving up oil and gas prices,” said Brian Coulton, chief economist at Fitch, in an email to CoinDesk.
While many economists focus on “core” inflation, which excludes the impact of volatile food and energy prices, Coulton believes that repeated “shocks” from oil prices could become a problem.
“Headline inflation shocks matter if they keep on coming,” Coulton said.
The entire debate stems from the fact that so far in 2022, bitcoin hasn’t performed as the hedge against inflation that many traders had expected.
The largest cryptocurrency by market cap is down 8% year to date as data readings on consumer prices have continually surprised economists on the upside. There’s even been talk of possible “stagflation,” where inflation is high but economic growth is negligible to nonexistent.
Traders have shown they’re more comfortable putting cash into gold, which has thus far outperformed bitcoin year to date. That’s been a knock-on bitcoin’s performance.
“For crypto, the volatility, regulatory uncertainty, and unpredictable swings are undermining its efficacy against inflation, oil, or economic weakness,” said Mark Hackett, Nationwide’s chief investment research officer.