Bitcoin Analysts Ponder Impact as Oil at Highest Price Since 2008

The Russia-Ukraine conflict has sent crude oil to over $115 a barrel. Here's what the latest surge might mean for the bitcoin market.

AccessTimeIconMar 3, 2022 at 8:09 p.m. UTC

Brian covers bitcoin on the markets team

Bitcoin (BTC) is an inflation hedge, right? That's what a lot of crypto analysts say. So, theoretically, the bitcoin market would get a boost as Russia's invasion of Ukraine sends crude oil to its highest price since 2008.

But it's not that simple. High oil prices might give the Federal Reserve an extra reason to worry about inflation, and that might keep pressure on the U.S. central bank to tighten monetary policy from the current, ultra-loose conditions.

In recent months, bitcoin has been falling in response to hawkish announcements from the Fed – seemingly in sync with stocks.

A question some crypto analysts are starting to ask is if bitcoin might decouple from stocks and start to trade more like a safe haven asset, similar to gold – that is, an asset whose price might benefit or even just hold its value when stocks are selling off.

"I’m wondering if bitcoin is starting to show the first signs of maturity as a safe haven,” said Jason Deane, analyst at Quantum Economics. “If so, this could, theoretically, become a positive outcome for the asset.”

Bitcoin is having its best week so far in 2022; the cryptocurrency is up 12% since Feb. 27. The latest rally pushed bitcoin into the $40,000s after news of the invasion initially sent the price down to the $30,000s. As of press time, the bitcoin price was just under $43,000.

Crude oil prices

Oil prices rose earlier Thursday to their highest point since 2008, with the U.S. benchmark West Texas Intermediate crude hitting $116.57 a barrel at one point during the trading session.

A concern expressed by a growing number of economists is that the higher oil prices might drive up prices for motorists at the pump, and also possibly push up costs for manufacturers and the transportation industry. Such a dynamic could exacerbate inflation, which is already at its highest in four decades.

Federal Reserve Chair Jerome Powell said Wednesday in an address before the House of Representatives' Financial Services Committee that he expects the central bank to raise rates 0.25 percentage point at its next regularly scheduled meeting later this month.

Powell cited high inflation, a tight labor market and strong economic demand as reasons why the Fed needs to start tightening monetary policy.

He didn't directly address oil in his comments Wednesday. He is scheduled to appear before the Senate Banking Committee on Thursday.

“We think the Russia-Ukraine war will intensify global and U.S. inflation pressures by pushing up oil and gas prices,” Brian Coulton, chief economist at Fitch, told CoinDesk in an email.

Coulton says that while many economists focus on "core" inflation, which excludes the impact of volatile food and energy prices, 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 and regulatory uncertainty and unpredictable swings are hurting the efficacy against inflation, oil or economic weakness,” said Mark Hackett, chief of investment research at Nationwide.

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Brian covers bitcoin on the markets team

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Brian covers bitcoin on the markets team