Oil Prices Drop and take everything with them, including BitcoinMarch 10, 2020
On Monday, March 9, 2020, a new chapter of the global financial domain was written. It began with a failed discussion of OPEC producers and ended up as a price confrontation between Saudia Arabia and Russia. Instead of agreeing on a new higher price, the Kingdom decided to attack its competitors by slashing its prices drastically.
The price of a barrel of crude oil dropped like a stone and it quickly started gathering friends for that long way down. The group-building began on the stock markets of Asia, which first opened up on this historic Monday. Quickly, the indexes fell just like the crude price, putting the markets in a whirlwind of the possible further selloff, rumors and a lack of president in the recent history. As the day progressed, the shockwave hit the European markets and then finally rolled into the US as well.
There, Dow Jones and other stock markets did not take long to get a hint and also nosedived. The fall down was so pronounced that the markets had to be closed at some point and trading suspended. Yet, there is a sense that the same is just the first taste of the third decade of the 21st century. During this period, the crypto domain quickly found itself bundled up with all other assets and it too fell forcefully and in a short period of time, even considering the loose standards of the idea of a crash in the crypto world.
The historical tumble that took place on Monday reached well beyond just stocks. It managed to sink commodities and arrive with its impact all the way to the bitcoin market. As Ali Khedery, the former Exxon’s senior adviser put it, the only safe haven at that moment appears to be USD in cash form. The price of bitcoin dropped during the weekend by almost 10 percent, so it clearly did not function like anything resembling a safety point for funds.
At the same time, Saudi Arabia cut down its oil export prices in response to Russia refusing to support the OPEC’s desire to reduce the production of oil. With the coronavirus outbreak, there are fewer cars in the traffic, while the slowdown in the major global economies is also asking for less oil. Matt Smith, who is the director of commodity research in the company called ClipperData said that there is an oversupply of oil right now on the market. In his view, the drastic move by Saudia Arabia was designed to pressure Russia to get back to the negotiating table.
Reconfiguring the Supply Chain
The plan that Saudia Arabia, likely with the backing of other regional producers, created is not unsound, but it has its share of problems. Smith believes that nations all over the world will have a hard time reconfiguring their individual supply chains and their position in the global economic ecosystems. The implications of this connect with cryptocurrencies as well. The analysts are aware that some nations, including Iran, appear to be interested in using energy expenditure to turn their power sources into globalized assets, these examples are rare.
For most serious investors and institutions, there is no upside in investing in cryptocurrencies anytime soon. That is the reason why during the troublesome times of a crisis, there is little chance of assets not taking on one universal characteristic and correlating. Because of that, crypto has been falling up and down just like any asset and most commodities. The wider economic layout dictates that all of them eventually see their value drop when the bad and unexpected occurs like it did this Monday.
Using Surplus Energy
With low oil prices, there is even the idea that nations like Iran and Venezuela might be figuring out ways how these changes can be beneficial to them. Crypto mining is one such venture and here, the local entrepreneurs active in this field would always welcome a chance to get the same amount of coins for less energy expenditure. But, in Iran, this does not seem to be the case.
Instead, local miners are reporting that there does not seem to be any connection between their industry and national strategies on how to weather the storm coming from this conflict. Instead, analysts agree that both Venezuela and Iran are in huge economic danger. If the oil markets continue to collapse, there is little chance that any small cryptocurrency mining industry would be able to change the fortunes of a nation in that kind of hardship.
Removing the USD
Below the present conflict between Saudia Arabia and Russia, there is an important element of energy markets that need to be taken into consideration here. This is the idea that for some time now, nations in different corners of the world have been looking to exchange USD with some other currency for the purpose of settling energy market traders and deals.
In that mindset, fields like esports or social media, which often first considers new and unproven ways to do something. That is the reason why crypto payments are already a well-known reality of the gaming world. However, the energy market is nothing like that and chances of them trying out an alternative payment mechanism that has not been tried and tested in the industry is near zero.
However, the key element here that needs to be underlined is that bitcoin is less likely to become a USD payment alternative. It does have somewhat of a chance because there is no other alternative on the table. While many nations outside of the Western sphere of influence and giant oil products like Venezuela and Russia do not care for the use of USD, they also have no consensus on taking on some other national fiat currency as a replacement.
Otherwise, the Russian ruble would be the ideal option that all those opposed to the US currency hegemony could use. Yet, like many times in history, having a common adversary is not always the way to forge lasting alliances, especially those in peacetime. Because of that, the market commotion is presently slashing the crypto prices, but for a simple existence of any other option, it might be at a precipice of becoming seen as a viable candidate for one that would take the role of USD in the energy markets.