Russian Oil Restrictions Roiling Bitcoin Markets, but Can It Last?
This week has been a big one for global events- and not in a positive sense. War raging, gas prices rising, and fears of widespread calamity in the near future gripping the world: no, it has not been a great week. That said, the crypto world has seen a sliver of a silver lining as Bitcoin- the largest cryptocurrency of them all saw a steady increase. The question is, what exactly caused it, and is it likely to continue?
Oil Bans and Prices
As the senseless war in Ukraine continues, Joe Biden has announced his plans to follow and support the UK in its decision to ban all imports of Russian oil products. Going one step further, Biden enforced the bans with immediate effect, whereas the UK intends to gradually phase out until the end of the year.
Considering that Russia is the world’s leading oil provider, accounting for seven percent of the global industry, there was never much doubt that the ban would lead to a rise in prices. Even the prospect of the move shot US prices up by 30%. According to some financial experts, the country can afford it, although other analysts predict further increases that could cripple most average homes.
Continental Europe and the UK are likely to suffer more as the ban plan rollouts continue, as their alternative suppliers are not as conveniently placed.
What Does That Have to Do with Bitcoin?
After the oil announcement, Bitcoin’s value increased by almost two percent, reaching a daily high of just short of $39,000. When the invasion first began at the end of February, it had crashed to just $30,000. Within the next several days, it rocketed up by 12% to break into the $40,000s (around March 3rd), marking the best week of the year so far.
In general, Bitcoin is viewed as an inflation hedge, meaning that people invest in it to diversify and protect themselves against dramatic changes in fiat currency. After recent announcements by the government relating to increased regulations and restrictions on crypto assets, bringing them more in line with stocks, this ethos has been somewhat challenged.
Now, in light of the rising value, as the mainstream financial economy faces turbulent times, it seems plausible that Bitcoin could become a safe haven investment. If that were to happen, it stands to reason that increasing oil prices could be a good thing for the crypto giant.
What Is a Safe Haven Investment?
The best example of a safe haven investment is gold. Generally speaking, when the value of fiat currency- the USD, for example- drops, the price of gold rises. It also works the opposite way. What that means is that investors with holdings in gold as well as stocks and fiat currency have a safeguard to control against losses.
Gold has long since been the investment of choice for people looking to diversify and protect their assets. It provides a way for them to secure their funds somewhere that is not impacted by things like changing oil prices and, if anything, is likely to go up.
Could Bitcoin Compete?
Recently, the Bitcoin VS gold debate has come into play. Until now, the general consensus has been that Bitcoin cannot be a safe haven due to certain fundamental missing elements. Its notorious volatility, for one, is a point of contention, alongside the real world liquidity.
However, the face of crypto is changing, and some experts say Bitcoin is showing signs of maturing and developing to become a viable contestant. Billionaire, Mark Cuban, is amongst those backing Bitcoin as the new gold. Analysts and experts in the field agree that these could be early signs, although they say it is still too soon to tell.
Bringing it back to the initial question: could rising oil prices mean long-term increases for Bitcoin? Well, the jury it out. However, it has opened up an interesting channel of opportunity for Bitcoin to test its legs as a safe haven investment. If this crisis can help the world’s leading cryptocurrency to show it has the staying power to rival gold, there is no telling what the future could hold.