Oil price rises are ‘bad news for Bitcoin,’ with ‘inflationary chain’ to hit crypto liquidity

Oil price rises that drive the cost of a barrel of Brent crude to $120 could hurt Bitcoin’s chances of staging a recovery to October’s $126,000 all-time highs, an expert has warned.

The US-based financial group JPMorgan’s banking arm told its clients on Friday the war in the Middle East may leave oil prices sitting above the $90 per barrel mark for an extended period, and pushing toward the $120 mark. Brent prices rose over 3% on Friday, trading for almost $104 a barrel at the close of trading in the US.

This could trigger a 10%-15% correction in the US stock market, said the bank’s analysts, with “spillover effects in international and emerging markets.”

And Bitcoin, experts say, would be indirectly caught up in the financial fallout.

“Oil doesn’t hit Bitcoin directly; it works through a chain of macro variables,” Jonatan Randin, Senior Market Analyst at the crypto exchange PrimeXBT, told DL News. “Oil sets the inflation tone, the inflation tone shapes the path to interest rate cuts, which in turn determines crypto liquidity. Right now, that chain is working against Bitcoin.”

The predictions come as missiles continue to fly in the Middle East, and Bitcoin continues on a gentle upward trajectory above $70,000, with investors pumping over $763 million into US-based crypto exchange-traded funds last week.

Rate changes unlikely

Markets say there is a vanishingly small probability the Federal Reserve will change interest rates this month.

Observers now do not expect an interest rate cut until September at the earliest, as oil prices continue to rise. Goldman Sachs analysts said last week they expected higher inflation to “make it harder for the Fed to start cutting rates soon.”

On March 6, the US government announced that payrolls had dropped by 92,000, with unemployment rising to 4.4%.

“This all points to a stagflationary scenario, where growth is weakening alongside rising energy costs,” Randin said. “Bitcoin doesn’t thrive in that environment.”

The JPMorgan outlook was similarly gloomy, forecasting financial trouble across the board, all of which analysts say could take a toll on Bitcoin prices.

“As the price rises towards and beyond, say, $120 per barrel, the selling in the [US stock market] will intensify,” Kriti Gupta, the bank’s executive director, and Joe Seydl, a senior markets economist, told JPMorgan’s banking clients.

“The compounded effect of sustainably higher oil prices and a [US stock market] bear market has a destructive demand effect, materially amplifying the hit to growth,” Gupta and Seydl wrote.

Those hoping a peaceful end to the conflict will help drive Bitcoin prices up may be in for a rude awakening, experts say. Other problems besides the war may continue to hamper a recovery.

“It’s worth remembering that Bitcoin was already in a bear market before [the hostilities] started,” Randin said. “The market is still struggling with the same macroeconomic headwinds that were there before the first missile launched. A resolution [to the war] removes one layer of pressure, but it doesn’t automatically reverse the broader trend.”

Tim Alper is a News Correspondent at DL News. Got a tip? Email him at[email protected].