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Oil Prices Climb: Finding the Bitcoin Connection

Last Updated March 15, 2024 3:41 PM
Shraddha Sharma
Last Updated March 15, 2024 3:41 PM
By Shraddha Sharma
Verified by Peter Henn

Key Takeaways

  • Oil prices have risen to four-month highs due to inventory changes and geopolitical events.
  • A study suggests that rising oil prices can increase Bitcoin’s production costs, affecting its returns.
  • Will the relationship between the broader economy and Bitcoin become deeper?

Crude oil prices hit a four-month high but the ripple effects are being felt far beyond the energy markets. The recent surge in oil prices is down to a range of factors including market predictions, inventory shifts, and geopolitical tensions. Meanwhile, studies have shown that it has a connection to the crypto market as well, specifically to Bitcoin.

Why is the Oil Price Surging?

Oil prices have ascended  to their highest in four months, driven by many factors. The International Energy Agency (IEA) has revised its oil demand growth forecast for 2024 upwards.

The EIA predicts that in 2024, people around the world will need 1.3m more barrels of oil every day compared to now. This is a bit more – 110,000 barrels daily – than what they thought last month.

Additionally, unexpected drops in US crude and gasoline inventories, coupled with the impact of Ukrainian attacks on Russian refineries, which reduced Russia’s refinery capacity by 12%  in a single day, have all contributed to the price hike. The complex interplay of supply, demand, and geopolitical dynamics is pushing oil prices up.

Meanwhile, Royal Dutch Shell, a global leader in oil, gas, and petrochemicals, has warned  of potential global energy shortages if investments in oil and gas drilling don’t rise. The energy giant also highlighted that current global investment in low-carbon energy sources is only half of what is necessary, suggesting the risk of future energy shortages unless alternative sources are further developed.

The Bitcoin Connection

Interestingly, this surge in oil prices has implications for the Bitcoin market. A study  previously highlighted how higher oil prices increase the cost of Bitcoin production, thereby potentially lowering its returns and increasing volatility. This is because Bitcoin mining, the process by which new Bitcoins are created, is energy-intensive. Also, rising oil prices can make it more expensive to operate the massive computer networks needed for mining.

The study also points out investors who consider oil price movements in Bitcoin investment strategies may achieve higher gains. Therefore, there is a link between the traditional energy sector and the emerging digital currency market.

Bitcoin’s price has seen a decline of 4% on March 15 aligning with the study’s findings that rising oil prices can have a dampening effect on Bitcoin returns. As pointed out by the study, investors who keep an eye on oil prices while making decisions about Bitcoin investments are likely to see better outcomes than those who don’t pay attention to oil price changes.

When the price of oil rises, it can lead to higher overall costs and inflation. This reduces people’s real income and, as a result, decreases confidence in the economy. This situation could also make Bitcoin more attractive as an investment, as people look for ways to protect their money against the instability caused by rising oil prices.

With a BTC price under $70,000 the global Bitcoin network hashrate stands  at 555.85 EH/s and a mining difficulty of 83.95.

Link Oil Price to BTC as a Commodity

The energy market’s fluctuations have far-reaching implications. Therefore, people who make investment strategies can the rise in oil to to Bitcoin. This is especially the case now that Bitcoin has gained a mainstream status by receiving institutional backing.

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