What is the relationship between the decline of cryptocurrency and the oil market?
There has been much talk about the world moving towards economic recession, and this is often one of the main reasons for the large waves of selling in the futures markets, but what happens to encrypted digital currencies and during conditions of pressure on oil prices continues to raise questions about whether these currencies have an influencing role on oil prices and markets.
Bearish factors dominated the oil markets due to the economic slowdown and the closures of China, but it is widely expected that Chinese and Asian refineries will increase their capacity to take advantage of high diesel profit margins and high demand, despite the high demand for diesel and heating oils in the winter season, and in light of the The sharp decline in financial markets, especially in China, the rise in closures, and also the rise in the US dollar index. Commodity markets were affected, especially oil, as the price of West Texas Intermediate crude – for example – fell below the $80 barrier for the first time in almost a year, which also came with the phenomenon of The wave of widespread selling in cryptocurrencies and the sudden collapse of their platforms raises questions about the possibility of a role for cryptocurrencies in what is happening.
Encrypted digital currencies have taken their place as a global payment system that can be compared to other traditional currencies such as the dollar and the euro, but they are completely based on “blockchain” technology and operate outside any central financial system, and this is what makes them distinct from traditional currencies, hence the idea of serving and linking goods. digitally in a currency to trade a commodity such as oil.
The “Signal Capital” investment company issued a digital currency backed by oil and gas reserves in 2018, called “Petrodollars” or “Oil Coin”, with the aim of enhancing the value of oil as a commodity that is protected from sharp price fluctuations in global markets, and this step was behind the resort of energy companies in the United States And Europe to invest in digital currencies after the sharp drop in oil prices as a result of the 2008 US financial crisis, which affected the markets of Europe and the rest of the world, as well as the decision of OPEC to reduce its production due to the global economic situation at the time.
Many oil companies and investors supported – albeit timidly – the creation of a digital currency backed by oil, as a big leap required to ensure the status of oil as a stable value, which raises its status in global markets, especially due to the geopolitical instability that worries global markets, and with the continued demand for oil in cold seasons.
Cryptocurrency may have been thought by some to be the safe guard of oil during times of sharp volatility (while it can exacerbate price volatility as well), especially with the fact that global oil demand deals with time and population growth in a direct way and in light of a sharp decline in upstream investment, which warns With a high probability of its price jumping to unusual numbers, this makes digital currencies backed by oil working to find a promising future in its markets, as some believe.
Hence, questions are raised about the role of the current decline in cryptocurrencies and its impact on oil markets and prices. Although there is no tangible evidence about such a relationship, it remains a hypothesis worth researching so that oil markets do not find themselves facing the possibility of facing unaccounted surprises in the future.