What Does Simultaneous Collapse of Bitcoin and Oil Markets Mean? Expert Takes
Posted on 03-11-2020.
On Monday, March 9, the price of a barrel of oil fell 30% to $31. Two days before, Russia had withdrawn from the OPEC+ deal, refusing to cut production. The ruble followed the oil and dropped to the rates of 2016. Due to the volatility of world markets, the Central Bank of the Russian Federation suspended purchases of currency for 30 days.
The price shock affected European and Asian indices: the FTSE 100 lost 5.98%, Stoxx600—5.5%, Nikkei 225—5%.
The price of Bitcoin fell below $7,900 on Monday, and the market capitalization decreased by 10%.
Oil and Bitcoin both rebounded after the initial drop, but the gains are comparatively marginal and many experts warn that the oil market is enjoying a dead cat’s bounce, which can only end in a further downward trend.
ForkLog asked some Russian-speaking experts to comment on the current events on the market and the role the Russian government and coronavirus fears played. Is this collapse the beginning of another bearish phase? Read more in the article below.
Dmitry Gurkovsky, a leading analyst at RoboForex
We realized that Bitcoin will not go up when the growth of gold quotes was not accompanied by the growth of cryptocurrency. With the plummeting stock indices, investors began moving away from risks and buying protective assets, which traditionally are gold, Japanese yen, Swiss franc, and U.S. dollar.
At some point, one would think that Bitcoin would become an asset for preserving capital in conditions of market instability. But, as we can see, money does not go to the cryptocurrency market. Investors do not consider it safe to keep their capital in cryptocurrency. In the current situation, a fall in stock indices may be accompanied by a further fall in cryptocurrencies.
We can outline a key support level at $7,800, which is the last obstacle before the price drops to the next level at $6,700. As long as the price is above the level of $7,800, we can definitely expect a correction to the level of $8,450.
Many traders and analysts really expect Bitcoin’s price to rise after the halving. Presumably, until the end of May, the market will be sandwiched between strong levels of $10,400 and $6,400.
The extent of the decline in stock indices at the moment is very difficult to assess. Keep in mind that as soon as in April, companies will begin to provide financial reports for the first quarter, in which we’ll likely see how the coronavirus epidemic negatively affected them. Possible airline bankruptcies are not ruled out, it can also negatively affect stock indices and increase panic. To expect a pivot point now, in my opinion, is wrong.
It is necessary to wait until the stock indices stop falling. In this regard, I believe that May will be a good time to buy shares, but only if the impact of the coronavirus epidemic is minimized and the Chinese economy starts up again, that is, quarantine ends and enterprises return to their previous capacity.
Otherwise, we can expect a prolonged slow decline in stock indices.
In oil, a really strong support area was the level of $50 per barrel. Here, going with the technical analysis, an upward model was formed, which indicated the probable start of growth in case of a successful rebound from the indicated area. However, as soon as prices fell below the level of $48, the model was canceled and the target area became $34.
A strong impact was made by the failure in the negotiations of the OPEC+ countries, where it was planned to reduce production due to the difficult situation around the coronavirus. On April 1 current arrangements and restrictions will expire.
Russia and Kazakhstan opposed the reduction in production, pointing to the lack of interest in the current deal and the loss of potential for the development of the industry due to the fact that the volumes were still replaced by other participants, bypassing the agreement. Following this, Saudi Arabia announced its readiness to increase production to record levels, if necessary.
Going from there, prices can test the lows of 2016 near the level of $27. The worst-case goal of the decline may be the level of $20, where the key area of support is located. From these values, an upward trend is highly probable.
Mansur Huseynov, an independent cryptocurrency expert
I did not expect such a sharp drop in Bitcoin. Now $7,800–$7,900 is considered to be a good support level. If we fall past it, we may be going straight to $5,300. I hope that there will be a turnaround.
The S&P 500 could fall another 30%, but if the situation with the virus stabilizes, it will grow back very quickly, as the leading central banks generously pour money to mitigate this problem.
Oil, I suppose, will stop here. In 2014–2015, the minimum was $27. Going below that just does not work for the manufacturers.
The OPEC decision is purely political. An attempt to kill the U.S. shale oil producers amid falling stock markets and lower economic activity due to coronavirus. In the end, nothing good will come of it.
Alexey Kirienko, Exante Managing Partner
Everything is in decline, and Bitcoin is no exception. People close margin calls for all assets. Bitcoin’s situation is the result of risk aversion, as problems in the global economy have been brewing for a long time. The fragile balance was maintained only through incentive measures. This applies to both stocks and oil. Recent events around the epidemic have triggered an exacerbation of all global issues.
After the 30% fall in oil prices, all world markets began to fall. European indices have been losing about 8% since early Monday, the American S&P500 fell by 5%, the Japanese Nikkei is losing 6%.
Bitcoin is likely to start recovering shortly after the turnaround at the stock market. However, at the moment, an attempt to rebound can only be a temporary respite before a further decline. Bitcoin has plummeted through a number of support levels. Given the fact that institutional investors closely monitor technical indicators and configure bots in accordance with them, Bitcoin is likely to fall on difficult times.
It is currently impossible to predict how deep stock markets and oil will fall. The situation can drastically change at any moment. While the markets are waiting for support from world central banks, however, given that the U.S. Federal Reserve lowered the rate by 0.5 bp last week, it is very likely that one of the most influential central banks in the world will limit itself to verbal interventions.
Market sentiment is extremely negative. Everyone knew that the stock was deeply overbought, and sooner or later the correction was to begin.
Leaving the OPEC+ deal, the Russian government planned to take away the share from the American shale oil companies, which benefited greatly from the previous production cuts.
Another possible reason why Russia did not agree to resort to the usual measures to reduce production amid a global decline is their belief that oil demand should return soon after at some point the coronavirus begins to wane and fears retreat from the market.
If the sharp movements of oil prices continue further, then probably both sides will again sit down at the negotiating table. Cheap raw materials will help to restore the global market by participating in the process of balancing the global economy.
Anton Kravchenko, CEO of Xena.Exchange
It is impossible to predict sharp drops or a sharp increase in Bitcoin price. We see only a long-term picture and it remains the same. $12,000–13,000 by the end of the year.
There is no support that could be broken at current levels, there’s no point in talking about the bearish phase, Bitcoin is still in the growth phase from $3,500 to $12,000.
Oil has already fallen by more than 30%. Most likely, a rebound awaits us.
The exit from the OPEC+ deal is due to the fact that, given the available volumes, Russia was satisfied with the price of oil for budget purposes, while OPEC wanted to reduce production and increase the price, which was not profitable for Russia.
As a result, Russia exited the deal, which led to OPEC moving to another equilibrium point—large oil supplies at a low price. For the whole world this, of course, is unexpected. What comes of this and whether Russia will return to the negotiations, remains to be seen.
The current Bitcoin price levels (~$8,000) are almost the net cost of mining before halving. We expect a further drop to the level of $6,000. It is wrong to expect that due to halving everything will grow sharply.
Gleb Kostarev, the official representative of the Binance exchange in the Russian Federation
Despite certain particularities, the cryptocurrency market is closely connected with global financial markets, and Monday's collapse could not but affect it. In conditions of turbulence, investors try to get out of high-risk assets and use more stable and less risky instruments, such as gold or bonds. In addition, amid the collapse, many investors use cash to go into certain assets, including digital ones, at a more attractive price.
At the same time, in some local markets, the demand for cryptocurrency may even increase. For example, in Russia, where the dollar exchange rate is growing rapidly. Earlier, with the depreciation of local currencies in Argentina, Venezuela, Iran, Turkey, and other countries, we have repeatedly seen how the local population not only actively bought dollars but also cryptocurrency.
Follow us on Twitter and Facebook and join our Telegram channel to know what’s up with crypto and why it’s important.