On April 20th, global markets saw one of its most volatile days ever. Although the stock market was largely flat on the day, oil briefly went negative across many major markets in the U.S. and in Canada.
The price of a barrel of “liquid gold” ironically traded below $0, plunging 300% from the $20 highs to lows under -$40, meaning that sellers of oil would pay buyers to take the resource off their hands.
The reason: because production has stopped around the world, there was no demand for the oil, which meant that suppliers, which have to spend money to store the resource, wanted to get rid of it.
Interestingly, during this historic trading session, Bitcoin didn’t budge more than it normally does, falling by 4% almost as if it was any other day. This relative strength, a crypto investor has said, might be a sign that Bitcoin is starting to develop into a safe-haven asset.
Bitcoin May Be Maturing Into a Safe-Haven
Cryptocurrency investor Humboldt Capital remarked that the fact that Bitcoin was down “less than 4%” on the same day “one of the largest risk markets” in the world, oil, “blew up,” is a tell-tale sign that it may in the midst of developing into a safe-haven investment — or at least an uncorrelated play.
One of the largest risk markets blew up today and $BTC is down less than 4%, might be time to start reading between the lines.
— Humboldt Capital (@HumboldtCap) April 20, 2020
In the April edition of Bloomberg Intelligence’s “Crypto Outlook,” the commodities desk at the multinational research and news outfit corroborated this, explaining that they see Bitcoin surely maturing into a form of digital gold. Gold, for context, has weathered this latest bout of macroeconomic volatility, falling a mere 1%.
Citing overall declining volatility, a convergence between gold’s trajectory and that of Bitcoin, and the debasement of fiat money, Bloomberg wrote that Bitcoin is on its way to becoming a safe-haven play.
Whether or not that narrative plays out in the macroeconomic market cycle isn’t clear, but the chances do seem to be growing that Bitcoin will begin to pave its own path amid the crisis. As The Block’s Frank Chaparro wrote:
Throughout this crisis, we’ve seen spine-tingling equity volatility, Treasury yields hit record lows, oil prices fall below zero, unprecedented Fed printing and bond purchasing. Right now, bitcoin might be more stable than anything else.
It All Ties Back to Deflation
Oil collapsing under $0 also brings up another interesting narrative for Bitcoin: deflation.
Although negative oil prices are totally unprecedented territories for global markets, the asset falling below $0 is a sign of not enough demand for oil. And because there isn’t enough demand for oil, you know there isn’t enough demand for all goods, as oil drives factories and drives trucks.
Put simply, the chances that deflation will transpire — when the value of your dollar actually increases — are rapidly increasing. As Raoul Pal, CEO of Real Vision said, he “just [doesn’t] see how CPI or core CPI stays positive” with negative oil prices are no consumer demand.
Yes, a common theme in the Bitcoin space is that inflation will drive the cryptocurrency’s growth. But, chances are, it could benefit from deflation as well.
As explained in a previous Blockonomi report, in a world where deflation is rife, interest rates will be negative. That decreases the opportunity cost of holding gold or Bitcoin, which both yield 0% to their holders and also may act as a monetary medium.
Furthermore, a deflationary spiral increases the real value of debt, promoting bankruptcy and societal instability. This may prove the value of Bitcoin, which some see as a “get-out-of-jail-free card” but for the monetary and financial systems.
