With Oil Prices Rising, Bitcoin Remains Stuck Below $85,000. Here's Why I'm Still Buying Bitcoin Right Now.
If history is any guide, pain at the pump should not result in pain for Bitcoin investors.
From July to September, Bitcoin's price leaped from $60,000 to $87,000, marking a 45% increase. However, in October, Bitcoin experienced a 2% decline with just a week remaining in the month. The main factor behind this fluctuation seems to be the surge in oil prices. As long as oil remains around $100, Bitcoin's price struggles to break through.
This is surprising, given Bitcoin's historical tendency to remain uncorrelated with major asset classes. So, why does Bitcoin's price now seem to be influenced by geopolitical developments in the Middle East? To understand this, it's helpful to examine the conventional oil feedback mechanism. In this scenario, higher oil prices spark inflation concerns, which in turn pushes central banks (like the U.S. Federal Reserve) to raise interest rates.
These rate hikes are detrimental to risk assets like Bitcoin, leading to a sell-off. However, extensive research reveals that there is no consistent correlation between Bitcoin and oil prices. Long-term rolling correlation coefficients between Bitcoin and key benchmarks like WTI or Brent crude typically stay at around 0, meaning there's no positive or negative correlation.
While there have been periods of correlation in the past, such as the current situation, these correlations fade over the long term. That's why I remain optimistic about Bitcoin's potential to rebound, regardless of oil prices' trajectory. I'm trusting the historical data to guide my decision. Moreover, the discourse surrounding Bitcoin seems to change daily, with various reasons being cited for its price movements.
Yet, much of this is noise, not meaningful insights. For instance, if a tech company reports better-than-expected earnings, Bitcoin's price might also rise. This brief upward trend may prompt analysts to claim that Bitcoin is acting like a high-beta tech stock. This recently occurred, with SpaceX reporting higher-than-expected revenue, prompting a price increase in Bitcoin and analysts advising investors to monitor tech company earnings.
Ultimately, Bitcoin is a long-term, buy-and-hold asset. It is highly volatile in the short term, making it unwise to focus on daily price fluctuations. Instead, one should concentrate on the bigger picture and let Bitcoin operate as it naturally does. That's why I'm continuing to invest in Bitcoin, even as the cost of gas at the pump concerns many people.
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