Bitcoin Not Invulnerable; Cryptocurrency Drops Near 2020’s Low Following Oil Price War
Major markets and oil futures dropped to lows on Monday following Saudi Arabia's decision to slash oil prices. The move came following Russia's announcement that it will not cut its oil output as two of the world's dominant oil producers choose to engage in a 'war' aimed at capturing market share at a time when markets, companies and individuals all around the world are reeling from the devastating aftermath of the coronavirus outbreak in Wuhan, China.
To make matters worse, in addition to cutting oil prices by as much as $8 per barrel, Saudi Arabia is also rumored to ramp up production. The rumors came after Russia's Minister of Energy Alexander Novak announced that following the start of April, his country would proceed without taking into account earlier quotas or reductions.
As a result, stock markets all around the world and in the United States took major hits that saw gains being wiped away. At the close of trading today:
- The DOW Jones Industrial Average is down by 2,013 points or 7.79% after having plummeted by 2,118 points earlier in the day.
- The Standard & Poor 500 index is down by 225.81 points or 7.60% after having dropped by 232 points earlier in the day.
- The NASDAQ-100 index is down by 624.94 points or 7.29% after having dropped by 596 points earlier in the day.
However, market indexes were not the only investment options that suffered following the oil price war. Bitcoin, which has witnessed proponents argue in favor of the virtual currency being safe from market downturns, has also lost a good chunk of its value today.
Bitcoin Nearly Touches 2020's Lowest Price Point As Markets Tumble Following Oil Price War Between Russia & Saudi Arabia
Today's drop in Bitcoin's price confirms that despite proponent's claims, the cryptocurrency isn't as bulletproof to global downturns as we'd have hoped. At the time of writing, Bitcoin is down by 5.2% - a drop that nearly mirrors the ones major indexes are going through. However, in a slight ray of a silver lining, Bitcoin is still posting gains year-to-date; a fact that is not mirrored by other market indexes some of which continue to trade at levels seen in October last year.
While there's a long way to go before officially stating that Bitcoin, in fact, does move in tandem with global equities, today's and prior price movements put a dent in efforts to make the cryptocurrency a safe haven for investments that is second only to gold. Despite having emerged as a major player in global markets in a short time period, Bitcoin has failed to convince investors of its worth as a safe haven. If you're in doubt, look at the value of gold as one troy ounce gained over yesterday earlier today (but is down slightly at the time of writing).
To make things more interesting for Bitcoin, individuals behind the Ponzi scheme PlusToken sold 13,000 Bitcoins, perhaps as they anticipated its value to drop after the Russian refusal. Offloading such an amount is naturally bound to force downward price movement, but it's uncertain what impact this has had on Bitcoin's value drop today.
Additionally, and to counter assumptions that perhaps the coronavirus' impact on markets has not translated into a downturn for Bitcoin, data sourced by firm ByteTree suggests that Bitcoin miners were wary of the market since January - the month in which Bitcoin dropped to its yearly low. ByteTree's miner's rolling inventory dropped to 79% in January, marking a two year low. A rolling inventory percentage exceeding 100% indicates that more Bitcoins are being sold than mined, and a percentage below 100 reflects the opposite.
Whether this drop in Bitcoin will persist, only time can tell. But one thing that is for sure is that investor adoption of the cryptocurrency is facing far more hurdles than its proponents believe should be the case.