How An Oil Chart Offers Insight Into Bitcoin’s Future
On a recent Twitter publish, Ben Lilly, an expert on the cryptocurrency industry, made a thought-provoking statement about the upcoming Bitcoin halving. He stated that while many people are only focused on Bitcoin and its past performance during the halving, there is an important parallel to be drawn with the oil market.
This Oil Chart Holds the Key to Bitcoin’s Next Move
In the world of finance and investment, supply shocks are a well-known phenomenon that can have significant impacts on asset values. One of the most well-known supply shocks in the cryptocurrency world is the Bitcoin halving, which occurs roughly every four years and cuts the supply of new BTC in half.
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However, according to Ben Lilly, Bitcoin is not the only asset experiencing supply shocks. Indeed, other assets, including commodities such as oil, can also experience significant disruptions in supply that could affect their value.
The main difference, argues Lilly, is that Bitcoin supply shocks are known in advance, thanks to the predictable nature of the halving. This allows investors to prepare and adjust their strategies accordingly, which can help mitigate some of the potential negative impacts of the supply shock.
In contrast, with assets like oil, supply shocks are often unexpected and can be caused by a wide range of factors, including geopolitical events, natural disasters and unexpected shifts in demand.
This graphic summarizes one of the most important ways to visualize the upcoming #Bitcoin half.
But it’s not a Bitcoin chart.
It’s an oil chart.
Allow me to explain…↓ pic.twitter.com/JqVUgCdLtz
— Ben Lilly (@MrBenLilly) April 20, 2023
The graph in the tweet shows the price of light oil futures over time, with vertical red lines indicating when global agreements to cut supply were announced in March and June 1998. Interestingly, there are two price jumps after each line, indicating that the market reacted in anticipation of the cuts coming into effect.
As Lilly notes, this is an important reminder that supply shocks can have a significant market impact even before they take effect. In the case of the oil market, the announcement of supply cuts was enough to cause a significant rise in prices, as investors anticipated the impact that the cuts would have on the market.
Can this apply to the upcoming Bitcoin halving?
According to Lilly, the chart demonstrates the importance of understanding the lag between supply shocks and their impact on asset prices. Even after supply cuts took effect in the oil market in 1998, prices continued to fall in 1999 as the market adjusted to new supply levels.
However, once the impact of the supply shock kicked in, oil prices tripled over the next few years, demonstrating the significant impact supply disruptions can have on asset prices over the longer term.
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This framework, Lilly argues, could also be applied to the upcoming Bitcoin halving. While the halving itself is a known supply shock, the impact of the event on Bitcoin prices may not be immediately apparent. Instead, there could be a delay while the market adjusts to the new supply levels, which could create opportunities for investors to take advantage of.
Ultimately, as Lilly notes, lessons from the oil market can be applied to the world of cryptocurrencies, demonstrating the importance of understanding fundamental value factors, anticipating market trends and remaining adaptable in the face of unexpected events.
Featured image from Unsplash, chart from TradingView.com