Right now one of the best indicators of economic activity is oil. It is very interesting to apply technical and quantitative analysis in this case because we must not get carried away by narratives. We must combine technical analysis with fundamental analysis.
We know that oil, like BTC and all assets, has buyers and sellers. And it is governed by the Law of Supply and Demand. Balances typically have an adjustment period and can also change rapidly. We can even consider that there are times when it is not in balance and takes time to return to it.
Right now the situation in Russia and Ukraine is driving the price up. While there may be more factors driving prices higher, the reality is that we must ask ourselves, who can supply the market with alternative oil to the one that is coming out of the market?
One of the factors that may help the price fall is that Russia continues to sell even at a discount, given the risk involved in buying Russian oil. Without going too far, India, China and the countries of the former Soviet Union can buy at a discount. Another determining factor is the increase in supply from other countries, including Venezuela. There are also strong incentives to use less safe and more polluting extraction methods.
And how does all this affect Bitcoin?
When an investor has to decide whether to invest in bitcoin or to improve the oil extraction, distribution and marketing infrastructure look at the following graph:
BTC is currently at important support against oil and for the ratio to normalize, it is necessary to have a rise in the denominator. Otherwise, the support would be a mere bounce line. That’s why it’s important to pay attention to a possible trend change in the above ratio before rushing to buy BTC. And many are using their BTC to invest in infrastructure to benefit from rising oil prices.