The Organization of Petroleum Exporting Countries (OPEC) and Russia have agreed to push up their regular March meeting due to a price collapse. Oil has dropped over 20% in January amid fears of demand cuts related to the coronavirus outbreak. Bitcoin, however, is seeing a price bump.
The meeting will likely conclude with a mutual agreement to cut back oil production. The goal of limiting production is to improve the supply and demand curve and maintain price stability.
Interestingly, however, Bitcoin’s response to the global outbreak threat has been to increase dramatically. While many see Bitcoin functioning as a commodity of sorts, this recent divergent price action proves otherwise. Instead, loss in demand for oil could further drive Bitcoin price increases.
The demand reduction has come mainly from China, with travel bans and manufacturing closures due to the epidemic. As demand collapses, available supply increases exponentially, driving prices down. With China as the most significant center of demand, OPEC nations realize that the current price declines may be just the beginning.
Reducing production would likely stave off the worst-case fears for the market. However, supply has already been reduced dramatically with the recent pipeline shutdown in Lybia. That event removed 800,000 barrels per day. What’s more, the previously confirmed reduction of 1.8 million barrels by Russia and OPEC has been priced in.
This type of supply and demand activity has driven the price of oil into lows for the year. Bitcoin, however, has responded with stability and strength amid fears of global confusion.
February has already started strong with a 2% bump in price, after an increase in January to the tune of 26%. Global fears of disease outbreak and its impacts have driven investors into Bitcoin because of its ‘safe haven’ status. This trend could continue, as oil sells off.
With the global loss in value of oil, investors may continue to move funds out of the commodity and into ‘digital gold.’ Protected from inflation, and hedged against loss, Bitcoin is a safe investment for traders during times of economic and geopolitical change.