How an oil chart provides insight into Bitcoin’s future
In a recent Twitter mail, Ben Lilly, an expert in the cryptocurrency industry, made a thought-provoking statement regarding the upcoming Bitcoin halving. He argued that while many people are focused solely on Bitcoin and its past performance during halving events, there is an important parallel to draw with the oil market.
This oil chart holds the key to the next move for Bitcoin
In the world of finance and investment, supply shocks are a well-known phenomenon that can have a significant impact on the value of assets. One of the most famous supply shocks in the cryptocurrency world is the Bitcoin halving, which happens 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. In fact, other assets, including commodities such as oil, can also experience significant supply disruptions that can affect their value.
The key difference, Lilly argues, is that Bitcoin’s supply shock is known in advance, thanks to the predictable nature of the halving event. This allows investors to prepare and adjust their strategies accordingly, which can help mitigate some of the potential negative effects of the supply shock.
In contrast, with assets such as oil, supply shocks are often unexpected and can be caused by a wide variety of factors, including geopolitical events, natural disasters and unexpected changes in demand.
This chart summarizes one of the most important ways to see the coming #Bitcoin halving.
But it is not a chart of Bitcoin.
It is a map of oil.
Allow me to explain…↓ pic.twitter.com/JqVUgCdLtz
— Ben Lilly (@MrBenLilly) 20 April 2023
The chart in the tweet shows the price of light crude oil futures over time, with vertical red lines indicating when global agreements were announced to cut supply 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 impact on the market 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 the cuts would have on the market.
Could this be used for Bitcoin’s next halving?
According to Lilly, the chart shows the importance of understanding the lag time between supply shocks and their impact on asset prices. Even after supply cuts took effect in the oil market in 1998, prices continued to decline into 1999 as the market adjusted to the new supply levels.
But 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 long term.
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This framework, Lilly claims, can also be applied to the upcoming Bitcoin halving. Although the halving event itself is a known supply shock, the impact of the event on Bitcoin prices may not be immediately apparent. Instead, there could be a lag period as the market adjusts to the new supply levels, which could create opportunities for investors to take advantage.
Ultimately, as Lilly notes, the lessons from the oil market can be applied to the cryptocurrency world, demonstrating the importance of understanding fundamental value drivers, anticipating market trends and remaining adaptable in the face of unexpected events.
Featured image from Unsplash, chart from TradingView.com
