Bitcoin Holds at $66,000 Despite Oil Prices Threatening $90

[Mexico City = Shim Young-jae, Correspondent] Brent crude oil prices have approached $90 per barrel again, but Bitcoin is maintaining its position around $66,000. The market seems to assess the recent surge in oil prices as a short-term risk that could be alleviated by diplomatic negotiations and supply recovery, rather than a long-term inflation shock.

According to CryptoSlate, Brent crude futures rose to $91.42 per barrel on the 20th (local time), marking the highest level since November 11. However, following discussions of a 10-day ceasefire between the U.S. and Iran, prices fell to $88.28. Bitcoin fluctuated between $63,100 and $65,666 during the day before rising to around $66,300 on the 21st.

Bitcoin Rises Despite Oil Price Surge... Market Views It as a 'Short-Term Shock'

Typically, rising international oil prices negatively impact Bitcoin.

When oil prices rise, gasoline, diesel, jet fuel, and heating costs increase first. This subsequently affects food and manufacturing prices through transportation and electricity costs. If energy prices remain high for an extended period, it can spread to wages, service prices, and expected inflation.

As inflation rises, the U.S. Federal Reserve (Fed) is more likely to keep interest rates high for a longer period or implement further increases. When interest rates rise, the yields on cash and U.S. Treasury bonds increase. The relative investment attractiveness of Bitcoin, which does not pay interest, decreases.

However, the current market is assessing the sustainability of rising oil prices as low.

CryptoSlate analyzed that investors are reflecting the diplomatic negotiations between the U.S. and Iran, the normalization of oil tanker operations in the Strait of Hormuz, and the potential for additional supply from oil-producing countries in their pricing. They believe that the risk premium will decrease before oil prices remain high for an extended period.

In fact, after Brent crude reached $91.42, it quickly fell to the $88 range following news of ceasefire discussions. This indicates that if geopolitical risks are alleviated, the increase in oil prices could quickly dissipate.

A 10% Increase in Oil Prices Could Raise Inflation by 0.15 Percentage Points

According to research from the U.S. Federal Reserve cited by CryptoSlate, if real oil prices remain 10% higher, the overall consumer price inflation rate in the U.S. could increase by about 0.15 percentage points over four quarters. The core inflation effect is estimated to be about 0.06 percentage points.

The average price of Brent crude in June, as reported by the U.S. Energy Information Administration (EIA), was $85 per barrel. The $91.42 recorded on the 20th is 7.6% higher than this. If we simply apply this to the Fed's estimates, maintaining oil prices at this level for a year could raise overall prices by about 0.11 percentage points.

Compared to the EIA's expected average price of $74 for the third quarter, the burden increases. The $91.42 is 23.5% higher than the forecast. Calculating in the same way, the inflationary effect could expand to about 0.35 percentage points.

However, this calculation is based on the assumption that oil prices remain high for an extended period. A one-day price surge is unlikely to lead to inflationary pressures sufficient to change monetary policy.

Ultimately, the key variable for the Bitcoin market is not whether oil prices exceed $90, but how long they stay above that level.

ETF Funds Defend $65,000

Institutional funds are also supporting Bitcoin prices.

According to Paradigm Investors, the U.S. spot Bitcoin exchange-traded fund (ETF) saw a net outflow of $424.7 million on the 13th. However, from the 14th to the 17th, over $500 million flowed back in over four trading days.

With the return of ETF funds, Bitcoin was able to maintain its position at $65,000 despite the pressures from rising oil prices and interest rates.

The bond and foreign exchange markets did not immediately reflect tightening shocks. According to CryptoSlate, the yield on the U.S. 10-year Treasury bond rose by about 2 basis points to approximately 4.56%. The dollar index recorded a 0.1% drop to 100.69 in the Asian market.

The fact that Treasury yields and the dollar did not surge despite rising oil prices indicates that the market is not yet worried about long-term inflation shocks.

The interest rate futures market reflects an 83.4% probability that the Fed will keep the benchmark rate unchanged at the meeting on the 29th. The possibility of a 0.25 percentage point increase is 16.6%.

The likelihood of rates rising at least once by September is 60.3%. While medium-term tightening concerns remain, the chances of an immediate rate hike in July are viewed as low.

If $90 Becomes Long-Term, $65,000 Could Be Shaken

For Bitcoin's current upward trend to be sustained, the oil price shock must end in the short term.

CryptoSlate suggested that if Brent crude falls below $80 or approaches the EIA's expected average of $74 for the third quarter, it would be a bullish scenario for Bitcoin. In this case, the Fed could keep rates unchanged in July, and the likelihood of a September increase could decrease. If the dollar weakens and ETF inflows continue, support for Bitcoin at $65,000 could strengthen.

Conversely, if Brent crude averages above $90 for weeks, the situation changes.

If disruptions in the Strait of Hormuz continue and crude oil inventories decrease, a temporary oil price shock could transition into inflation and interest rate shocks. If the yield on the U.S. 2-year Treasury bond exceeds 4.30% and the dollar index rises above 101-102, financial conditions could tighten rapidly.

At that point, if funds also exit Bitcoin ETFs, the support level at $65,000 could weaken.

The Strait of Hormuz is a key transit route through which about 20% of the world's crude oil supply passes. If disruptions or blockade risks for oil tankers expand, oil prices could rise for weeks.

CryptoSlate analyzed that in such a scenario, Bitcoin is likely to behave more like a risk asset sensitive to liquidity rather than an inflation-hedging asset.

Currently, Bitcoin is reflecting not the surge in oil prices itself but the 'end point' of the oil price increase in its pricing. If diplomatic negotiations progress and supply normalizes, it is likely to maintain the $65,000 level. Conversely, if oil prices, interest rates, and the dollar all rise simultaneously, the current defensive strength will face a significant test.