A crypto market rally remains elusive this week, even as a major catalyst, the falling crude oil price, has emerged. Bitcoin remains below the critical $86,000 support level, while the market capitalization of all coins has dropped by over $1 trillion in the past few months.
Crude Oil Price Has Tumbled
Data show that Brent and WTI crude oil prices have come under intense pressure over the past few months. Brent, the global benchmark, dropped to $59.5, while the WTI moved to $55.
Crude oil has crashed by double digits from its year-to-date high amid supply concerns following increased production by OPEC+ members such as Saudi Arabia and Iran. The cartel has constantly boosted production this year.
At the same time, there are signs that demand is starting to slow as China’s economy slows, with a report released this week showing that industrial production came in short of expectations.
Crude oil is also falling as investors predict that Donald Trump will reach an agreement with Russia on ending the war in Ukraine. Such a move would lift sanctions on Russia and make it easier for the country to increase its oil exports to other countries. It would boost exports at a time of oil market abundance.
The only potential catalyst in the oil market today is that Donald Trump announced a major blockade on ships entering and leaving Venezuela, a country with the most oil reserves. This explains why Brent and WTI rose modestly today.
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Will this Lead to a Crypto Market Rally?
In theory, the falling crude oil price should be bullish for the crypto market because of its impact on inflation in the US and other countries.
Lower oil prices usually translate to lower gasoline prices. Indeed, data show that gasoline has recently dropped to its lowest level in years in the US.
Lower gasoline costs, on the other hand, lead to lower inflation in the country, which often pushes the Federal Reserve to start cutting interest rates. The crypto market typically thrives in an era of easy-money policies.
The Fed has already implemented three rate cuts this year and begun implementing a quantitative easing policy by buying $40 billion in government bonds each month.
Analysts expect the upcoming US inflation report, due out on Thursday, to show that the headline CPI remained at 3% in November.
A sign that oil prices are pushing inflation downward will raise hopes that the bank will deliver more cuts next year, since the unemployment rate has jumped to its highest level in years.
Still, the crypto market rally faces other major headwinds, including the upcoming Bank of Japan interest rate hike, falling futures open interest, and the formation of a bearish flag pattern on Bitcoin and Ethereum. In most cases, these patterns usually lead to more downside pressure across assets.
Therefore, for now, the crypto market will likely remain under intense pressure even as oil prices continue to fall.
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