• Arthur Hayes, co-founder of BitMEX, outlines potential scenarios that could lead to a global oil supply shortage.
• These potential scenarios include conflicts in the Middle East and sabotage of critical oil/gas infrastructure.
• If such a crisis were to occur, it is likely central banks would return to market-friendly loose monetary policies, which could drive up Bitcoin’s price.
Potential Global Oil Supply Shortage
Arthur Hayes, co-founder of BitMEX published an essay on Thursday outlining “realistic potential situations” that could lead to a global oil supply shortage. The former CEO argued that such a scenario could spur central banks across the world – including the Federal Reserve – to return to a market-friendly loose monetary policy.
Possible Causes for Oil Crisis
Hayes described three possible futures that could lead to an oil supply shortage across the globe given current geopolitical tensions: Iran closing the Strait of Hormuz; large oil producers reducing their production; or critical oil/gas infrastructure taken offline due to sabotage. Of these scenarios, Hayes determined the first one was most likely as Iran’s Uranium enrichment could motivate Israel and Saudi Arabi to take military action against them, leading them to close off 17.3 million barrels per day from global markets and drastically increase marginal cost per barrel.
Central Banks Responding with Loose Monetary Policy
If such a crisis were to occur, Hayes believes it is likely central banks would respond by returning to market friendly loose monetary policies in order counteract economic downturns caused by high energy prices. This would mean more liquidity entering financial markets which would create inflationary pressure and push asset prices higher – including Bitcoin’s price which has historically been positively correlated with gold and silver prices during times of crisis or uncertainty.
Positive Correlation Between Bitcoin Price & Energy Prices
The correlation between Bitcoin’s price and energy prices has been observed before – when crude oil prices spiked 20% following drone attacks on two major Saudi Yemen facilities in September 2019, so did Bitcoin’s price within hours after the incident took place. Similarly when crude oil dropped more than 50% in March 2020 due to COVID-19 restrictions on travel causing demand for fuel products to plummet, so did Bitcoin’s price drop shortly thereafter – indicating that there is indeed some form of correlation between both markets in certain contexts .
Conclusion
Should any of these scenarios arise leading up an global oil supply shortage it is likely central banks will respond by introducing looser monetary policies in order stimulate economies through increased liquidity – creating inflationary pressure and driving asset prices higher including Bitcoin’s price which has been seen as positively correlated with energy prices in certain contexts before
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