In a recent Twitter post, Ben Lilly, an expert in the cryptocurrency industry, made a thought-provoking statement regarding the upcoming Bitcoin halving. He claimed that while many people are focused solely on Bitcoin and its past performance during halving events, there is an important parallel to be drawn with the oil market.
This Oil Chart Holds The Key To The Next Move For Bitcoin
In the world of finance and investing, supply shocks are a well-known phenomenon that can have significant impacts on the value of assets. One of the most well-known supply shocks in the cryptocurrency world is the Bitcoin halving, which occurs 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 that experiences supply shocks. In fact, other assets, including commodities like oil, can also experience significant supply disruptions that can impact their value.
The key difference, Lilly argues, is that Bitcoin’s supply shocks are 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 to mitigate some of the potential negative impacts of the supply shock.
In contrast, with assets like oil, supply shocks are often unexpected and can be caused by a wide range of factors, including geopolitical events, natural disasters, and unexpected shifts in demand.
This chart sums up one of the most important ways to view the upcoming #Bitcoin halving.
But it’s not a chart of Bitcoin.
It’s a chart of oil.
Allow me to explain…↓ pic.twitter.com/JqVUgCdLtz
— Ben Lilly (@MrBenLilly) April 20, 2023
The chart in the tweet shows the price of light crude futures over time, with vertical red lines indicating when global agreements were announced to cut supply in March and June of 1998. Interestingly, there are two price jumps after each line, indicating that the market reacted in anticipation of the cuts going into effect.
As Lilly notes, this is an important reminder that supply shocks can have a significant impact on the market even before they go into effect. In the case of the oil market, the announcement of supply cuts was enough to cause a significant uptick in prices, as investors anticipated the impact that the cuts would have on the market.
Can This Be Applied For Bitcoin’s Next Halving?
According to Lilly, the chart demonstrates the importance of understanding the lag time between supply shocks and their impact on asset prices. Even after the supply cuts went into effect in the oil market in 1998, prices continued to sag going into 1999, as the market adjusted to the new supply levels.
However, once the impact of the supply shock kicked in, oil prices tripled over the next few years, demonstrating the significant impact that supply disruptions can have on asset prices over the long term.
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This framework, Lilly argues, can be applied to the upcoming Bitcoin halving as well. While the halving event itself is a known supply shock, the impact of the event on Bitcoin prices may not be immediately apparent. Instead, there may be a lag time as the market adjusts to the new supply levels, which could create opportunities for investors to take advantage of.
Ultimately, as Lilly notes, the lessons of the oil market can be applied to the cryptocurrency world, demonstrating the importance of understanding fundamental drivers of value, anticipating market trends, and remaining adaptable in the face of unexpected events.
Featured image from Unsplash, chart from TradingView.com