Black box decryption of cryptocurrency price changes / What is the relationship between bitcoin price and crude oil
The cryptocurrency market is undoubtedly the newest topic in the field of financial-economic activities in the world. The ambiguities surrounding it, on the one hand, are due to the interest of the original designers in keeping this market unknown, which has led to increased attention to this financial market. On the other hand, the nature of any new technology and innovation at the beginning of the work is accompanied by numerous questions and many ambiguities, so that little by little the hidden and visible angles of it become clear to the public and become a commonplace thing.
Currently, experts have different opinions about this market. Some see it as a big deal and a big scam, while others see it as a new opportunity to solve the problems of the traditional banking system.
One way to identify a new market is to compare it to other financial-economic markets. In the comparative method, the movements of the price chart of one commodity or currency are compared with the chart of another commodity or currency, and its direct or indirect effects are examined in a specific time frame.
For example, Figure 1 shows a price comparison chart of EUR-USD with GBP-USD over a fixed period of time. As you can see, the movement of the pound price index against the dollar is exactly the same as the movement of the euro index against the dollar. This means that by examining one chart, the movement of another chart can be predicted. In other words, the fluctuations of these two economic indicators are completely interrelated.
Figure 1- Comparison of EUR-USD price change chart with GBP-USD
Bitcoin cryptocurrency due to its digital nature; It has large-scale and unpredictable fluctuations. These fluctuations are due to the fluidity of the value criterion of this index. This means that market participants do not yet have a firm and solid standard for valuing it. Therefore, any parameter can raise widespread fears and hopes among market participants.
In such a situation, by using comparative analysis and comparing its fluctuations with other markets, it is possible to identify the roots and indicators affecting this market to some extent. It is also possible to understand which financial-economic markets, despite media propaganda, have little to do with Bitcoin price fluctuations.
First, a bitcoin exchange rate chart with the West Texas Intermediate (WTI) crude oil price index and the gold price index is examined to fully understand the dramatic changes in the value of bitcoin over short periods of time. Understanding this is the key to understanding the risks of investing in the cryptocurrency market.
The images below show the changes in the price index of Bitcoin, crude oil (WTI) and gold against the dollar. The following charts are measured in terms of the percentage change in the price index from the beginning of the period. In these pictures, the rate of rapid and heavy changes in the Bitcoin price index with two fundamental indicators in the global economy, namely gold and oil, can be clearly seen.
Figure 2 – Comparison of the percentage changes in the price index of Bitcoin, crude oil (WTI) and gold against the US dollar during the last 6 months
The chart above shows the crude oil price index in black, the gold price index in red and the bitcoin price index in blue. In the last 6 months, Bitcoin price fluctuations have been between negative 31% and more than positive 41%. Its latest price at the time of writing this report has decreased by negative 20.59% compared to 6 months ago.
Over the same period, crude oil price (WTI) fluctuations ranged from negative 14% to more than positive 22%. Its latest price at the time of writing this report has decreased by negative 27.75% compared to 6 months ago.
During the same period, gold price fluctuations ranged from negative 4.4% to more than positive 4%. Its latest price at the time of writing is down 1.34% from 6 months ago.
When we increase the time range; Little by little, we will notice the heavy volume of bitcoin price fluctuations. The following is a chart of price index changes for the above three options for one-year, two-year and five-year periods.
Figure 3 – Comparison of the percentage changes in the price index of Bitcoin, Crude Oil (WTI) and Gold against the US Dollar during the last 1 year
Figure 4 – Comparison of the percentage changes in the price index of Bitcoin, crude oil (WTI) and gold against the US dollar over the last 2 years
Figure 5 – Comparison of the percentage changes in the price index of Bitcoin, crude oil (WTI) and gold against the US dollar over the last 5 years
As shown in the diagram above; Changes in the Bitcoin price index against the dollar have reached a positive level of 6400%. While the maximum changes in the oil and gold price index in terms of dollars, during the last 5 years, the maximum has been between negative 70% to positive 70%.
Thus, it was found that the percentage of changes in the cryptocurrency market is unbearable and destructive for micro-capitals, and the presence of these capitals in such a market is extremely risky and risky.
In the following, we examine the chart of Bitcoin price changes one by one with the price changes of five important indicators in the world financial-economic markets. These indicators are:
- Crude Oil (WTI)
- Gold
- Euro
- Chinese Yuan
- Tesla shares
The purpose of examining these charts is to find a direct or indirect relationship between the changes in each of the above indicators and the changes in the value of Bitcoin. First look at the diagrams below and do a little research.
Figure 6- Comparison of Bitcoin price change chart with crude oil price change chart (WTI) in US dollars
Figure 7- Comparison of Bitcoin price change chart with gold price change chart in US dollars
Figure 8- Comparison of Bitcoin price change chart with Euro price change chart in US dollars
Figure 9 – Comparison of Bitcoin price change chart with China Yuan price change chart in US dollars
Figure 10 – Comparison of Bitcoin price change chart with Tesla stock price index change chart in US dollars
Examining the charts above, we find that except for the Tesla stock price index, there is no significant relationship between changes in the price of bitcoin with the price of crude oil, gold, the euro and even the Chinese yuan against the US dollar. Of course, in some time frames there may be little connection between these changes; But it is not possible to predict it in a controlled way at all times.
It is noteworthy that due to the pricing of all indices in US dollars, the strengthening or weakening of the dollar has sometimes led to relatively coordinated movements in all financial markets. But this has nothing to do with our discussion.
Finally, after reviewing several charts, we find that the chart of changes in Tesla stock price index has a significant relationship with changes in bitcoin price index. Below is a comparison chart of these two indicators using two different price announcement sources.
Figure 11
Figure 12
It is clear that the trend of changes in the price of Bitcoin and the price of Tesla shares, especially in recent months, have a very significant relationship with each other. A closer look at these two graphs at different time intervals and the fundamental (political-economic) analysis of the statements of Tesla executives can clarify very detailed points for those interested in international political-economic studies and bring us closer to answering the question of whether Bitcoin is really a completely free financial market, independent of the support of governments or powerful global financial foundations or a tool in their hands.
Mohammad Mehdi Mo’men Doost, Master of Energy
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