Oil prices surge to highest level since 2008, what impact will this have on Bitcoin?

The conflict between Russia and Ukraine has pushed crude oil prices above $115 a barrel on Thursday, reaching their highest level since 2008. What could the surge in oil prices mean for the bitcoin market?

Many cryptocurrency analysts consider Bitcoin to be an inflation hedge, so in theory, the Bitcoin market would get a boost as Russia’s invasion of Ukraine pushes crude oil prices to their highest level since 2008.

But it's not that simple. High oil prices could give the Fed additional reason to worry about inflation, which could keep pressure on the U.S. central bank to tighten monetary policy from its current ultra-loose stance.

Bitcoin has been falling in recent months in response to hawkish statements from the Federal Reserve — seemingly in sync with the stock market.

One question some cryptocurrency analysts are beginning to ask is whether Bitcoin will decouple from stocks and start trading more like a safe-haven asset similar to gold?

“I wonder if Bitcoin is starting to show early signs of maturing as a safe haven,” said Jason Deane, an analyst at Quantum Economics. “If so, this could theoretically be a positive outcome for the asset.”

Bitcoin has risen 12% since February 27. After news of the Russian invasion initially pushed the price of Bitcoin down to $30,000, the latest rally has pushed Bitcoin above $40,000. According to Bitpush terminal data, as of press time, the price of Bitcoin is slightly above $42,000.

Oil prices rose to their highest point since 2008 early Thursday, with West Texas Intermediate crude hitting $116.57 a barrel during trading hours.

A growing number of economists have expressed concerns that higher oil prices could push up fuel costs for motorists and also raise costs for manufacturers and the transportation industry, a dynamic that could exacerbate inflation that is already at its highest level in 40 years.

Federal Reserve Chairman Jerome Powell said in a speech to the House Financial Services Committee on Wednesday that he expects the Fed to raise interest rates by a quarter percentage point at its next regularly scheduled meeting later this month.

Powell, who did not mention oil directly in his comments on Wednesday, cited high inflation, a tight labor market and strong demand in the economy as reasons the Fed needs to start tightening monetary policy.

"We believe the Russia-Ukraine war will push up oil and gas prices, adding to inflationary pressures both globally and in the U.S.," said Brian Coulton, chief economist at Fitch.

While many economists focus on “core” inflation, which excludes the impact of volatile food and energy prices, repeated “shocks” to oil prices could become a problem, Coulton said.

So far in 2022, Bitcoin has not served as a hedge against inflation as many traders expected.

Bitcoin is down 8% year to date, and there is even talk of possible “stagflation,” where inflation is high but economic growth is negligible.

This has dealt a blow to Bitcoin’s performance as traders have shown they prefer to put their cash into gold, which has outperformed Bitcoin so far.

“For cryptocurrencies, volatility and regulatory uncertainty and unpredictable swings are undermining their effectiveness as a hedge against inflation, rising oil prices or a weak economy,” said Mark Hackett, head of investment research at Nationwide.