Energy-price disruptions and financial-market volatility are shaping new questions about how Bitcoin behaves alongside other risk assets. In this contributed analysis, LVRG Research considers oil supply, inflation, borrowing costs and the relationship between AI-related equities and digital assets.
The following discussion reflects the contributor’s analysis and market outlook. Its forward-looking assessments should be understood as opinions rather than verified predictions.
Liquid gold comes stuck
When oil supplies ground to a halt in 1973, the shock did more than send prices soaring. It reshaped the geopolitical order and offered the world a lesson to treat energy as a strategic asset. More than half a century later, conflict in the Middle East has rekindled fears that surging oil prices could once again derail economic growth. There is, however, one crucial difference this time: America has been a net energy exporter since 2019.
Few anticipated the scale of this year’s disruption following the closure of the Strait of Hormuz. Even fewer still expected inflation to prove so sticky, threatening to push the Fed to take more decisive action to combat inflation.
In the aftermath of the closure of the Strait of Hormuz, the consequences were felt far beyond the energy markets. Supplies tightened, and fuel rationing emerged in parts of Southeast Asia. Some cities faced power shortages, while drivers queued for hours at petrol stations. Brent crude has yet to reach the $200 a barrel that some had feared. But the economic damage cannot be easily measured by the oil price alone. The shock is already feeding into the wider economy, with September’s consumer-price index (CPI) offering a fresh look at how higher energy costs are filtering through to inflation. For the crypto industry, the impacts have been more varied.
Inflation in the air
Despite low consumer confidence, financial markets, by contrast, have proved remarkably sanguine. The S&P 500 and Nasdaq have reached record highs in October despite elevated oil prices. Bitcoin, often seen as a risk asset, has also shown resilience amid volatile oil prices. For much of the year, it has moved alongside AI-related equities, suggesting that its performance has been shaped by the AI exuberance and solid corporate earnings. The apparent calm in markets, however, should not be mistaken for an absence of looming economic risk.
Persistently high oil prices carry clear risks for crypto, even as Bitcoin has so far held up alongside AI-related equities. Elevated inflation expectations, already visible in Treasury yields, are starting to bite across the ecosystem. Higher energy costs threaten to slow the build-out of power-hungry data centers that have underpinned much of the recent AI-driven enthusiasm; that delay, combined with a broader risk-off shift in investor sentiment, would remove a key source of demand for Bitcoin and other tokens.
Crypto mining firms that have been pivoting toward AI data center power contracts face a similar squeeze. Higher inflation that forces rates upward raises their financing costs and compresses already thin margins on both mining and power-sale operations. Venture investors feel the same pressure: a higher cost of capital translates into valuation compression and tougher deal terms, reducing the flow of fresh capital into the wider crypto ecosystem.
Higher for longer
In the eyes of Wall Street, Bitcoin continues to pull away from the rest of the crypto ecosystem, increasingly treated as a distinct macro asset rather than simply another high-beta token. That separation is now being stress-tested by persistently high inflation. Energy-driven price pressures leave central banks in a bind, as aggressive rate hikes may do little to solve a supply-side oil shock, yet the same hikes risk puncturing the AI-related equity bubble that has helped support risk assets, and Bitcoin, through much of the year.
With both 10- and 30-year Treasury yields above 5 percent, the bond market is testing investors’ appetite for risk. The prospect of stubbornly high borrowing costs has made speculative AI stocks more vulnerable, yet the broader US equity market has so far proved remarkably resilient. Whether that resilience endures will depend partly on how policymakers balance inflation against growth and whether Bitcoin can sustain its divergence from other risk assets or is eventually swept into a wider retreat.
The timing of any stabilization in yields will largely determine the path of Bitcoin’s next move. Once oil-driven inflation begins to ease and markets grow confident that the Fed will not need to keep rates higher for longer, Treasury yields should stabilize and risk appetite return. At that point, Bitcoin, which has already shown relative resilience, is likely to rebound first among digital assets, benefiting both from renewed liquidity and from its growing perception on Wall Street as a distinct, non-correlated store of value rather than just another high-beta token. Investors should brace for more volatility on the road ahead, and Bitcoin will run a difficult endurance game before touching new record highs.
This article was written with contributions from LVRG Research.
Yiwei Wang is a blockchain enthusiast focused on storytelling at the intersection of crypto, economics and public policy. He has worked across financial communications and the blockchain industry with a range of companies and industry leaders.
Editor’s note: This contributed article has been lightly edited for clarity, length and TNGlobal house style. TNGlobal may also verify and, where necessary, qualify factual claims relating to market events, regulation and security incidents. The views and arguments expressed remain those of the author.
Share your perspective: TNGlobal welcomes contributed insights and expert commentary from across Asia’s technology and innovation ecosystem. Submit a contribution for editorial consideration, or explore more conversations in our TNGlobal INSIDER.
Featured image: engin akyurt on Unsplash