The economic repercussions of oil turning negative will have long to short months to comprehend. However, the best repercussion can be how it will open the door for Bitcoins to make their entry into the international market.
It is found out that commodity prices do not have a floor. To be honest, this is not the first time a commodity has traded below the point zero.
Natural gas prices have to go negative in the past owing to some logical problems. Buyers are finding it hard and several refineries are looking into it as a waste byproduct of oil production.
Outside the energy sector, several dairy farmers across the US are presently dumping excess milk rather than paying the customers to take it away.
Now the question is what does this have anything to do with bitcoin?
Preferably, it is throwing some light into the nature of the asset and on the products built around it. If we go by the Commodity Futures Trading Commission (CFTC) along with other regulators, Bitcoin is a commodity.
Ironically, it comes under the category of financial commodities that includes indices and currencies. They do have a floor and are capable of going to zero but not below once at a minimum. Therefore, the investors can write off their value keeping in mind the economic repercussions of the same.
But what if the value of a financial commodity was based on an underlying commodity that must have traded at negative prices?
The largest exchange-traded fund( ETF), USO in the energy sector holds nearly WTI futures. Present week those futures are trading below zero, as they involve physical delivery of oil.
But ETF being a financial commodity cannot be traded below zero and hence cannot reflect its underlying assets. This week, USO, in order to save its listing, announced the reverse share split to push back the price above the Nasdaq minimum requirement, and it surprisingly changed its investment strategy to focus more on longer-term futures. It also reflects the process of authorization of more shares, since money is coming in from retail investors in a hope to make the recovery well sorted.
This is largely influenced by the result of the U.S Securities and Exchange Commission's reluctance for approving easily redeemable investment vehicles to fit in all types of investors. Any change in the SEC policy for the Bitcoin ETFs is not possible in the short term as there are no current proposals under consideration.
Does anyone know what's going on yet?
There exists no such phase where one would find a boring week in the cryptocurrency(asset) sector. However, this week was particularly different, with the price ranging between 12 % or low to then surging high.
The sharp jump may have been the results of the futures expiry. In the news, the crypto asset products have thick and fast flow. Outside the cryptocurrency space, things are getting even worse as the disinfectant manufacturers are pleading not to inject their products as Kitchen pots are filled with possible oil storage.
Tensions are blooming in areas of Europe as Italy, the European Union's third-largest economy has been pity spared when it comes to junk bond status. Asian markets, on the other hand, are dealing with sceptical views over North Korean leader Kim Jong-Un's health and the unprecedented thread of the second wave of contagion.
In the present week, Bitcoin has outperformed the S & P 500, although long term government bonds and gold have performed significantly better this year.
Next week one can expect a slew of economic indicators which will determine the future performance for more than four million people who have applied for the benefits.
The Economist magazine has explored some of the options available to the governments and how to guide the economy during the crisis.
The options include financial repression policies executed during post-war economies of the previous century, which later can take the form of fixed exchange rates, capital controls, rationed bank lending and several caps on interest rates.
The modern economy has gone for a toss before the requirement of ideological sacrifices, but not at a time when there were alternatives to the currency of the central bank. Or can the government use cryptocurrencies to empower them is a question to ponder upon.