Bitcoin Resilient as Commodity Prices Inflate, Dollar Strength May Hurt

Bitcoin trades were steady as commodity prices rallied on Monday, hinting at higher inflation ahead. However, the resilience to the escalating Ukraine-Russia crisis may prove fleeting as demand for the U.S. dollar, the global reserve currency and one of the most liquid asset globally, is rising.

• At 08:23 UTC, the cryptocurrency was changing hands near $38,350, representing a 1.7% gain on the day. Prices fell over 3% on Sunday, providing negative cues to traditional markets.
• Oil is trading 4% higher on both sides of the Atlantic, extending its recent exponential rally. Russia and Ukraine-linked agricultural commodities like wheat and corn are up 4% and 3%, respectively, according to data from investing.com.
• "The range of near-term price outcomes for commodities has become extreme, given the concern of further military escalation, energy sanctions or potential for a cease-fire," Goldman Sachs wrote in a note to clients on Sunday, according to Reuters.
• The Russian ruble plunged 40% during early Russian trading hours and hit a record low of 118 per U.S. dollar as the Western countries stepped up punitive sanctions on Moscow, intending to isolate the country from the global financial system.
• The Bank of Russia raised rates from 9.5% to 20% and ordered companies to sell 80% of their foreign currency revenue to counter ruble depreciation risks and higher inflation, according to Reuters.
• Prospects of higher price pressures and fiat currency crash have strengthened the case for holding assets with a store-of-value appeal, such as bitcoin.
• The sustainability of bitcoin's gains is under question, as the escalating Russia-Ukraine crisis has led to stress in the dollar funding markets.
• The gap between the one-month London Interbank Offered Rate (LIBOR) and Fed rates contracts or the so-called FRA/OIS spread, has widened the most since March 2020, according to Bloomberg.
• The spread measures how expensive or cheap it is for banks to borrow liquidity (dollars) from other banks. A widening spread indicates credit crunch, the likes of which were last seen during the coronavirus-induced crash of March 2020. In such situations, investors usually prefer to hold cash, mainly the U.S. dollar.
• The dollar index, which tracks the greenback's value against majors, is trading at 97.15 at press time, up 0.66% on the day.