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IN THE WAKE OF VENEZUELA STRIKE, BITCOIN MAY HAVE A NEWFOUND FLIGHT-TO-SAFETY APPEAL

If the sudden events in Venezuela could be distilled into one market conclusion, it would be the impact on future oil supply, which could have major macroeconomic, policy, and market implications.

According to Ben Emons, founder of Fed Watch Advisors, Venezuela has the biggest oil reserves globally. Additionally, he says President Trump is not shy about the alternative motive for removing Maduro: to take control of the country’s oil reserves by leveraging U.S. oil companies.

"The effect is likely felt in Brent because Venezuelan crude, whose output is over 67% heavy crude, competes in the global heavy-sour market, which prices off Brent. U.S. Gulf Coast refiners (Valero, Marathon, CITGO) are optimized for heavy crude; abundant access to Venezuelan barrels in the future means they do not need to bid up alternative crudes," writes Emons in a note.

He adds that "Removing Maduro is a way for the President to roll the dice on the midterm election by targeting lower gas prices to boost consumer affordability."

That said, Emons cautions that this favorable macro scenario may take a while to play out, as it can take considerable time to build fully operational extraction facilities and refineries.

Thus, he thinks the more immediate reaction in oil markets may be mixed.

Meanwhile, Emons says the Senate is moving to vote on a bipartisan war powers resolution which could block President Trump from continuing military action against Venezuela.

"If this vote passes, the President cannot authorize a second wave of attacks, a first step toward limiting how far Trump can go in taking unconventional [military] actions without Congressional approval," writes Emons.

In any event, Emons says it's noteworthy that the weekend liquidity and risk barometer, crypto, traded up, with bitcoin breaking above $91,000 for the first time since mid-December and clearing its 50-day moving average, implying positive momentum.

In his view, as uncertainty grows over how the Venezuelan situation develops geopolitically, "Bitcoin has a newfound appeal as a flight-to-safety asset."

Of note, since Friday, bitcoin BTC= has rallied more than 4%.

(Terence Gabriel)

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