One lesson of this week’s oil-price crash is that markets aren’t acting very efficiently during the coronavirus crisis. 

On Monday, the benchmark U.S. oil futures contract for May delivery tumbled to an unprecedented negative price, largely because storage tanks are full of a product few can use. How that surprised experienced oil traders might seem a mystery, since energy companies and Texas state officials had been warning for weeks that storage capacity was running out. 

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Commentators quickly pointed out the price anomaly was limited to the May contract; the futures contract for June delivery, after all, was still trading above $20 a barrel – a better reflection of oil’s true price. “Technical factors explain some of the decline,” the New York Times wrote. “Oil watchers don’t consider it the most accurate reflection of price action,” the Wall Street Journal wrote. 

Then on Tuesday, that narrative proved fanciful when the June contract tumbled more than 43 percent to a 21-year low of $11.57 a barrel. The May contract settled at $10.01. 

The only news was the price discovery: It turns out oil is worth a lot less now than it was at the start of the week, or in early April when it traded closer to $30 a barrel. 

The takeaway for bitcoin traders is there might be a lot of factors in cryptocurrency markets that are known but not really reflected in the price.

Those could include the deflationary impact of the coronavirus-induced global recession and the potential inflationary forces of the Federal Reserve’s trillions of dollars of emergency money injections. Another might be the upcoming miner rewards halving, due to take place next month on the bitcoin blockchain. 

“The markets are just simply reflecting at this point what’s going on in the real economy, which obviously is a lot of volatility,” Commodity Futures Trading Commission Chair Heath Tarbert told CNBC on Tuesday, in an interview about the oil market. 

The reality unfolds slowly, and the volatility happens all of a sudden. 

This might help explain why bitcoin has been stuck for all of April in a range between $6,400 and $7,400, even in the midst of what looks to be the world’s biggest health emergency and economic crisis so far this century.

“Bitcoin barely flinched as negative oil prices sent shockwaves through traditional markets and in relative terms has held up very well,” the Israeli trading platform eToro noted Tuesday in an email to clients.

Was that the right reaction for the bitcoin market? 

There’s so much traders don’t know about the future course of the pandemic and of its ramifications for business, society and culture. But it’s not even clear if markets have properly priced in what traders already know. 

Bitcoin is often touted by traders as a hedge against inflation, and many cryptocurrency investors assume the Fed’s money injections will eventually spur faster price rises. But Deutsche Bank has predicted in recent reports that the U.S. unemployment rate will rise to a post-World War II record of 17 percent, putting downward pressure on wages. That’s deflationary. 

For bitcoin traders, squaring the countervailing forces adds to the frustration of trying to divine what sort of speculation the bitcoin market is already reflecting. Is May’s halving priced into the market, given that it was put on the schedule 11 years ago when the Bitcoin blockchain was launched? That debate has been raging for months. 

The oil price collapse this week shows how bad markets can be at reflecting what’s already known until there’s a hard reality check on supply and demand.  

That might mean bitcoin traders won’t know the price impact of the cryptocurrency’s potential adoption as an inflation hedge until more mainstream investors actually start buying. 

And it might mean the market won’t see the full impact of May’s halving until it comes – and maybe goes.  

TWEET OF THE DAY

Bitcoin watch

BTC: Price: $6,960 (BPI) | 24-Hr High: $6,988 | 24-Hr Low: $6,783

Trend: Bitcoin is flashing green on Wednesday as price volatility falls to fresh 3.5-month lows.

The top cryptocurrency is currently trading near $6,950, representing a 1.4 percent gain on the day. The cryptocurrency is lacking a clear directional bias, however, as prices have spent a better part of the last 2.5-weeks trading in the narrow range of $6,450 to $7,450. 

Due to the rangebound activity, the spread between bitcoin’s Bollinger bands – volatility indicators placed two standard deviations above and below the 20-day moving price average – has narrowed to $838, the lowest since January 6. The spread was $895 on Monday. 

The tightening of Bollinger bands indicates a drop in volatility and often paves the way for a big move up or down. 

The daily chart’s MACD histogram, an indicator used to identify trend strength and trend changes, is about to cross below zero for the first since March 20. The impending bearish crossover on the MACD suggests the price squeeze could end with a sell-off. The immediate support of the lower Bollinger band is located at $6,571.

However, on-chain metrics are telling a different story. For example, the seven-day moving average of the number of bitcoins held on cryptocurrency exchanges continues to fall, indicating a strong holding sentiment ahead of the mining reward halving due in 19 days. 

The average fell to 2,398,564 on Tuesday to hit the lowest level since June 13, according to blockchain intelligence firm Glassnode. The metric stood at 2,214,365 a week ago, having topped out at 2,404,786 on Jan. 17. 

Investors usually move coins from the exchanges to their personal wallets when prices are expected to rise. Meanwhile, bitcoin balances on exchanges typically rise during bear markets. 

It’s worth noting the MACD is based on moving averages, which are lagging indicators, and could trap sellers with a bearish crossover. Hence, accumulation signaled by the declining balance of bitcoin on exchanges takes precedence over the technical indicator. 

Put simply, bitcoin could rise in the short term and may breach the recent trading range on the high side. Acceptance above $7,450 would open the doors for a stronger rally to $8,000.