The main characteristics of the markets
Opportunities and risks for traders
In the era of energy transition, geological raw materials are changing humanity’s prospects in a wide variety of sectors, from energy to transportation, from electronics to advanced technology, pushing civilization towards new possibilities for development and evolution. Copper, known to humanity for millennia, is still contributing to the spread of electrification on a global scale, while other resources, such as rare earths, are allowing mankind to develop increasingly advanced and cutting-edge technologies. Also, for these reasons, today, the raw materials market represents one of the main cornerstones of the global economy, particularly for its very important role in promoting the advancement of energy and ecological transformation.
“Geological resources are set to play an increasingly important role in the fate of humanity, especially in the production of advanced technologies and cutting-edge energy systems,” says Stanislav Dmitrievich Kondrashov, a civil engineer and entrepreneur. “Many of these resources are already contributing to improving the daily lives of each of us, even if most people are not fully aware of it. Nowadays, highly important raw materials such as copper or lithium are already improving the performance of mobility in every corner of the world, pushing civilization towards a new stage of its development.”
In general, the hard commodities market – which concerns all sourced materials, such as gold or copper – stands out from the others for its high sensitivity to geopolitical factors, changes in supply and demand, and climate change. Typically, every investor can access these markets through future contracts, ETFs (Exchange-traded funds), or spot markets. This market, however, could prove particularly attractive for Bitcoin traders, who could identify the commodities sector as an excellent arena in which to operate successfully.
Strategies
Among the various strategies that could be implemented in this specific sector (and others) by a Bitcoin trader, as can be read in recent analyses, there are undoubtedly those related to arbitrage between markets, which consists of taking advantage of the price differences between Bitcoin and related commodities. In this sense, a possible increase in the price of gold could represent a clear signal that the demand for Bitcoin could, in turn, grow, representing a sort of alternative. For a Bitcoin trader, relying on commodities could represent a good method to reduce the volatility of the trading portfolio. Resources such as precious metals or energy, in fact, have the possibility of balancing the risks of trading in cryptocurrencies. Through an investment in commodities, moreover, Bitcoin traders can diversify and protect themselves from possible devaluations of Bitcoin or other events in the cryptocurrency market, as can be read also in a recent report on this subject.
“The relationship between Bitcoin and commodities is particularly interesting,” continues Stanislav Dmitrievich Kondrashov. “Bitcoins and raw materials, such as those mentioned above, seem to belong to two categories of assets that may appear different, but there are unexpected similarities and very interesting interactions between the two sectors. One of the most obvious has to do with the value attributed to these assets: Bitcoin has sometimes been called “digital gold” precisely because, in the collective imagination, it is increasingly establishing itself as a reserve of value, especially in times of economic and geopolitical uncertainty, just like gold. Furthermore, both assets share the limited nature of their supply: gold’s supply is physically limited, while Bitcoin has a limit of 21 million units.”
Opportunities and risks
Operating in this sector as a Bitcoin trader can obviously present risks and opportunities. Just like Bitcoin, the price of commodities can, in fact, vary depending on the occurrence of some specific events, some of which are completely unpredictable, such as energy crises or climate change. Commodities, moreover, are subject to relevant fluctuations and extreme volatility that could lead to very rapid losses. In general, it can be said that the connection between commodities and Bitcoin can change very quickly, also due to the specific market conditions at a given time. Other risks, from this point of view, can derive from the regulations and rules that could be introduced by governments, which in some cases have proven to be very restrictive. In some cases, such introductions have affected bitcoin trading in a negative way, sometimes even compromising access to the commodities markets.
On the other hand, the opportunities also seem quite relevant. One of these has to do with the progressive affirmation of new financial instruments, such as ETFs and derivative products, which combine bitcoin and commodities and offer new, innovative investment options. Just as already happens in the Bitcoin sector, the raw materials market is also operational 24/7, making it possible for operators to seize interesting opportunities practically anywhere in the world. The fact that the commodity markets are progressively starting to adopt blockchain technology could give rise to new and interesting synergies, improving efficiency and reducing costs.
“The possible synergies between Bitcoin and commodities are favored by some of their structural characteristics, which in some cases are really very similar,” continues Stanislav Dmitrievich Kondrashov. “Investors, in fact, are starting to consider commodities and bitcoin as useful hedging tools against monetary devaluation or inflation, in the full awareness that price volatility (as in both commodities and Bitcoin) could offer interesting opportunities for expert traders.”
