Bitcoin has barely declined in the face of the dollar’s best attempt at recovery in over a year. The greenback is trying to make a comeback against the top cryptocurrency that beat and beat the global reserve currency.
Though Bitcoin blocked the USD’s surge, a short-term bear phase could soon hit the crypto market if history repeats itself and the dollar rises.
The badly struck dollar starts with breakout and bounce
2021 was the best year Bitcoin has ever had so far. 2020 was among the worst in the dollar as sentiment turned negative and fears of inflation drove investors to hard assets like gold and crypto.
However, a comeback is underway, according to the DXY Dollar Currency Index, which weighs the dollar against a bucket of other national foreign currencies.
The dollar is breaking out of a falling wedge. Will Crypto Respond? | Source: DXY on TradingView.com
The table above shows how the DXY breaks out of a falling wedge pattern and comes back down to retest the previous resistance line as support. When the retest is complete, the result should be a stronger higher pressure.
Related reading | Dollars, divergences, and more: Here’s why Bitcoin could soon bounce
So far, Bitcoin has been largely unaffected by the rise in the dollar, even though half of the cryptocurrency’s main trading pair included the fiat currency.
A bullish MACD crossover confirms the breakout as in the past Source: DXY on TradingView.com
Simultaneously with the breakout of the falling wedge, the MACD – a momentum indicator – begins to turn upward in higher periods of time. Previous instances where the same pattern broke up, combined with a bullish crossover on the MACD, have resulted in a sustained uptrend in DXY.
How a reversal in the greenback could send Bitcoin into a bear market
Although the leading cryptocurrency by market capitalization has so far shaken off the greenback’s recovery, a bear phase could come soon that will hold back the current uptrend for some time.
Every time the MACD bullish exceeded the DXY, it resulted in an expanded bear market in Bitcoin, as shown below.
Every bullish dollar crossover resulted in a crypto bear market Source: DXY on TradingView.com
Bitcoin has been on an upward trend for almost a full year – since Black Thursday in 2020 – but time may be running out. The MACD is not yet fully crossed but has started to turn upwards.
Related reading | This unique take on Bitcoin suggests a bear phase is near
However, all is not lost for Bitcoin and the rest of the crypto market. An inverted head and shoulders on high periods of time may have occurred in DXY, which, if it relapses into the trendline to confirm it as resistance, could result in the largest collapse in dollar history and its eventual undo.
The uptrend of the dollar could ultimately be limited and Bitcoin | Benefit Source: DXY on TradingView.com
Such a scenario would suggest that a bear phase in Bitcoin will come sooner rather than later, but that it will be much shorter than previous bear markets, and when it ends, the leading cryptocurrency by market cap could take over the global reserve currency entirely.
Of course, there is no telling what the dollar could do from here, or whether this time it is actually something else.
Featured image from deposit photos, charts from TradingView.com
