Bitcoin’s Big Drop Again Coincides With Dollar Bounce in Forex Markets

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Bitcoin continues to trade in the opposite direction to the dollar index, reflecting the maturation of the cryptocurrency as a macro asset like gold.

The highest cryptocurrency by market value fell to $ 32,400 early Monday after hitting record highs above $ 41,800 on Friday.

The crash was accompanied by a rebound in the Dollar Index (DXY), which measures the value of the greenback against the major currencies. The DXY jumped to two week highs close to 90.50, extending a two-day winning streak. The index hit a 33-month low of 89.21 on January 6, according to TradingView.

Since the major markets collapse in March, Bitcoin and the index have moved in opposite directions, with Bitcoin seeing consolidation or correction during DXY’s temporary recovery rallies.

“Bitcoin’s value rose as the money supply and inflation expectations rose. At the same time, the dollar depreciated to multi-year lows, creating an inverse correlation between the government-backed fiat and the decentralized digital asset, ”Kaiko Research noted in its December market report.

Bitcoin’s price fell from $ 12,000 to $ 10,000 in early September and was sidelined for the remainder of the month as the dollar index rose from 91.75 to 94.75. Similar actions were observed in June 2020.

The cryptocurrency rally resumed in October when the forex markets began to sell the dollar in anticipation of additional fiscal stimulus in the US. A sharp drop in DXY accompanied the meteoric rise in the cryptocurrency from USD 15,000 to over USD 41,000 in the past two months.

The reverse correlation is not surprising, as publicly traded companies like MicroStrategy buy Bitcoin to get the inflation-adjusted value of their own assets, mostly cash (USD).

“We’re trying to preserve our treasury. The purchasing power of cash is declining rapidly, ”Michael Saylor, CEO of MicroStrategy, told CoinDesk in November.

The recent recovery in the dollar appears to have been fueled by a surge in US Treasury bond yields.

Bitcoin isn’t the only asset falling alongside the dollar’s recovery. Gold, the classic inflation hedge, fell to a monthly low of $ 1,817 early Monday. The yellow metal hit a high of $ 1,959 last week when the DXY hit a temporary low.

It remains to be seen whether a sustained rally for the dollar, if any, will result in a deeper decline in Bitcoin.

At press time, Bitcoin is trading near $ 33,520, down 15% in 24 hours.