Bitcoin is trading above $ 20,000, but the start of what may be the first real correction since the uptrend began could be forming. However, upon closer inspection of the DXY dollar currency index, the leading cryptocurrency by market capitalization could be in another extended bear phase if a fractal emerges on the dollar chart.
Could fear of the latest strain of coronavirus and other possible lockdowns cause another Black Thursday-style flight to the dollar?
Bitcoin Safe Haven Narrative at Risk if Greenback Momentum Shifts
2020 was the year of the great search for the next safe haven. When the pandemic first broke out and panic hit the markets, investors paid off assets to the safest haven known to man today: the US dollar.
As a global reserve currency and due to its general stability, it is considered a safe haven alongside the Swiss franc and the Japanese yen. Outside of fiat and forex currencies, precious metals enjoy safe haven status, and both gold and silver are figuratively and literally shining examples of strong performance in economic uncertainty.
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For the first time in history, Bitcoin has also been part of the safe haven conversation thanks to the digital scarcity and properties of the cryptocurrency that make it an ideal store of value.
Gold set a new all-time value earlier this year, but after that, it’s all about Bitcoin. Cryptocurrency is up 500% from its Black Thursday low in 2020 alone, hurting the performance of all other safe havens.
But with fear and uncertainty due to a new, contagious, mutated COVID strain called VUI – 202012/01 or line B.1.1.7, Bitcoin is already withdrawing and the dollar is awakening again according to the DXY dollar currency index.
Bitcoin price action is behind the detailed technical diagram of the DXY | Source: DXY on TradingView.com
The dollar emerges from its sleep and could send crypto back in bear clutches
The DXY Dollar Currency Index is a basket of the world’s leading forex currencies, weighted against the US dollar. The index does a solid job of providing a fundamental snapshot of the greenback’s strengths or weaknesses.
2020 was not a good year for the global reserve currency. More than 30% of all US dollars in circulation has been printed this year, and it has sparked fears of inflation that are giving institutional investors chills.
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Many of them have turned to Bitcoin, which is trading directly against the dollar on its main base currency pair. However, a fractal is forming on the DXY that could signal that the dollar is about to reverse and could potentially bring another bear phase to Bitcoin and Crypto.
A near-exact falling wedge pattern, which coincides with what is now forming on the DXY, previously dissolved after two hidden bullish divergences. The last major bull div and greenback reversal caused Bitcoin’s bear market to surge from $ 20,000 to $ 3,200 as the dollar regained strength.
The dollar’s weakness in 2020 saw the same asset jump from $ 3,800 to $ 24,300 in less than nine full months – what could cause a return to the strength of the cryptocurrency that is now set to break out into a new bull run?
Featured image from deposit photos, charts from TradingView.com