Today, Bitcoin has seen one of the deadliest one-day slumps in terms of the amount of dollars moved. And the reason for this could be the greenback itself.
Sentiment in US dollars is extremely low and the exuberance in the crypto market is sky-high – could it be time for any asset to be reversed, or at least a much-needed realignment? So the dollar could be behind the crypto market, which turns from nothing but green to a sea of red in less than 24 hours.
2020: The year the dollar died and Bitcoin was reborn
2020 was a year for the history books for so many reasons. There was a pandemic, political side effect, economic crash once in a century, and it was the year financial assets spiraled out of control.
The global reserve currency was the hottest commodity on the hottest Thursday in March 2020 when every asset sold out under the sun for fear of what was to come.
Related reading | Unparalleled Bitcoin Rally Leads Altcoins to Uncharted Territory
The high tension that followed caused widespread market exuberance that has since been referred to as the “everything bubble”. And while the dollar was the safe haven everyone fled to when the lockdowns began, investors fled fiat currencies for stocks, gold, or crypto for the rest of the year.
The weakness of the dollar and the fear of inflation have breathed new life into Bitcoin – today a highly sought-after asset that institutions are looking for digitally tight hedging against the failing fiat currency.
Dollar currency index could cause a short term reversal Source: DXY on TradingView.com
2021: Greenback comeback leaves Crypto Market a bloody mess
2020 is over, vaccines are introduced and a new US president takes over. The graph above shows that the dollar is reacting to the positive changes in the economic outlook that could cause Bitcoin to fall temporarily out of favor.
The graph above shows the DXY dollar currency index breaking up from a falling wedge pattern and coinciding with two distinct bullish high time frame divergences and a morning star pattern. Even the lowest wick candle itself could be a reversal signal – either a bullish hammer or possibly a dragonfly doji.
Bitcoin and cryptocurrencies trade directly against the dollar, which represents half of almost every crypto trading pair. Altcoins also trade against BTC, but Bitcoin is vulnerable to the dollar itself due to any altcoin pairing.
Bitcoin collapsed the moment the dollar began to spin Source: BTCUSD on TradingView.com
The reversal of the dollar is perfectly in line with the current correction in Bitcoin. Given the bearish sentiment against the dollar and the excessive exuberance of crypto investors after gaining more than $ 30,000 on their favorite asset, a correction was imminent.
Related reading | Bullish for Bitcoin: US inflation expectations are breaking out of the decade-long downward trend
Bitcoin and the rest of crypto have been nothing more than a sea of green for weeks, but the dollar has left the asset class in a trail of blood. Is there more pain or should crypto investors buy the blood in the coming days before it has more upside potential?
Featured image from deposit photos, charts from TradingView.com