The US dollar was on the whole weaker in the last quarter, and that is something that many Bitcoin investors and enthusiasts point to as a reason to be bullish. However, it is not accurate to say that the strong US dollar makes Bitcoin weaker. If anything, Bitcoin is stronger than ever because of the US dollar. The strong US dollar has actually increased the demand for Bitcoin since most foreigners find it more difficult to buy Bitcoin on a US dollar basis than they did in the past.
The dollar has been going up for years, and it’s not showing signs of slowing down. In fact, if anything, it’s accelerating. Many believe this is a sign that the US economy is strengthening, and that the dollar is becoming a safe haven. Economic growth is good for many things, including the currency in which we trade, and it’s expected that the strong US dollar will lead to lower inflation for many years. The problem is that this is not reflected in most other markets, which leads many to believe that bitcoin is actually weaker.
The argument that the strong US dollar makes Bitcoin weaker is unsound. The argument is based on the assumption that, dollar for dollar, the dollar is a better store of value than bitcoin. This is not true. The two assets are not directly comparable, so it cannot be assumed that dollars are a better store of value. Furthermore, Bitcoin increases in value at a rapid rate. This means that the dollar must be a much worse store of value than bitcoin.. Read more about why is cryptocurrency valuable and let us know what you think.Currently, there seems to be a general consensus that when the value of the U.S. dollar rises against other major global currencies, as evidenced by the DXY index, the impact on bitcoin (BTC) is negative.
In recent weeks, analysts and influencers have warned that this inverse correlation will persist until March 2021.
I guess we’re not obsessed with $DXY anymore? Because it looks super bullish and has had a near perfect inverse correlation for over a year. Either way, we’ll soon know if $BTC is ripe for uncorrelation. ️ #banks #bitcoin pic.twitter.com/gequzmr6p2
– Alex Saunders (@AlexSaundersAU) February 2, 2021
What could be the trigger for the #Bitcoin rise? The bottom of the #DXY! And we can have it right around the corner! https://t.co/1Cy03QuMgb pic.twitter.com/zKUh9CWc72
– Henrik Seeberg (@HenrikZeberg) 2 January 2021
But whether you track the correlation over 20 or 60 days, the situation has reversed over the last three months.
DXY dollar index (blue) vs bitcoin (orange, logarithmic). Source: TradingView
Note how both markers weakened in May after a relatively stable period in late April. At the very least, it is premature to describe the recent decoupling as an inverse correlation. Several forces may be behind bitcoin’s inability to recover on the 16th. June to hold the $40,000 support and subsequent price correction.
First, Liu He, vice premier of China and member of the all-powerful eight-member Politburo, delivered a speech on the 24th. held a meeting in May on the prevention and management of financial risks. These decisions include restrictions on bitcoin mining and trading activities.
Bitcoin’s hash rate has fallen to its lowest level since November 2020 as miners begin to leave China. Huobi temporarily suspended futures trading for Chinese users, while futures platform Bybit revealed it had closed accounts registered under Chinese phone numbers.
In addition, SEC Chairman Gary Gensler said on 26. May those regulators look forward to working with other regulators and Congress to close investor protection gaps in the cryptocurrency markets.
Therefore, possible US regulations and China’s current measures to curb mining and trading activities seem to play a crucial role in bitcoin’s recent poor performance. Once these issues are no longer a threat, the vacuum created by the positive DXY movement may disappear.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Cointelegraph. Every investment and every stage of trading involves risk. You should do your own research before making a decision.
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