Analysts Fear Strong U.S. Dollar Could Dampen Bitcoin’s Bullish Momentum
On August 21, the price of Bitcoin (BTC) decreased by more than 3% from around USD 11,880 to USD 11,511 on Coinbase. Coincidentally, the US Dollar Index (DXY) began to recover from its 4-month decline.
As the dollar rose by 1.3% from USD 92.28 to USD 93.20, Bitcoin, the major crypto-currencies and gold fell at par. The seemingly inverse correlation between the dollar and Bitcoin could indicate that the weakening of the dollar partially catalyzed the recent rally at BTC.
The open interest in Bitcoin options has reached $2 billion, should BTC traders be concerned?
Will a strong dollar rally reverse Bitcoin’s momentum?
Since Black Thursday’s major Bitcoin correction, analysts have attributed BTC’s current rally to the fall of the dollar.
Kraken Exchange researchers, they wrote:
“Behind the rise, Bitcoin’s correlation with the #gold strengthened to a 1-year high of 0.93. This occurred as markets turned to safe haven assets amid rising COVID, increased government spending, mixed corporate earnings, inflation fears and a weakening U.S. dollar.
Conversely, when the dollar is reversed and begins to recover, the chances of a Crypto Investor consolidation phase could increase.
In the last 48 hours, as the US dollar index rose, the price of gold also plummeted more than 3.5%. Gold had recovered strongly in recent weeks, driven by growing uncertainty about the global economy.
As such, Scott Melker, a crypto currency trader, said that the inverse relationship between Bitcoin and the dollar is more compelling than its recent correlation with the stock market. He noted:
“Bitcoin’s inverse relationship with the dollar is much more convincing than the idea that it is correlated with the stock market.
The dollar has underperformed against major reserve currencies such as the Japanese yen since April, and analysts anticipate that if it can maintain its strong momentum, gold and the U.S. dollar will be negatively affected.