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"In recent weeks, the negative correlation between Bitcoin (BTC) and the U.S. Dollar Index (DXY) has been broken, and with the continuous selling of the U.S. dollar, this top cryptocurrency is struggling to gain upward momentum. However, according to an observer, this situation may not last long.
The U.S. Dollar Index, which measures the U.S. dollar against major global fiat currencies, fell by 2.26% last week, marking its worst performance since November of last year. The index dropped below 100.00, hitting new lows not seen since April of last year.
Despite this, Bitcoin's trading price has remained primarily between $30,000 and $32,000, in a range-bound pattern that has continued for several weeks, despite tokens, including meme coins, experiencing price surges.
Noelle Acheson, the author of ""Crypto is Macro Now,"" stated, ""The negative correlation between the U.S. Dollar Index and Bitcoin may reappear, as fluctuations in the U.S. Dollar Index can affect the liquidity of global assets, thus impacting the valuation of risk assets, including cryptocurrencies.""
The U.S. dollar serves as a global reserve currency and plays a significant role in global trade, international debt, and non-bank lending. When the U.S. dollar rises, those with U.S. dollar-denominated debt face higher debt costs and reduce their exposure to risk assets. A weaker U.S. dollar has the opposite effect.
""However, the relationship between Bitcoin and the U.S. Dollar Index is unlikely to be shaken in the long term. This is not only because the U.S. dollar is the denominator in the most quoted currency pairs in the crypto asset space (when the denominator's value drops, the ratio rises, under otherwise equal conditions), but also because a weaker U.S. dollar provides more breathing room for global U.S. bond holders, thereby boosting global asset liquidity,"" Acheson stated in Monday's newsletter.
Finally, although the impressive bull market of the 2000s is often attributed to the launch of Exchange-Traded Funds (ETFs) for commodities, the positive macroeconomic environment, including a period of sustained weakness in the U.S. Dollar Index, played a significant role.
Therefore, the trend of the U.S. Dollar Index is crucial, and cryptocurrency market participants cannot ignore it in the long term. If the U.S. dollar continues to weaken, Bitcoin may experience an uptrend.
Strong Momentum in the U.S. Dollar Index Sell-off
Goldman Sachs (GS) suggests that the recent downward trend in the U.S. dollar is persistent.
""Due to cooling inflation and market expectations that the Federal Reserve will adopt a more patient stance after July, the U.S. dollar has been heavily sold. We believe this situation may persist in the short term, as the same factors that influenced this report may weaken further in the coming months, and policy impacts have brought welcome relief to many corners of the market,"" Goldman Sachs' economic research team stated in a report to clients on Friday.
Acheson also expressed a similar viewpoint, stating that fundamentals suggest the U.S. dollar will continue to decline.
""The downtrend in the U.S. dollar feels steady. It's a lengthy process, and fundamentals indicate it will continue to slide. While there are signs that U.S. consumers are still strong, inflation is rapidly receding. Acheson pointed out, ""The year-over-year growth rate in the U.S. is now lower than in Japan. Let's understand that. True, this only applies to overall inflation and not to core inflation, but it's still the case.""
Federal funds futures indicate that traders expect the Federal Reserve to stop its tightening cycle after raising rates by 25 basis points later this month. Since March 2022, the central bank has raised rates by 500 basis points to a range of 5% to 5.25%. Tightening policies were partly responsible for the cryptocurrency market crash last year." |
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Post time 25-10-2023 13:25:55
