Strengthening US Dollar Could Bring Further Downside for Bitcoin
With the U.S. dollar eyeing a pre-election recovery, the path of least resistance for bitcoin may be to the downside.
Sep 24, 2020 at 11:26 a.m. UTCUpdated Aug 19, 2021 at 4:31 a.m. UTC
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The U.S. dollar is showing signs of life and a continued breakout could weigh over bitcoin, which surged amid the greenback's sharp sell-off this summer.
- The top cryptocurrency by market value is currently trading at $10,320 – up nearly 2% from Wednesday's low of $10,140, according to CoinDesk's Bitcoin Price Index.
- However, the relief rally could be short-lived, as the dollar index (DXY), which tracks the greenback's value against major fiat currencies, has broken above its two-month-long range of 92.00–94.00.
- "Bitcoin will likely follow further downside together with precious metals given the DXY breakout," Matthew Dibb, co-founder and COO of Stack, a provider of cryptocurrency trackers and funds, told CoinDesk.
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- "Bitcoin, like gold, is inversely correlated to the dollar," Max Keiser, a broadcaster and finance analyst tweeted on Tuesday.
- Indeed, bitcoin and the dollar index have moved in opposite directions since March, with the apparent inverse correlation becoming more noticeable since mid-July.
- The DXY is looking north following Wednesday's breakout and is currently hovering near 94.40.
- "The dollar has been very heavy since March on the back of Federal Reserve's easing, and we expect to see some profit-taking [in dollar shorts] across the board," said Darius Sit, CEO of Singapore-based QCP Capital.
- As such, there's a risk bitcoin may fall to the psychological support of $10,000.
- Gold has already declined to a two-month low of $1,860, tracking the dollar strength.
- "A break below $10,000 support could mean a further drop to $8,800," Stack's Dibb said.
- However, on-chain analyst Willy Woo doesn't foresee a mega bump. "While I've heard talk of bearishness down to even [$7,000], I don't see fundamentals supporting this as a likely event," he tweeted Wednesday.
- If stock markets rebound sharply, the haven demand for the U.S. dollar will likely weaken, potentially allowing a notable recovery in bitcoin and gold.
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