Strengthening US Dollar Could Bring Further Downside for Bitcoin
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.
“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.
Also read: Bitcoin Market Weakening After Macro-Based Sell-Off, On-Chain Data Suggests
