Investment

The data suggest that due to the strong US dollar, bitcoin’s weaker argument is wrong


At this point in time, there seems to be a general assumption that when the value of the US dollar rises against other global major currencies, as measured by the DXY index, the impact on bitcoin (BTC) is negative.

Over the past few weeks, analysts and influencers have issued warnings about this inverse correlation, which was valid until March 2021.

Whether you follow a 20-day or a 60-day correlation, the situation has reversed in the last three months.

Dollar Index DXY (blue) vs. bitcoin (orange, logarithmic). Source: TradingView

The correlation indicator (red) has been above 50% since mid-March, indicating that both DXY and bitcoins have generally followed a similar trend.

The dollar strengthened after the Fed’s speech

According to Cointelegraph, the May’s Consumer Price Index (CPI) report showed inflation hit a 13-year highand Federal Reserve Chairman Jerome Powell acknowledged that inflation could run faster than planned in the short term. Nevertheless, he clarified that “longer-term inflation expectations are anchored in a place that is in line with our goal. “

The market gave the Fed a “vote of confidence”, which caused the US dollar to strengthen against major global currencies. Bitcoin, meanwhile, fell 8% to a low of $ 35,300 on June 18, further strengthening the inverse correlation thesis.

Related: Forget Elon, here’s why bitcoin traders should watch the US dollar index instead

Correlation is a longer-term indicator, not an intraday metric

Although scientists and influencers like to analyze these events and extrapolate one-day movements, a longer time frame needs to be analyzed to understand the possible effects of the DXY index on the price of bitcoin.

Dollar Index DXY (blue) vs. bitcoin (orange, logarithmic). Source: TradingView

Notice how both indicators weakened during May, after a relatively flat period at the end of April. At the very least, it seems premature to call the recent separation an inverse correlation. There could be several forces behind Bitcoin’s inability to maintain $ 40,000 in support on June 16 and the subsequent price correction.

To begin with, Chinese Deputy Prime Minister Liu He and a member of the almighty Politburo for Eight held a meeting on May 24 to prevent and control financial risks. Among the decisions was action against bitcoin mining and trading.

The bitcoin hash rate has fallen to its lowest level since November 2020 the miners are beginning to move away from China. Huobi has temporarily suspended futures trading for Chinese users, while the Futures Bybit platform has revealed that it would have closed accounts registered with Chinese phone numbers.

On May 26, US Securities and Exchange Commission Chairman Gary Gensler added that regulators look forward to working with other regulators and Congress to fill gaps in investor protection in crypto markets.

The potential US regulation and China’s current intervention against mining and trading activities therefore appear to be crucial to Bitcoin’s recent underperformance. Once these issues are no longer a threat, the gap created by the positive move by DXY could disappear.

The views and opinions expressed herein are those of an opinion author and does not necessarily reflect the views of the Cointelegraph. Every investment and business move involves risk. You should do your own research when making your decision.



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