As a seasoned researcher with over two decades of experience in financial markets, I have witnessed numerous trends and cycles, both bullish and bearish. The current rise of the US dollar to year-to-date highs is causing me a bit of unease, particularly when it comes to Bitcoin’s performance.
The strengthening US dollar reaching its peak for the year is causing worries about the longevity of the ongoing Bitcoin price surge. A cryptocurrency expert has advised investors to exercise caution when placing overly optimistic wagers.
In simpler terms, Jamie Coutts, the main cryptocurrency analyst at Real Vision, stated on November 14th that the overall economic situation (or broader context) has become unfavorable. He also pointed out that the current strength of the U.S. dollar is not beneficial for Bitcoin.
Bitcoiners should be wary of leverage amid USD highs
Coutts highlighted his “liquidity framework” diagram, demonstrating a historically inverse relationship between the value of USD and Bitcoin (BTC), to imply that Bitcoin’s price can be influenced by quick to moderate changes in market trends. He advised traders to exercise caution when using leverage.
According to Coutts, while the overall perspective remains optimistic for the future (long-term), there’s a need for caution in the immediate or short-term period as suggested by the chart’s indications.
Based on information from TradingView, the U.S. Dollar Index (DXY), which compares its power against a collection of significant currencies, is currently at 106.7. This marks an increase of approximately 3.18% compared to the day after Donald Trump’s victory in the U.S. presidential election on Nov. 6.
Multiple recent analyses suggest that Donald Trump’s election win has played a considerable role in the dollar’s reinforcement. This is largely attributed to speculations that Treasury bond yields may rise alongside inflation, which could stem from Trump’s protectionist trade policies.
USD uptrend a worry for BTC investors
Over the given timeframe, I’ve witnessed a nearly 28% surge in Bitcoin’s value. However, this bullish trend in safer assets such as the dollar gives me pause, as traditionally, Bitcoin’s performance has shown an inverse correlation with the greenback.
By July 2022, as per CryptoMoon’s report, Bitcoin experienced a significant decline, dropping over 60% year-on-year. On the other hand, the U.S. dollar exhibited strength, with the DXY index approaching its peak from January 2003 (105.8), which was set during that time. This happened as concerns about a potential recession grew.
Coutts cautioned that “The DXY has reached a significant resistance point. If it surpasses this level, it wouldn’t bode well for risky investments.
Still, he said that “this somewhat bearish backdrop” could be reversed by positive announcements from the US Federal Reserve or the Central Bank of the People’s Republic of China (PBoC).
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2024-11-14 20:08