Since February 2023, the US dollar has experienced its strongest five-day gain, while Bitcoin (BTC) has declined. This is due in part to anticipation that interest rates will stay elevated and increased volatility surrounding Bitcoin’s upcoming April 2023 halving event.
According to The Kobeissi Letter, the value of the dollar is expected to grow stronger due to anticipation of continued increased interest rates.
About a week before this, there was widespread expectation among markets that the Federal Reserve would begin reducing interest rates in June. However, current predictions suggest that “higher for longer” will be the Fed’s preferred approach instead. (The Kobeissi Letter, April 17)
A higher dollar value often attracts more foreign investment due to higher returns on bonds and term deposits, leading to an increased request for dollars.
Over the past five business days, the Bloomberg Dollar Spot Index (BBDXY) – which measures the value of ten major currencies against the US dollar – has risen by around 2%, marking its most significant gain in the last 14 months.
Based on the BBDXY data, the US dollar index reading is currently at 106.34, up from 105.28 five days ago. This signifies that the US dollar has grown stronger against the other eight currencies in the index, such as the euro, pound, and Japanese yen.
Over the last five days, Bitcoin’s price has dropped by 9%, bringing it down to $63,936 according to information from CoinMarketCap.
Over the past few years, Bitcoin and the value of the dollar have often moved in opposite directions.
According to Reuters’ report on April 16th, Jerome Powell, the Federal Reserve chair, stated that the United States’ inflation rate of 3.5% at the moment is not approaching the Federal Reserve’s target of 2%. This suggests it may take longer than anticipated to reach the level of confidence associated with reaching this goal.
In a post on April 16, trader Justin Spittler cautioned that every time the US dollar has appeared overbought, it has been preceded by a notable decline.
When the value of the US dollar decreases, there is often increased interest in Bitcoin due to its reputation for price instability.
Yet, an additional aspect is worth considering as the Bitcoin halving approaches in three days, on April 20. This event involves a decrease by half of the number of Bitcoins that can be extracted from each block mined.
Despite the ongoing Bitcoin halving, there’s been a growing sense of optimism among crypto investors towards riskier digital assets, as evidenced by Bitcoin’s dominance chart from 2020. In simpler terms, even though the Bitcoin halving is happening now, there’s been more trust placed in riskier cryptocurrencies compared to before, based on Bitcoin’s market share data from two years ago.
Before the 2020 Bitcoin halving event, which occurred three days prior, the proportion of Bitcoin’s total market value against that of all other cryptocurrencies was 15% greater than it is now.
The U.S. dollar was 6% weaker at the time compared to its current strength.
Bitcoin’s dominance is currently 52%, according to CoinStats.
At the same time, the value of the U.S. dollar increasing over the past five days has caused the Crypto Fear and Greed Index in the cryptocurrency market to decrease by 11 points since April 10.
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2024-04-17 07:39