Cryptocurrency News

Data Shows Stronger US Dollar Makes Bitcoin Weaker. Argument Flawed


At the moment, 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 (B T c) is negative.

Over the past few weeks, analysts and influencers have been issuing alerts about this inverse correlation, which held true until March 2021.

However, no matter whether you track the 20-day or 60-day correlation, the position has reversed over the past 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 Bitcoin have generally followed a similar trend.

Dollar strengthens after Fed speech

As Cointelegraph reported, May’s Consumer Price Index (CPI) report showed Inflation at 13-year high, and Federal Reserve Chairman Jerome Powell acknowledged that inflation could run longer than planned in the short term. Nevertheless, he clarified that “Long-term inflation expectations remain high In a place that is in line with our goal.”

Markets gave the Fed a ‘vote of confidence’, causing the US dollar to rise against major global currencies. Meanwhile, bitcoin fell 8% to a low of $35,300 on June 18, further bolstering the inverse correlation thesis.

related: Forget Elon, Here’s Why Bitcoin Traders Should Be Watching the US Dollar Index Instead

Correlation is a long term indicator, not an intraday metric

Even though pundits and influencers prefer to separate those events and 1-day movements, one must analyze a more extended time frame to understand the potential effects of the DXY Index on the price of bitcoin.

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

Note how both markers weakened during May, after a relatively flat period in late April. At least, it seems premature to call the recent decoupling an inverse correlation. There could be a number of forces behind bitcoin’s failure to maintain the $40,000 support on June 16 and the subsequent price correction.

For starters, China’s vice premier and almighty eight-person Politburo member Liu He led a meeting on May 24 on preventing and controlling financial risks. was one of the decisions Action on bitcoin mining and trading activities.

Bitcoin hash rate drops to lowest level since November 2020 Miners are moving away from China. Huobi temporarily suspended futures trading for Chinese users, while futures platform Bybit revealed that it may have closed accounts registered with Chinese phone numbers.

Additionally, on May 26, the chairman of the United States Securities and Exchange Commission, Gary Gensler, said that regulators look forward to working with fellow regulators and Congress. Fill gaps in investor protection in crypto markets.

Therefore, possible US regulation and current China’s actions on mining and trading activities seem to be crucial to bitcoin’s recent underperformance. Once those issues are no longer in jeopardy, the gap created by DXY’s positive move could be bridged.

The views and opinions expressed here are those of only those Author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should do your own research when making a decision.