Dollar Dynamics Stirring Bitcoin Markets Amidst Bullish and Bearish Projections

Apr. 24, 2024.
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Crypto traders monitor the U.S. dollar, predicting its weakening could boost Bitcoin's rally. Despite optimism, some predict dollar strength, creating a complex backdrop for the cryptocurrency market.

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Crypto traders are closely monitoring the U.S. dollar’s trajectory, anticipating its potential weakening to propel an extended rally in Bitcoin. Despite the optimism, some financial institutions predict a continued strength in the dollar, setting a complex backdrop for the cryptocurrency market.

Since mid-March, Bitcoin has oscillated primarily between $60,000 and $70,000, according to CoinDesk. This trading pattern represents a pause in the cryptocurrency’s significant rally that commenced last October, influenced by diminishing expectations for Federal Reserve rate cuts and a resurgence in the dollar index (DXY), which measures the greenback against major currencies. Data from TradingView indicates that the DXY recently climbed to a five-month high of 106.52, although it has slightly receded to 105.70, offering a glimmer of hope to cryptocurrency enthusiasts.

Mike Alfred, a seasoned value investor and founder of Alpine Fox LP, remarked on X, “DXY dollar index hit resistance at 106 as expected and has started to turn over. A move back towards 102-103 will turbocharge this rally. The timing makes sense because Bitcoin is primed to move to $90,000 in the short term. Longer term, I expect DXY at 92, perhaps by late 2025.”

The U.S. dollar’s role as a global reserve and invoicing currency means its appreciation makes USD-denominated debt more costly, typically discouraging risk-taking in financial markets. Conversely, a weaker dollar fosters an environment conducive to such activities. Historically, Bitcoin and broader crypto markets have often moved inversely to the DXY, akin to stocks and gold.

Glassnode co-founders Jan Happel and Yan Allemann, known collectively as Negentropic on X, believe the dollar has peaked in an “expanding triangle” pattern and predict a forthcoming decline that could bolster the crypto market.

Contrarily, some banks maintain a bullish outlook on the dollar. Societe Generale’s Cross Asset Research Team, led by Kit Juckes, suggests that with the Federal Reserve unlikely to cut rates before 2025, the DXY could reach between 107 and 110. Similarly, Scotiabank expressed in a recent client note, “A higher for longer Fed likely means a strong for longer USD.”

Additionally, escalating trade tensions between the U.S. and China could further influence the dollar’s strength. President Joe Biden’s recent proposal to increase tariffs on Chinese steel and aluminum to 25%, coupled with former President Donald Trump’s campaign proposal for a 60% tariff on Chinese imports, may also bolster the dollar, as analyzed by Barclays.

As the financial landscape continues to evolve, crypto traders remain vigilant, balancing bullish projections for Bitcoin with broader economic indicators and policy shifts that could impact market dynamics.

SOURCE: Bitcoin Bulls Pin Hopes on Weaker Dollar to Extend Rally

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