Bearish factor: US dollar boom threatens to stall Bitcoin’s bull run
Many Bitcoin strategists and investors began 2021 with a deeply held belief that the US dollar would weaken. But so far, their predictions have proven wrong.
While bitcoin has gained 73 per cent against the dollar since the beginning of January, extending its upward trend since the pandemic route in March 2020, the greenback is Bitcoin Rush trading higher against a basket of major foreign currencies – a metric known as the US dollar index.
It has risen 2.52 percent this year.
Bitcoin lovers expected the dollar to fall amid the Federal Reserve’s efforts to keep interest rates near zero through its never-ending bond-buying policy. In addition, traders and analysts predicted that the greenback would suffer from worries about growing debt in the US, which could limit growth.
But now the US economy is rocketing to growth, led by a one percentage point increase in January.
As a result, the sell-off in government bonds is gathering pace, pushing their yields up dramatically. This has prompted investors at home and abroad to shift their focus from bearish narratives about the massive liquidity of the US dollar. Instead, their focus is on the pace of recovery in the US economy.
The bitcoin market…
… has avoided the stronger dollar narrative, at least in the first half of the first quarter – with Tesla’s $1.5 billion investment in the cryptocurrency and MicroStrategy’s relentless buying spree fuelling the market.
But with the return of so-called US exceptionalism, the cryptocurrency market is feeling a slowdown in its own growth.
The BTC/USD exchange rate hit $58,367 in early February, its highest level in history. But the pair has since corrected 12.66 percent, according to the latest readings.
At its lowest point, Bitcoin was 26.30 per cent below the said historical high
The cryptocurrency now risks correcting lower to neutralise its overvalued status. This is typically the case with US tech stocks – the so-called pandemic winners – that have fallen into the bear market.
This includes Tesla, a bitcoin-holding Fortune 500 company whose share value has fallen 33.59 per cent from its recent high of $900.40 per share.
As yields rise along with the US dollar, bitcoin and the tech-savvy Nasdaq Composite Index have formed a positive correlation.