Bitcoin Falls Amid Strengthening U.S. Dollar
17 Apr, 2024 ● Coin news
The U.S. dollar is currently on track for its most impressive five-day performance since February 2023, as it gains strength amidst expectations that interest rates will remain elevated.
This comes from an analysis by The Kobeissi Letter, which noted on April 17 via an X post that the expectation for the Federal Reserve to start cutting rates in June has shifted to a "higher for longer" scenario.
Higher interest rates often attract foreign investment into U.S. bonds and term deposits due to the higher returns, thereby increasing demand for the dollar.
Over the past five days, the Bloomberg Dollar Spot Index (BBDXY), which measures the dollar against a basket of ten major global currencies, has seen a 2% rise, marking its most significant gain in 14 months.
This has pushed the U.S. Dollar Index up to 106.34 from 105.28, signaling a strengthening against currencies like the euro, British pound, and Japanese yen.
Conversely, Bitcoin has experienced a downward trend during the same period, with its price falling by 9% to $63,936, as per CoinMarketCap.
While the relationship between Bitcoin and the dollar isn't consistently inverse, historical patterns have shown that Bitcoin tends to rise when the dollar weakens.
The strengthening dollar and the anticipation of maintaining high interest rates were highlighted by U.S. Federal Reserve Chair Jerome Powell on April 16.
He indicated that the inflation rate, currently at 3.5%, is not progressing towards the Fed's 2% target as expected, suggesting a prolonged period of high rates.
Additionally, the crypto market is closely watching the upcoming Bitcoin halving on April 20, which will cut the reward for mining new blocks in half.
This event typically influences Bitcoin's price due to the decreased supply. Despite the significant decline in Bitcoin's price leading up to the halving, the crypto market shows greater confidence compared to the 2020 halving event.
This is evident from Bitcoin’s current market dominance of 52%, which is 15% lower than just before the 2020 halving, reflecting a more diversified interest in various cryptocurrencies.
Moreover, the rising dollar has coincided with a decline in crypto market sentiment, with the Crypto Fear & Greed Index falling by 11 points since April 10, reflecting increased market anxiety amidst these financial shifts.
Sources:
https://cointelegraph.com/news/bitcoin-price-halving-dollar-interest-rates-federal-reserve-cut
https://twitter.com/KobeissiLetter/status/1780306201831485596
https://www.bloomberg.com/quote/DXY:CUR
https://coinmarketcap.com/currencies/bitcoin/
https://twitter.com/JSpitTrades/status/1780348258369306848
