Still, the U.S. dollar index (DXY) has continued to decline in recent weeks, reaching 90.85, its lowest level in seven weeks.
Bitcoin (blue) vs DXY (orange) Source: View of the shop
Why is this a trend?
Alternative store of value such as bitcoin and gold are valued against the US dollar. So, in theory, if the dollar falls, the value of bitcoin should rise because BTC is traded against the dollar.
However, bitcoin has performed poorly in recent days following Coinbase’s long-awaited IPO.
This is a worrying trend, as bitcoin is more likely to trend higher when the dollar is falling, as shown by the inverse relationship in the chart.
But bitcoin has struggled to stay above the important $56,000 whale in recent days, suggesting strong selling pressure on BTC, especially as the price struggles to rise above its 50-day moving average (the green line in the chart below).
1 day candlestick chart BTC/USD. Source: View of the shop
On the other hand, some analysts believe that the USD could experience a relief rally. If that happens, it should create a less favorable environment for bitcoin to regain momentum.
In a note to clients that CNBC got hold of, Commerzbank strategist You-Na Park-Heger said optimism in the euro zone about the vaccine and the Fed’s tough stance on inflation were likely pushing the dollar lower.
While this has put significant pressure on the dollar in the short term, Park-Haeger believes this can be reversed in the coming weeks.
A recovery in the U.S. economy could further fuel inflationary expectations and fuel speculation of a rate hike. The situation in the euro area regarding the krona could change again as uncertainty remains high.
Mais tout le monde n’est pas d’accord pour dire que le dollar va reprendre sa tendance à la hausse. Valentin Marinov of Crédit Agricole Research, for example, says attractive returns from alternative markets are putting pressure on the dollar.
Indeed, the previous rebound in the US dollar is a distant memory, and the currency’s undervaluation appears to reflect a clear divergence in the outlook between the decline in US bond yields and fairly strong yields on other bonds. This is almost exactly the opposite of the moves we saw in March.
10T Holdings co-founder Dan Tapiero also expects the dollar to fall further and says the dollar bear market hasn’t even started yet.
Is it too early for #Bitcoin?
The bear market for the US dollar hasn’t even started yet.
– Dan Tapiero (@DTAPCAP) April 19, 2021
In any case, the futures market and high leverage seem to have an immediate impact on the bitcoin price, while the weakening dollar should remain bullish for BTC in the medium to long term.
Things may change for Bitcoin in the near future
In the short term, bitcoin could get a boost from bullish news and regain technical momentum. For example, Venmo’s support for Bitcoin and Ethereum pushed the price up to $56,000.
BTC/USDT 4-hour price chart (Binance). Source: TradingView.com.
Starting today, more than 70 million customers will be able to buy, store and sell cryptocurrencies directly in the Venmo app, once the feature rolls out over the next three weeks.
In addition, WeWork announced that it would accept payments in cryptocurrencies and charge them to its balance sheet.
In the short term, this new momentum could allow bitcoin to regain its footing after a week in which it barely got close to the US dollar.
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