Data Suggests Argument That Dollar Strength Weaken Bitcoin Is Misleading

For the moment, There seems to be a widespread assumption that when the value of the US dollar rises against other major global currencies, as measured by the DXY index, the impact on Bitcoin (BTC) is negative.

For the past few weeks, analysts and influencers have been warning about this inverse correlation, which held until March 2021.

However, it does not matter if a correlation of 20 or 60 days is followed, the situation was reversed in the last three months.

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

The correlation indicator (red) has hovered above 50% since mid-March, indicating that both DXY and Bitcoin have generally followed a similar trend.

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The dollar strengthened after the Fed speech

As Cointelegraph reported, the May Consumer Price Index (CPI) report showed that the inflation reached a 13-year high, and the chairman of the Federal Reserve, Jerome Powell, acknowledged that inflation could be higher than expected in the short term. Even so, he clarified that longer-term inflation expectations are anchored in a place that is consistent with our goal. “

The market gave a “confidence vote” the Fed, causing the dollar to appreciate against the major world currencies. Meanwhile, Bitcoin fell 8% to a low of $ 35,300 on June 18, further reinforcing the inverse correlation thesis.

Correlation is a long-term indicator, not an intraday metric

Although experts and influencers love to dissect those events and extrapolate the movements of a day, one should look at a broader time frame to understand the potential impacts 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. It seems premature, at least, to qualify the recent decoupling as an inverse correlation. Multiple forces could be behind Bitcoin’s failure to sustain a support at $ 40,000 on June 16 and the subsequent price correction.

To get started, Liu He, Vice Premier of China and a member of the almighty eight-person Politburo, led a meeting on the prevention and control of financial risks on May 24. Among the decisions made is that of clamp down on Bitcoin mining and trading activities.

Bitcoin’s hash rate fell to the lowest level since November 2020, since the miners are starting to move away from China. Huobi temporarily suspended futures trading for Chinese users, while the futures platform, Bybit, revealed that it would have closed the accounts registered with Chinese phone numbers.

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Also, on May 26, US Securities and Exchange Commission Chairman Gary Gensler said regulators are looking forward to working with other regulators and Congress to fill in the gaps in investor protection in cryptocurrency markets.

Therefore, Possible US regulation and China’s ongoing crackdown on mining and trading activities seem vital to Bitcoin’s recent underperformance. Once these issues are no longer a threat, the rift that has been created from the positive DXY movement could fade away.

The views and opinions expressed here are solely those of the Author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trade move involves risk, you should do your own research when making a decision.

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