DXY

The US Dollar Is Soaring While The GDP Contracts

01/05/2022 by Idelto Editor

The strengthening of the U.S. dollar and the growth deterioration across major global economies will likely cause more downside for risk assets.

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Revisiting The Dollar Bitcoin Relationship

In more recent issues, we’ve highlighted that over the last few months, bitcoin’s price has been a function of larger macroeconomic conditions of rising yields and credit unwinding leading to increased equity market volatility and rising U.S. dollar strength.

As of late, the Dollar Currency Index (DXY) which tracks the relative strength of the U.S. dollar measured against other key global currencies, is hitting new 20-year highs as major currencies like the euro, Japanese yen and British pound continue to weaken. The latest rise comes as the Bank of Japan triples down on their yield curve control efforts, purchasing an unlimited amount of 10-year bonds every business day to cap yields at 0.25%.

DXY strength compared to other weakening currencies

So what does a rising DXY mean for bitcoin and other assets? Even with the dollar devaluing against real goods, services and financial assets, all debtors are forced to sell USD-denominated assets to cover liabilities during deleveraging events.

Today, we also get the latest U.S. Q1 2022 gross domestic product (GDP) data showing that the economy contracted by 1.4% compared to 1.1% expansion consensus. The growth deterioration across major global economies that will usher in a market regime shift to a more deflationary environment later this year has been a key assumption in our base case to expect more downside for risk assets in 2022.

If we’re to see broader market expectations for growth cut further this year then that change is likely more downside for risk assets.

U.S. GDP contracting with the deleveraging of the economy

Final Note

In our view, the worst is yet to play out for markets and bitcoin. That said, the type of credit unwinding and deleveraging we’re facing today is one of the key reasons that we expect the case for bitcoin to grow in the market as these events unfold.

Why Increasing U.S. Dollar Strength Is A Risk For Bitcoin Price

11/12/2021 by Idelto Editor

Historical correlation between the U.S. dollar and bitcoin price indicates that current strengthening of the former could threaten the latter.

For probably about two years now, it has been generally accepted in the cryptocurrency community that “BTC is an independent asset class,” which demonstrates that the first cryptocurrency performs well as an investment tool that hardly correlates with the economic cycle and is not even associated with other asset classes. On August 18, 2020, CoinShares even released a whole report on this, which mainly talked about the lack of correlation between bitcoin and commodities and traditional stocks.

But what about the correlation with the U.S. Dollar Currency Index (DXY)? Max Keiser was one of the first to draw our attention to bitcoin’s negative correlation with the U.S. dollar. In other words, when the U.S. dollar rises, then, as a rule, BTC tends to fall. I’ll also add that there is rarely a positive correlation between BTC and the U.S. dollar.

Still, if there is a positive correlation, it carries medium- and long-term risks for a stable upward trend in bitcoin.

Examples Of Negative Correlation Between BTC And DXY

Bitstamp: BTC/U.S. dollar. Source: TradingView.

In the chart above, we can see that the downtrend in the U.S. dollar, which began on December 19, 2016, at $103.10, led to a sharp rise in the price of BTC from $890 to $18,953, while the U.S. dollar fell to $89 by January 22, 2018. A similar situation was observed on March 16, 2020, when the U.S. dollar entered a brutal downtrend due to the U.S. financial government institutions’ not-entirely-rational monetary policy.

These two examples perfectly demonstrate the classic inverse correlation approach between bitcoin and the U.S. dollar. These are not the only examples of this statement; you can easily find other earlier examples through a trading charts provider.

Examples Of Positive Correlation Between BTC And DXY

As you can see from the chart above, a positive correlation leads to at least uncertainty and at most wild turbulence, including significant bearish corrections.

In the long term, the perceptible strengthening of the U.S. dollar between January 22, 2018, and March 16, 2020, had a very negative impact on the state of bitcoin. Actually, it seems that the periods marked on the chart were probably some of the worst milestones in bitcoin history, comparable to the first “crypto winter” of 2013 to 2015, as retail investors suffered colossal losses in the first place, just like other groups of traders.

Now, understanding from historical examples that the correlation between bitcoin and DXY exists, it is clear that this correlation really should be seriously monitored. Let’s move on to the factors behind the current strengthening of the U.S. dollar, which carries medium- and long-term risks to the outlook of bitcoin’s price cycle.

The Current State Of Bitcoin And DXY

First, let’s look at the technical picture of the correlation of the considered assets and determine what type of correlation is observed right now.

The chart above shows the second positive correlation between the U.S. dollar and bitcoin this year, which carries many risks for bitcoin.

From May 25 of this year, the U.S. dollar began a steady upward trend within the framework of a kind of accumulated consolidation from November 6, 2020, to September 3, 2021. Within the framework of this consolidation, there was also the first local positive correlation, which led to the collapse of bitcoin to the general negative signs of an impending correction on April 14, 2021. Also, the U.S. dollar has successfully overcome the resistance at $94.895 and has successfully consolidated above it, i.e., the DXY is still bullish.

Three key factors support the bullishness of the U.S. dollar, but with the potential to harm bitcoin for the foreseeable future:

1. Bullish formation on the DXY weekly chart:

U.S. Dollar Currency Index (DXY, one week). Source: TradingView.

The successful implementation of this pattern can bring very unpleasant surprises to bitcoin, as professional investors will weaken their positions in all risky assets, of course, which is also BTC. A successful breakout of the $100 mark will lead to a more severe reduction in long positions in bitcoin and its derivatives, including traditional stocks tools on BTC.

2. The number of transactions of foreign participants with the U.S. dollar:

*Foreign official deals with U.S. dollar. Source:* *FRED*.

Daily repurchase agreements (REPOs) for non-residents (brown line) has an upward trend, suggesting that the U.S. dollar is still demanded. I think that this is the main factor supporting the bullish sentiment of the U.S. dollar right now.

3. The state of dollar liquidity in the international market:

The TED spread reflects the demand for dollar liquidity in the global market in London, U.K. (LIBOR).

As you can see in the local size, starting from October 15, 2021, this indicator is growing, which indicates a steady demand for the dollar from foreign players, who are now profitable in maintaining the strengthening of the U.S. dollar. This mood prevails among foreign participants, including because the Federal Reserve, following a meeting on November 3, 2021, reduced the quantitative easing (QE) program, which, among other things, harms bitcoin in the medium- and long-term perspective.

I would also like to draw your attention to the fact that a new strain of COVID-19 may disrupt the Fed’s plans to slow down the “printing press.” Since a specific part of the growth of the U.S. dollar was based, among other things, on the expectations that the Fed will accelerate the pace of the stimulus program winding down, such negative news may cause particular uncertainty to form.

To summarize, it should be said that I wouldn’t want you to get the impression that the method we reviewed works 100% and without failures. I want to convey to the community that the historical data of a particular asset and the methods for comparing them is still of great value. In this regard, we have to monitor the correlation between bitcoin and the U.S. dollar, since this allows us to build a kind of defensive response system to protect our investment (trading) positions.

This is a guest post by Virtual Baro. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

Coingecko Publishes Q3 Crypto Report — BTC Outperformed Every Major Asset Class, Altcoins Decouple

15/10/2021 by Idelto Editor

On Thursday, the crypto asset aggregation portal Coingecko published the firm’s 2021 third-quarter report which shows a number of different findings. According to the study, for the most part, the crypto economy recovered from the market downturn in May as the top 30 market caps grew by 31% in Q3. The report shows that altcoins continue to decouple (specifically those from alternative chains) and the leading stablecoin tether has been losing its share “as the preferred stablecoin.”

2021 Q3 Cryptocurrency Report Observes the Crypto Landscape and Bitcoin’s Third-Quarter Market Performance

This week Coingecko’s analysts and founders’ Bobby Ong and TM Lee published the firm’s 2021 Q3 Cryptocurrency Report which observes the crypto economy’s third quarter. The study delves into a myriad of subjects including decentralized finance (defi), non-fungible token (NFT) assets, and Q3 crypto market performances. In the founder’s note section of the report, Ong and Lee explain that “NFTs are redefining value and culture.”

“NFTs are here to stay and have proven themselves to be the gateway drug for mainstream adoption. We have been big fans of NFTs since learning about them in 2016,” the Coingecko founders detail.

Furthermore, the report discusses bitcoin (BTC) at great length and notes that the leading crypto asset saw an increased Q3 price return of around 25%. “Bitcoin ended Q3 2021 at $43,859, a 25% increase quarter-on-quarter and had consolidated since its retracement from Q3’s peak,” the report details. However, at the same time, the Coingecko research finds there was an increase in altcoin dominance.

“Altcoins’ dominance [continued] to outperform Bitcoin’s which declined by as much as 4.5%, signifying the growing sentiment that altcoins are decoupling from Bitcoin. The exceptions, however, are Cardano and Tether. Tether marked the biggest decline with a 15.7% drop,” the researchers add. Stablecoins that increased in dominance include USDC, BUSD, DAI, and UST.

Strong Hashrate Recovery, Bitcoin Outperforms Traditional Assets and Indices

The 40-page report explains that the BTC hashrate increased 54% in the third quarter and the research emphasizes the bitcoin mining crackdown that took place in China. “The strong hashrate recovery may be linked to the great miner migration from China to the rest of the world,” Coingecko’s report details.

The report coincides with new data from Cambridge University’s Bitcoin Electricity Consumption Index (CBECI) project, which shows that a great number of mining operations now reside in the U.S. During the third quarter, Coingecko researchers note that bitcoin (BTC) has “climbed 25% and outperformed all other major asset classes.” “All major asset classes and indices performed worse in Q3 2021 relative to Q3 2020 except for DXY and the Nasdaq index,” the study’s researchers noted.

The research dives into other metrics as well, and in Q3 2021, public companies controlled around 1.11% of the entire BTC supply. Additionally, the report notes that BTC’s market valuation is 13.5X away from surpassing gold’s overall market capitalization.

Since Coingecko’s Q3 2021 report was published, bitcoin (BTC) has increased a great deal in value. For instance, the day before the report was published BTC was swapping for $54,887 per unit and today the crypto asset is exchanging hands for above $61.2K per BTC. That’s an increase of 11.59% during the last two days.

What do you think about Coingecko’s 2021 third quarter crypto-asset report? Let us know what you think about this subject in the comments section below.

Financial Analysts Expect US Dollar to Soften Further, 2021 Could Be the Greenback’s ‘Worst Year Ever’

03/12/2020 by Idelto Editor

Well before the coronavirus pandemic, global economists expected a grim-looking American economy and during the last ten months of the Covid-19 outbreak, the U.S. financial system looks even worse. Economists and analysts say the biggest concern is the U.S. dollar faltering into the unknown, as a great number of distinguished individuals believe the USD will see a significant value decline in 2021. Moreover, renowned economist Stephen Roach thinks there’s more than a 50% chance the U.S. dollar could collapse by the end of next year.

The U.S. dollar currency index (DXY) has continued to spiral lower, as investors have been looking for safer assets to hedge against a turbulent economy. During the last week, a myriad of economists and financial analysts have predicted that next year, the U.S. dollar is going to weaken even more so than it did in 2020.

This past year, the U.S. currency’s trade-weighted index or DXY has dropped to lows not seen since May 2018. Meanwhile, as the American dollar plunged this summer to new lows, Goldman Sachs warned that the USD is at risk of losing its dominant power as the world reserve currency.

2021 could be the year that Americans begin to find how much all this free government actually costs. The bill for the bailouts and stimulus will come in the form of a collapse in the value of savings and incomes, as the cost of living begins a long overdue explosive move higher.

— Peter Schiff (@PeterSchiff) December 3, 2020

During the last month of 2020, a great number of analysts still indicate that they are bearish about the dollar’s performance in 2021. On December 2, the economist and gold bug, Peter Schiff, explained that he expects more dollar decline next year.

“The U.S. dollar is now trading at its lowest level against the Swiss franc since Jan. of 2015,” Schiff tweeted. “This is a harbinger of things to come. The franc is leading the way, but other currencies will soon follow. 2021 may be the worst year ever for the U.S. dollar, at least until 2022,” the economist added.

World famous analyst and former chief economist at Morgan Stanley, Stephen Roach, says the USD has a 50% chance of collapsing by the end of next year.

Normally, it’s just bitcoiners and gold bugs predicting that the dollar is on its last leg, but many other well known people in the financial world are skeptical about the USD as well. Stephen Roach, the former chairman of Morgan Stanley Asia, recently told CNBC that the “seemingly crazed idea” of a U.S. dollar collapse could come to fruition.

Roach highlighted during his interview that his prediction was based on historical evidence and previous economic cycles. The economist wholeheartedly believes there’s a 50% chance the dollar could collapse by the end of next year.

“The current-account deficit in the United States, which is the broadest measure of our international imbalance with the rest of the world, suffered a record deterioration in the second quarter,” Roach emphasized. “The so-called net national savings rate, which is the sum of savings of individuals, businesses, and the government sector, also recorded a record decline in the second quarter, going back into negative territory for the first time since the global financial crisis.”

Further, Reuters hosted its annual Investment Outlook summit this week, and many of the financial executives at the event didn’t have much faith in the American currency’s future either. “The markets are right, I think the dollar will cheapen from here,” Rick Rieder, Blackrock’s chief investment officer for fixed income told the summit participants. This follows Blackrock CEO Larry Fink’s recent statements when he said the crypto asset bitcoin “can evolve into a global market.”

A number of other executives attending the Reuters Investment Outlook summit said similar statements about the American currency. “A re-emergence of a growth gap between the rest of the world and the U.S. should push the dollar down,” David Kelly, chief global strategist at JPMorgan Asset Management said during the event.

In fact, the summit was filled with individuals and organizations who expect the USD to weaken by at least next year. The financial institution BNP Paribas explained to the press it expects the dollar will soften more and Citi is forecasting a 20% USD decline in 2021 as well. Further, investment bankers think that it will be hard for other central banks to “out-dove” the U.S. Federal Reserve.

For this reason, Peter Fitzgerald, chief investment officer for multi-asset and macro at Aviva Investors, says he is long on foreign currencies and “emerging market currencies versus the dollar.”

“It’s going to be very difficult for any other central bank to effectively out-dove the Fed,” Fitzgerald noted at the summit. Meanwhile, a few other analysts like M&G Investments executive, Jim Leaviss, believe that foreign central banking institutions will probably weaken their fiat currencies first.

During his recent discussion, the economist Stephen Roach further explained that the U.S. may see some more economic aftershock from the new Covid-19 infections and the flu season. “We’ve gotten data that’s confirmed both the saving and current-account dynamic in a much more dramatic fashion than even I was looking for,” Roach stressed.

The former chief economist at Morgan Stanley predicted the U.S. dollar’s latest crash in value this past summer, and he’s firmly pressed that the currency will decline another 35%.

“As we head into flu season with the new infection rates moving back up again, with mortality unacceptably high, the risk of an aftershock is not something you can dismiss,” Roach concluded. “That’s a tough combination. And I think the record of history suggests that this is not a time, unlike what the frothy markets are doing, to bet that this is different.”

What do you think about all the economists and analysts that are bearish about the U.S. dollar’s future? Do you think the USD faces collapse? Let us know what you think about this subject in the comments section below.

The post Financial Analysts Expect US Dollar to Soften Further, 2021 Could Be the Greenback’s ‘Worst Year Ever’ appeared first on Bitcoin News.

Macroeconomic Trends Boost Bitcoin and Gold, US Dollar Index Shows Bearish Double-Top

15/09/2020 by Idelto Editor

According to a number of reports and commentary from financial analysts, the world is “drowning in U.S. dollars” after the Federal Reserve decided to pump billions of dollars into the hands of 14 central banks via liquidity swaps. Moreover, recent technical analysis shows the dollar’s trade-weighted index chart indicates the USD might be in for a gigantic slide in value in the near future.

As members of the U.S. Federal Reserve plan to convene this week, both gold and bitcoin (BTC) markets have started to climb in value ahead of the meeting. Bitcoin prices rose over 4% during the afternoon’s trading sessions and gold jumped 0.76% as well. The price of one ounce of fine gold is $1,956.24 at the time of publication.

Meanwhile, after a brief upswing in value, the U.S. dollar has started to show signs of weakness again after losing massive amounts of value this year. One financial commentator believes the “world is frozen in response to the deluge of U.S. dollars.”

According to an article written by the business analyst, Stephen Bartholomeusz, “the world has been drowning in U.S. dollars” via “liquidity swaps with 14 central banks.”

“The combination of the access to dollars, the extent of the monetary policy stimulus in the U.S. and the Fed’s recent decision to hold U.S. rates at their current negligible levels – negative in real terms – has seen the U.S. dollar depreciate about 9.3 percent against the basket of its major trading partners’ currencies since March 19,” Bartholomeusz wrote. “That’s its weakest level for more than two years.”

Bartholomeusz added:

A weak dollar exports deflation elsewhere. It helps US exporters be more competitive (albeit while harming importers in an economy with a structural trade deficit) and therefore one that imports more than it exports) while damaging the exports and growth prospects of economies elsewhere.

In addition to Bartholomeusz’s ominous outlook, the U.S. dollar index (DXY) could see a sharper fall in the near future according to a technical analysis report published on Monday. The DXY technical analysis explains that charts show a “bearish, M-shaped chart pattern containing two peaks and a trough.”

If the dollar’s trade-weighted index dips another 5% the pattern will be confirmed the author notes. The pattern is traditionally dubbed the “bearish double-top” and they are typically followed by a strong decline in value.

“The most notorious double-top for the dollar came in 2001-2002, in the aftermath of the September 11, 2001 attacks on the United States, and was followed by a 33% fall in the currency through 2004,” the analysis details. “[The USD] then rallied for about 11 months before continuing its slide to record lows in 2008.”

When the members of the Fed meet on Tuesday and Wednesday, a number of analysts and economists think the meeting will fuel bitcoin and precious metals like gold. The cofounder of Gold Bullion Int. (GBI) and DTAP Capital, Dan Tapiero, championed the two assets after U.S. commercial real estate markets have started to show signs of pending disaster.

“An entire asset class redefined almost overnight by [Covid-19],” Tapiero tweeted. “Total value of all U.S. commercial real estate is $16 trillion. Now entering the largest bear market since the late 80s? 50% price drop wipes out $8 trillion. Major econ drag/knock-on effects [are] huge. Rates stay 0%, + Gold and BTC.”

A recent report published by Pacific Investment Management Co. (Pimco) also explained that the U.S. dollar value drop is just starting and there is “room for the world’s reserve currency to weaken against emerging markets.” Many emerging markets worldwide have advanced the use of crypto assets and decentralized finance (defi) markets.

What do you think about the world drowning in U.S. dollars and the predictions about a major USD decline? Let us know what you think about this subject in the comments section below.

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