At the same time, the U.S. dollar collapsed against the euro on the Forex market to its lowest level in five weeks. For the first time in this time, the U.S. currency became cheaper than the euro. The dollar index (DXY) is also near a three-week low.
The influence of the dollar index
How bitcoin and the crypto market as a whole behaves is influenced by the U.S. dollar index, said Artem Deev, head of analytics at AMarkets. He explained that the DXY index (U.S. Dollar Index) shows the movement of the dollar relative to a basket of the world's major currencies: the euro, Swiss franc, pound sterling, Canadian dollar, Japanese yen and Swedish krona.
Thus, the index shows the growth or decline of the U.S. dollar relative to a basket of currencies, the expert said. According to him, when the index is rising, bitcoin usually goes down, while when the index falls, bitcoin goes up. Deyev said that this inverse correlation between the dollar index and bitcoin was noticed a decade ago and has been confirmed ever since.
The analyst explained that now bitcoin's rise above $20,000 is due to the fact that the DXY index is going down. The reason for this is the release of good reports by IT giants, relatively positive data on the labor market in the U.S. and investors' hopes that this information will lead to the Federal Reserve (Fed) to stop raising the rate, the analyst believes.
However, Deyev believes that despite some slowdown in U.S. inflation, the Fed will continue to tighten monetary policy. According to the analyst, there is now too big a gap between inflation and the rate, and there is no reason to expect a strong slowdown in prices.
As early as next week at the meeting, Fed policymakers may raise the rate again by 75 bps (0.75%) to 4%. (0.75%) to 4%, the marketplace digital asset specialist clarified. He also noted that if the Fed says that this trend will continue in the coming months, then today's rate rally will be crossed and sent to the trash garbage can.
According to the expert, we should expect in this case a new bitcoin decline to the area of $15 thousand or even lower. Ethereum may go down to $1,000.
In the current conditions cryptocurrency investors can liquidate futures positions, get profit on put options and simply fix profit on transactions for purchase, considers the expert. He explained that there is no certainty that the current upward trend will continue now. Most likely, in the coming days we will be able to see the development of demand for the dollar again.
Bitcoin strengthening - a short-term phenomenon, the first cryptocurrency grew for a short time, in the future it will go down again - down to the level of $10 thousand - $11 thousand per coin.
According to Deyev, the main determinant factor for the cryptocurrency market at the moment is not the dollar and its position against other world currencies, but the overall situation in the global economy. The situation is dire, says the expert: no one doubts that a powerful recession will start in the near future, not only in Europe but also in the United States.
In such a situation, investors will walk away from the risk, the analyst is sure. On the other hand, he noted that they have been doing it for a long time, which makes cryptocurrency quotes fall.
Not a close prospect
Most likely, the downward trend of cryptocurrency rates may begin to change only in the first half of 2023, Pan believes. According to the expert, that's when the process of tightening the monetary policy of the Federal Reserve may end or the rate hike will not exceed 0.25%. Then the stock markets will start to form trends for an increase in quotations. The expert believes that the cryptocurrency market as well.
More news about cryptocurrencies you will find in our telegram channel soft4bro.com