Follow BlockTraderHub.com, your insider’s guide to crypto intelligence, for the latest in Markets, Bitcoin, DeFi, NFTs and Regulation. Stay ahead in the blockchain world. Recent developments in the US bond market sparked an additional discussion of great importance. At the same time, a weakening dollar poses entirely new questions of how these factors might impact Bitcoin’s price. This article investigates which macroeconomic factors are correlated with Bitcoin’s recent rise. It offers incredibly valuable, concrete insight about the forces behind this movement.
The Bond Market Sell-Off and Bitcoin's Resilience
The recent dramatic sell-off in the US bond market has created shockwaves across the financial community. Even as bonds hold their traditional role as a safe-haven asset, something has changed in investor sentiment based on the recent return of bonds. In a surprising twist amid the bond market chaos, Bitcoin has proven to be incredibly resilient. Bitcoin is still down 6% since the sell-off began last Thursday.
NYDIG Research noted that "Non-sovereign stores of value, like bitcoin, should do well," in the current economic climate. This can’t be understated, as this perspective exposes the power of Bitcoin as an alternative store of value, particularly when traditional assets have an unclear future. Looking back at major crisis events, a pattern emerges: each sell-off in Bitcoin has often marked a significant long-term bottom, suggesting possible accumulation opportunities.
Bitcoin still stands on its own merit on a risk-adjusted basis. It acts the same or better than other traditional safe-haven assets such as gold and TLT (iShares 20+ Year Treasury Bond ETF). This comes to show that the investors are taking a larger risk with Bitcoin in making it an alternative asset class, which can survive the economic storms.
The Weakening Dollar and Bitcoin's Bullish Momentum
A weakening dollar tends to be a catalyst for Bitcoin price appreciation. Joel Kruger, market strategist at LMax Group, emphasizes that the backdrop of a weakening dollar provides a very constructive tailwind for Bitcoin. Historically, Bitcoin has exploded once the DXY (US Dollar Index) has dropped below 100, likely indicating that another huge BTC rally is brewing.
There are three compelling explanations for the correlation between a falling dollar and rising Bitcoin prices. The first is with a falling dollar supporting cryptos, including Bitcoin themselves. A declining dollar value makes cryptocurrencies more lucrative to international investors. When the dollar is weak, dollar-denominated assets are on sale for anyone with another currency in hand, leading to a spike in demand.
Additionally, the dollar’s decline is generally boosting other assets, including Bitcoin, as it builds a positive correlation between the two. Declining dollar strength is typically beneficial for Bitcoin’s price. Investors are drawn to it due to its rarity and room for expansion.
Technical Analysis and Market Indicators
In reality, the Relative Strength Index (RSI) is one of the most powerful momentum indicators available. It uses the magnitude of a stock or other asset’s recent price movements to figure out if those assets are overbought or oversold. An RSI higher than 70 indicates overbought conditions and strong positive momentum, which can be an indicator of continued upward momentum on Bitcoin’s price.
Investtech's analysis highlights positive trends. Examples of determinants of bullish sentiment include stocks with increasing short-term momentum that often keep climbing, reflecting a bullish momentum “trend.” Furthermore, stocks in rising trend channels in Investtech's medium-long term charts have historically outperformed the average benchmark, with an annualized excess return of 7.8 percentage points.
Risks and Rewards
While the macroeconomic factors and technical indicators paint a potentially bullish picture for Bitcoin, it's crucial to acknowledge the inherent risks involved. The cryptocurrency market is extremely volatile, and massive price fluctuations happen every minute.
As always, do your own due diligence before investing and understand your own risk profile. Yet diversification is key to reducing your risk of major losses. As always, do your own research and consult a financial advisor before you invest in Bitcoin or any other cryptocurrency.
Here's a summary of potential pros and cons:
Pros:
- Potential for high returns
- Diversification from traditional assets
- Decentralized nature
Cons:
- High volatility
- Regulatory uncertainty
- Security risks
