As a follow-up to my previous analysis of Bitcoin's relationship to the US Dollar, I decided to take a look at a longer-term trading horizon and look at the covariance as it relates to the US Dollar Index (DXY).
Long-Term BTC vs US Dollar
As mentioned in my previous analysis, the US dollar has been a strong and reliable predictor as it relates to the direction and intensity of Bitcoin's price movements. As you can see in the chart below, the DXY (black line) and Bitcoin (candlesticks) have maintained this same negative covariance, diverging in opposite directions as the counterpart rises or falls. This is especially apparent in lieu of the recent Bitcoin surge to new ATHs as the DXY has collapsed to a multi-year low, falling below the $90 level. For a more granular perspective, you can see in the below chart a relatively reliable continuation of this negative covariance on the intraday 60 Minute chart.
Future of US Dollar
I think one important thing to note is that as Bitcoin has consistently made higher highs and higher lows over time (5 Year Weekly Chart shown above), the DXY has made proportionately lower highs and lower lows. To that effect, the US Dollar seems to exhibit diminishing strength in recoveries as Bitcoin continues its ascension to new ATHs by the day. The confluence of this scenario and the two asset classes' negative covariance implies that as Bitcoin continues higher during this early-stages bull market largely driven by institutional investors, the US Dollar will continue to experience not only price weakness proportionate to Bitcoin's sustained bullishness but its price will also be further suppressed.
Other Pressures Facing US Dollar
The US Dollar also faces bearish pressure from other variables such as the federal QE program artificially supporting equities and other assets, thereby inflating the monetary supply, devaluing the US Dollar, and shunning any necessity for US Dollar strength or allocations in lieu of artificially stimulated market appreciation. This bodes well for Bitcoin as an asset class that, in addition to numerous fundamental and macroeconomic tailwinds, is supported by the US Dollar's weakness.
The Takeaway
Accordingly, the chart above shows that as the US Dollar continues to exhibit weakness, we can probably expect continued strength in Bitcoin going forward assuming the money supply variables remain consistent or mostly unchanged.
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