One can assume that Bitcoin’s parabolic rally in 2020 has everything to do with the underperformance of its archenemy, the US dollar.
The charts tell the whole story. In March 2020, a 60 percent crash in the Bitcoin market coincided with an 8.80 percent rise in the U.S. dollar index, a barometer used to measure the strength of the greenback against a range of foreign currencies.
But later, Bitcoin regained its bullish momentum when its price rose more than 600 percent. Meanwhile, the US dollar fell as much as 12.87 percent from its mid-March high.
US dollar is at the beginning of a cyclical bear market. Source: DXY on TradingView.com
The US dollar’s continued bearish momentum began after the Federal Reserve launched an open-ended bond purchase program and lowered its key interest rates to near zero. The U.S. government later launched a $ 2.3 trillion stimulus plan to help millions of Americans through the economic slowdown caused by the COVID-19 pandemic.
For investors, the scenario was clear and precise. An ample supply of the economy with the US dollar has deprived its purchasing power overall. Fearing that their cash-based portfolio would suffer, they increased their exposure to riskier assets. Bitcoin, which comes with a limited supply cap of 21 million and a pre-defined supply rate, benefited from these fundamentals.
Bitcoin is trading near its record high. Source: BTCUSD on TradingView.com
As of the beginning of 2021, the U.S. economy is still facing the same fundamentals. The country’s coronavirus infection rates have risen, prompting governments to impose new bans. In the meantime, the unemployment rate remains higher. As a result, the White House passed another stimulus package, this time for $ 900 billion.
Bitcoin hit a new record high above $ 28,300 at around the same time.
The cyclical scenario
The analyst at crypto-focused investment advisory firm TradingShot stated that the U.S. dollar will continue to decline through 2025.
Its bearish analogy borrowed from the cyclical trends of the greenback. Since the early 1970s, the US dollar index has seen three repeating trends. Each cycle lasts nearly 5,700 days and prints about 190 monthly candles. By now, nearly all of them have roughly the same cyclical bottom at nearly 78.
US Dollar index cycles. Source: DXY on TradingView.com
“While the next top for the DXY (which I have to add at this point is that the sequence is Lower Highs) may be around 2032/33, the next bottom (based on the waves) should be around 2025,” according to the TradingShot Analyst explained.
“That means that we are still far from cyclical bottom and the best course of action is to sell every rally,” he added.
Bitcoin rally by 2025?
Ronnie Moas, founder of Standpoint Research, an investment management firm, noted that Bitcoin is on track to hit $ 100,000 by 2022 if more institutions use it as a hedge against fears of dollar devaluation .
The macro analyst, who correctly predicted a Bitcoin price target of USD 28,000 at the end of October, said that in the future, the cryptocurrency would capture a large part of the market capitalization of gold with the mouse. Investors also view the precious metal as a hedge against inflation, making it a direct rival to Bitcoin.
July 3rd, 2017 I recommended #bitcoin> the price was $ 2,570> we hit $ 25,700 today> 10X | 99% of the world are not in this & # gold market valuation just yet, remains high @ 20X $ BTC valuation> #BTC should rise to $ 56,000- $ 112,000 between 2021 and 2022 but it will be a volatile ride> #Turbulence
– Ronnie Moas | Nomad | Shares | BTC | Charity (@RonnieMoas) December 26, 2020
All in all, a 20 point drop in the US dollar index would encourage more companies and investors to use gold and bitcoin as safe alternatives. By 2025, the cryptocurrency should trade over USD 100,000, according to Mr Moas’ forecast.