Bitcoin (BTC) price struggled to stay above $ 56,000 on April 20, which whale clusters identified as a crucial near-term price level.
However, the US dollar index (DXY) has continued to fall in recent weeks, falling to its lowest level in seven weeks at 90.85.
Why is this a worrying trend?
Alternative stores of value such as Bitcoin and Gold are valued against the US dollar. If the dollar falls, Bitcoin’s value should theoretically rise as BTC trades against the dollar.
However, in the past few days, Bitcoin has performed poorly after Coinbase’s much-anticipated public listing.
The trend is worrying as Bitcoin is more likely to see an uptrend when the dollar is falling, as shown by the inverse relationship in the graph above.
However, for the past few days, Bitcoin has struggled to stay above a major whale cluster level at $ 56,000, indicating that BTC is under heavy selling pressure, especially as the price is struggling to get above the 50-day moving average to recover green line in the table below).
Additionally, some analysts say the dollar could see a relief rally. In this case, Bitcoin should create a less favorable environment to get going again.
In a message to customers received from CNBC, Commerzbank strategist You-Na Park-Heger said that Eurozone vaccine optimism and the Federal Reserve’s firm stance on inflation likely drove the dollar’s decline.
While this put immense pressure on the dollar in the short term, Park-Heger said the trend could potentially change in the coming weeks.
“The economic recovery in the US could further boost inflation expectations and fuel speculation about rate hikes. The news situation in the eurozone related to corona could change again as uncertainty remains high. “
But not everyone agrees that the dollar will resume its uptrend. For example, Credit Agricole researcher Valentin Marinov said the attractive returns in alternative markets are putting pressure on the dollar.
Indeed, the USD rally is now as good as a distant memory, and the currency’s underperformance seems to reflect the apparent divergence in the outlook between declining UST yields and the more cheeky bond yields elsewhere. This is almost the exact opposite of the movements that we saw in March. “
Dan Tapiero, co-founder of 10T Holdings, also expects the dollar to move lower, declaring that his bear market has not even started.
How early is it for #Bitcoin?
The US dollar bear market hasn’t even started.
– Dan Tapiero (@DTAPCAP) April 19, 2021
In any case, the futures market and high leverage seem to have a more immediate impact on Bitcoin price, while a weakening dollar is likely to remain a bullish factor for BTC in the medium to long term.
In the near future, things could change for Bitcoin
In the short term, some bullish news could give Bitcoin a boost and regain technical momentum. With Venmo’s support for Bitcoin and Ether (ETH), for example, the price rose again to $ 56,000.
As of April 20, over 70 million customers will be able to buy, hold and sell crypto directly in the Venmo app when the feature launches over the next three weeks.
In addition, WeWork announced that it would accept cryptocurrency payments and keep them on balance.
In the foreseeable future, this renewed momentum could enable Bitcoin to regain a foothold in tandem with the dollar after a week of seldom underperformance.