Data shows that the argument that a stronger U.S. dollar makes Bitcoin weaker is flawed


At present, there seems to be a general assumption that when the U.S. dollar appreciates against other major global currencies, the impact on Bitcoin will be measured by the DXY index (Bitcoin) Is negative.

In the past few weeks, analysts and influential people have been issuing alerts about this reverse correlation, and this correlation will continue until March 2021.

However, whether you track 20-day or 60-day correlation, the situation has reversed in the past three months.

The dollar index DXY (blue) and Bitcoin (orange, logarithmic). Source: TradingView

Since mid-March, the correlation indicator (red) has been above 50%, indicating that DXY and Bitcoin generally follow a similar trend.

U.S. dollar strengthens after Fed speech

As Cointelegraph reported, the May Consumer Price Index (CPI) report showed Inflation hits 13-year high, Federal Reserve Chairman Jerome Powell admitted that inflation may be higher than planned in the short term. However, he clarified that “Long-term inflation expectations are anchored In a place that meets our goals. “

The market cast a “vote of confidence” in the Fed, causing the U.S. dollar to appreciate against major global currencies. At the same time, Bitcoin fell 8% to a low of $35,300 on June 18, further strengthening the inverse correlation argument.

related: Forget Elon, this is why Bitcoin traders should pay attention to the US dollar index

Correlation is a long-term indicator, not an intraday indicator

Although authority figures and influential people like to analyze these events and infer 1-day trends, they should analyze a longer time frame to understand the potential impact of the DXY index on the price of Bitcoin.

The dollar index DXY (blue) and Bitcoin (orange, logarithmic). Source: TradingView

Note how these two indicators weakened in May after being relatively stable in late April. At the very least, it seems premature to call the most recent decoupling an inverse correlation. Bitcoin’s failure to maintain the $40,000 support level on June 16 and the subsequent price adjustment may have been caused by multiple forces.

First, on May 24, Liu He, Vice Premier of the State Council of China and a member of the Politburo with eight full powers, presided over a meeting on financial risk prevention and control. Combating Bitcoin mining and trading activities.

Bitcoin’s hash rate drops to its lowest level since November 2020 Miners start to move away from ChinaHuobi temporarily suspended futures trading with Chinese users, while futures platform Bybit revealed that it will close accounts registered with Chinese phone numbers.

In addition, on May 26, Gary Gensler, chairman of the US Securities and Exchange Commission, stated that the regulator looks forward to cooperating with other regulators and Congress. Fill the gap in investor protection in the crypto market.

Therefore, potential U.S. regulation and the current Chinese crackdown on mining and trading activities seem to be critical to Bitcoin’s recent underperformance. Once these issues are no longer a threat, the gap caused by the positive trend of DXY may disappear.

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