Weakening US Dollar Provides Tailwind For Bitcoin, Despite Rumor-Driven Flash Crash

The inverse correlation between Bitcoin and the US dollar tends to support crypto prices, but surging volatility underscores how fickle the market can be

article-image

Source: Shutterstock / In Green, modified by Blockworks

share

A potential decline in the reserve status of the US dollar is causing investors and nations to explore alternatives to the greenback, including commodities, both physical and digital — such as bitcoin (BTC).

This gradual shift in the global financial landscape is benefiting the crypto market; bitcoin has often shown an inverse correlation with the US dollar. 

Over the past 24 hours, Bitcoin is down slightly (-0.6%) to about $29,000, after erasing most of Wednesday’s rally which saw the asset rise as much as 9% on the day.

A Twitter tizzy

A -7% swan dive between 3:00 and 4:00 pm ET was preceded by a tweet from crypto data analytics provider Arkham Intelligence, which cited on-chain data to claim that Jump Trading deposited $26.6 million in BTC to crypto exchanges. Blockworks reached out to Jump for comment.

After the sell-off, Twitter and Telegram-based news aggregator Tier10k, attributed an on-chain alert to Arkham indicating bitcoin from wallets associated with Mt Gox and US government seizures were on the move. 

Further on-chain analysis disputed the claim, and Arkham later chalked up the incident to a misconfiguration while pointing out the timing could not possibly have been responsible for the crypto market’s sudden reversal.

Loading Tweet..

The price of bitcoin subsequently rebounded over the next 8 hours.

Over a 30-day period, bitcoin’s value has increased as the dollar has weakened, demonstrating its potential as a digital store of value alternative to gold. 

BTC correlation to DXY; Source: TradingView

Over a one-month period, the US dollar index (DXY), which measures the greenback relative to a group of other international currencies, has turned negative, down 0.48%. The DXY is now down 2.48%, data shows.

“Heavy geopolitical tensions and liquidity pumped into the US financial system through Quantitative Easing after COVID-19 have caused soaring inflation,” says Sylvia To, lead researcher at crypto exchange Bullish.

The DXY has been in a downtrend since September 2022 — a February bounce of roughly 4.5% has been completely erased in the wake of the US regional banking turmoil.

Seeking alternatives

Strong dollar dominance has put developing countries in a tough spot, as their USD-denominated debt has resulted in inflated debt-to-GDP ratios.

Countries like Russia, China, and the BRICS nations are considering alternatives due to concerns about the use of the world’s reserve currency as a political tool and the impact US sanctions have on the global economy.

As interest in bitcoin grows as an alternative to the dollar and a hedge against inflation, demand for digital assets may increase over the long term. More investors are likely to diversify their portfolios to mitigate currency risk.

In Argentina, BTC tapped its previous all-time high against the peso on April 14. The country’s central bank raised its benchmark interest rate to 81% in an effort to curb soaring inflation

Bitcoin’s inflation rate has steadily declined to 1.75% since its inception more than a decade ago, thanks to its fixed supply of 21 million BTC and supply halving events that reduce miner rewards

Meanwhile, the US dollar’s inflation rate has of late consistently decreased month-to-month, dropping from a peak of 9% in June 2022 to around 5% in March.

“The future of dollar dominance is the big question,” To added. “It’s really going to set the precedent for the space.”

Macauley Peterson contributed reporting.


Don’t miss the next big story – join our free daily newsletter.

Tags

Upcoming Events

Hilton Metropole | 225 Edgware Rd, London

Mon - Wed, March 18 - 20, 2024

Crypto’s premier institutional conference returns to London in March 2024. The DAS: London Experience: Attend expert-led panel discussions and fireside chats Hear the latest developments regarding the crypto and digital asset regulatory environment directly from policymakers and experts.

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Research report - cover graphics (1).jpg

Research

In this report, we dive into crypto private market data to gather insights on where the future of the industry is headed. Despite a notable downturn in private raises, capital continues to infuse promising projects that aim to transform payments, banking, consumer experiences, community, and more, with 2023 being the fourth-largest year for crypto venture capital.

article-image

The stock price jump comes after Coinbase reported ending its seven-quarter run of net losses during the fourth quarter

article-image

BUZZ holds shares of Coinbase, Robinhood and MicroStrategy

article-image

Opinion: Even though I didn’t pay for my “Diamond Hands” burger with BTC, don’t let that fool you into thinking that crypto’s development is futile

article-image

The results mark “a major positive inflection point,” one analyst says, as the exchange carries net income momentum into a crypto rally

article-image

While the slate of 10 US spot bitcoin funds have tallied $4.6 billion of net inflows thus far, half of the field is lagging the leaders

article-image

Trading volumes totalled $154 billion in Q4, including $125 billion in institutional volume