Bitcoin (BTC) price struggled to hold above $ 56,000 on April 20, which the whale groups cited as a significant short-term price level.
However, the US dollar index (DXY) has continued to decline in recent weeks, falling to a seven-week low of 90.85.
Bitcoin (blue) vs DXY (orange) Source: TradingView
Why is this an alarming trend?
Opportunity store prices are priced in bitcoin and gold against the US dollar. Hence, when the dollar falls, the value of Bitcoin should theoretically rise as Bitcoin trades against the dollar.
However, Bitcoin has fared poorly in recent days following Coinbase’s highly anticipated public listing.
The trend is worrying because Bitcoin is more likely to see a trend when the dollar falls, as shown by the inverse relationship in the chart above.
But in recent days, Bitcoin has struggled to stay above the key $ 56,000 per whale mark, which indicates strong selling pressure on BTC, especially as the price tries to get back above the 50-day moving average (green line in the chart below).
Light one-day BTC / USD chart. Source: TradingView
In addition, some analysts say the dollar may feel relief. If that happens, it should create a less favorable environment for Bitcoin to regain its momentum.
In a note to clients received by CNBC, Commerzbank strategist Yu Na Park-Hager said the eurozone’s vaccine optimism and the Fed’s firm stance on inflation are likely to push the dollar down.
While this put tremendous pressure on the dollar in the short term, Park Hager said the trend could reverse in the coming weeks.
“The economic recovery in the United States could raise inflation expectations and fuel speculation about raising interest rates. The news situation in the euro area regarding Corona may change again as uncertainty remains high. ”
But not everyone agrees that the dollar will resume its bullish trend. Valentin Marinov, a researcher at Credit Agricole, said, for example, that attractive interest rates in alternative markets are weighing on the dollar.
“Indeed, the rally in the US dollar is not a distant memory right now, and the currency’s weak performance seems to reflect an apparent contradiction in expectations between lower Treasury prices and very sensitive bond rates elsewhere. This is the complete opposite of the steps we saw in March. ”
Dan Tabiro, co-founder of 10T Holding, also expects the dollar to fall significantly, saying the bear market hasn’t even started yet.
In any case, it looks like the futures market and stronger influence have a direct impact on the price of bitcoin, while the weakness of the dollar will remain a growth driver for bitcoin over the medium to long term.
In the short term, things could change for Bitcoin
In the short term, Bitcoin could gain support from some bullish news and regain technical momentum. For example, Venmo’s support for Bitcoin and Ether (ETH) brought the price back to $ 56,000.
4-hour table of BTC / USDT rates (Binance). Source: TradingView
As of April 20, over 70 million customers will be able to buy, store and sell cryptocurrencies directly in the Venmo app, as this feature will roll out over the next three weeks.
In addition, WeWork announced that it will accept cryptocurrency payments and maintain balance.
For the foreseeable future, this new momentum could allow Bitcoin to recover from a week of rare weak performance against the dollar.