There is widespread debate among investors about the correlation between Bitcoin (BTC) and other markets. There has been a high degree of correlation between the stock markets and Bitcoin, especially in recent months. At other times, gold and bitcoin seem to move in sync.
However, the correlation that should be monitored the most is the dollar, because the world economy depends on the strength or weakness of our global reserve currency, the US dollar.
The chart above shows the prices of gold, bitcoin and dollars since the March crash. The orange line is gold, the blue line is the US Dollar Index (DXY), and the regular bitcoin price is shown in black.
The sudden impact of the global epidemic has boosted demand for the US dollar as it rose sharply in March, as evidenced by a large blue rally. The rally triggered a drop in other markets as the price of bitcoin dropped 50% to $ 3,700.
However, after this massive crash, the DXY is weakening day by day. This sudden weakness in the dollar has led to a sharp increase in other safe haven assets over the past six months. Bitcoin is up 185% after the March crash, while gold is up 31%.
But even if the overall decline remains unchanged, the US dollar bounced back in early September when the bottom was built. A bullish bias was created to signal the start of a temporary bottom, after which the 92.75 level was retraced to support further upside.
This high rally reached 94.60 points and led to significant falls in other assets. Thus, further weakening in commodity and cryptocurrency markets should be expected if the DXY continues to move towards 96 points.
A preliminary cycle was reached in 2014 and 2017 for bitcoin, from which reliable data on the US dollar to bitcoin ratio can be obtained.
Throughout 2017, the US dollar showed significant weakness across the board, with EUR / USD also rising from 1.03 to 1.25. Amid the uncertainty and volatility of the US dollar, Bitcoin recorded its peak rally from $ 1,000 to $ 20,000.
Even more interesting is the fact that Bitcoin’s peak is surrounded by the lower cycle of the DXY index.
Since then, DXY has shown its strength. Thanks to this strength, the Bitcoin bear market has been supported in previous months.
The significant weakness in the DXY index means that bitcoin and gold prices continue to rise. Will history repeat itself?
From the chart above, one can infer the strength of gold after the bursting of the internet bubble in 2000. In the early stages of a potential crash, the liquidation phase is when all markets fall as gold also corrects 30%. in 2000. Look for liquidity to cover losses in the stock markets. Similar to what we saw in March 2020.
However, since the US dollar showed weakness in 2000, gold has shown tremendous strength as a safe haven, which should have increased your portfolio by 600%.
Over the same period, the euro / dollar pair rose from 0.85 to 1.60 in 2008. The move changed when investors turned to the US dollar as a hedge during the credit crunch.
But in these times of uncertainty, with negative interest rates, rising debt levels and deflation, Bitcoin is doing relatively well.
Of course, at the first stage of the crisis, there may be a potential decline of 25-35%, as it was in March. But then Bitcoin and gold will be of great use as a safe haven from the dollar’s weakness that only occurred in December 2017, when BTC hit a permanent high of almost $ 20,000.
The simple reason for this is that trust in governments will also decline in times of economic uncertainty. Corona pandemic or systemic risks. Given this uncertainty and the sharp increase in debt, the US Federal Reserve has one option: to devalue the currency, which means further weakening of the dollar.
In other words, the six-figure price prediction could become a reality if the dollar’s weakness persists in 20201.