Traders are betting on a weaker US dollar, hoping it will act as a catalyst for investors to take risks and lead Bitcoin to rally. Still, some banks predict the currency will remain strong.
As of mid-March, Bitcoin has mostly traded between $60,000 and $70,000, according to data from CoinDesk. Bitcoin’s rally, which began in October of last year, has stalled, likely due to waning expectations of Fed rate cuts and a rebound in the dollar index, which tracks the dollar’s value against major fiat currencies.
DXY hit 102.35 on March 8 and hit a five-month high of 106.52 last week, according to data from charting platform TradingView. Since then, it has retreated slightly to 105.70, giving hope to the crypto market bulls.
“Dollar index DXY hit resistance at 106 as expected and started to reverse. A move back towards 102-103 will supercharge this rally. The timing makes sense because Bitcoin is poised to move to $90,000 in the near term. In the long term, I expect DXY at 92, maybe until the end of 2025,” says Mike Alfred, investor and founder and managing partner at value fund Alpine Fox LP.
The US dollar plays an important role in international debt, non-bank lending and world trade. When the dollar appreciates, USD debt becomes expensive, which, in turn, discourages risk-taking in financial markets. A weaker dollar has the opposite effect. Therefore, explains CoinDesk, over the years, Bitcoin and the broader cryptocurrency market tend to move in the opposite direction of the DXY, as do stocks and gold.
Glassnode co-founders Jan Happel and Jan Aleman, who go by the name Negentropic at X, said the dollar appears to have reached the peak of a “widening triangle” pattern and could pull back in the coming weeks, driving the cryptocurrency market higher.
The expanding triangle is defined by diverging trend lines that connect higher highs and lower lows. DXY has broken down from upper trendline resistance and may drop to 103 next month.
Banks are optimistic about the dollar
Some banks, however, do not foresee an immediate weakening of the dollar.
According to Societe Generale’s Cross Asset research team led by Keith Jacks, the Fed is now unlikely to cut interest rates before 2025 and this could see the DXY peak somewhere between 107 and 110.
In October, when the DXY peaked above 107 and Bitcoin started to rally, markets expected the Fed to cut interest rates by 100 basis points in 2024. Now, markets expect less than two rate cuts this year.
Scotiabank echoed a similar sentiment, saying: “Higher interest rates for longer from the Fed likely mean a stronger US dollar for longer.”
Kombiki and the… vs. USA-China
Cryptocurrency traders are also watching the possible escalation of the trade war between the US and China, which could support the US dollar.
Last week, Joe Biden called for a sharp increase in tariffs on Chinese steel and aluminum products to 25% from 7.5%.
At the same time, former president and current Republican presidential candidate Donald Trump proposed a tariff of 60 percent or more on Chinese imports.
According to Barclays, this could push the dollar higher.
“Tariffs tend to support the dollar, but the size of the impact on the currency is highly dependent on the details,” Barclays’ FX strategy team said.
Barclays considered the scenario of the US imposing 60% tariffs on all Chinese imports and concluded that a Trump victory later this year could trigger a 3% rally in the DXY.
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