The Dollar Strength Index (DXY) has reached its highest level in almost 10 months, indicating increased confidence in the US dollar compared to other fiat currencies. This surge in demand for the dollar has led to concerns among investors about the potential impact on Bitcoin and cryptocurrencies. However, it’s important to note that these concerns are not necessarily connected. The DXY has confirmed a “golden cross” pattern, which is often seen as a precursor to a bull market. Despite concerns about inflation and economic growth in the US, the dollar has exhibited strength, suggesting that historical trends cannot be determined solely by price patterns.
Market expectations for US gross domestic product growth in 2024 are lower than the average rate over the past four years. This slowdown is attributed to factors such as tighter monetary policy, rising interest rates, and diminishing fiscal stimulus. However, an increase in the DXY does not always reflect confidence in the economic policies of the US Federal Reserve. For example, if investors choose to sell US Treasuries and hold onto cash, it suggests a potential recession or significant uptick in inflation. This data shows that investors are favoring cash positions and waiting for a more favorable entry point.
Although there may be a decreased appetite for risk-on assets, such as Bitcoin, investors recognize that hoarding cash does not ensure stable purchasing power. As the US government continues to raise the debt ceiling, increased liquidity in the markets could benefit Bitcoin and other alternative assets. Increased money supply due to inflation and recession pressures may lead investors to seek refuge in scarce assets like Bitcoin. Therefore, the DXY golden cross may not necessarily have a negative impact on Bitcoin, especially in the long run.