GREEN ADDICTION. HOW THE DOLLAR AFFECTS BITCOIN

Posted 25 August, 2020

Monday, on August 24, at the opening of trading on the Moscow Exchange, the dollar fell against the ruble by 0.37%, to the level of 74.52 rubles, the euro rate dropped by 0.26%, to 87.98 rubles. Bank Goldman Sachs predicted that the US currency is likely to remain low for a long time to come. Analysts cited several factors for the continued cyclical weakness of the USD.

 

Among them: the overvaluation of the dollar, real US rates, which are likely to remain negative for several years, the steady growth of the world economy after the end of the COVID-19 pandemic. However, the experts also named a number of factors that may support the quotes of the American currency in the coming weeks.

 

In August, the epidemiological situation in the United States improved against the background of increasing incidence in many regions of the world, including Europe. In the short term, investors may start looking at the country with a bit more optimism, Goldman Sachs is confident.

 

Now the further policy of the FRS is no longer so obvious. The yield on inflation-protected US Treasury bonds (TIPS) interrupted the decline along with the dollar index, as the market awaits clarification of the regulator's position.

 

Also, the National Congress of the Republican Party may have a positive effect on the dollar quotes. If, according to its results, the gap between Joe Biden and Donald Trump narrows, this should support the USD. In addition, in the near future, Trump may provoke another escalation of the conflict between the United States and China, which should further support the dollar.

 

In July, the inverse correlation between bitcoin and the dollar intensified as investors began looking for alternative assets. For example, over the past four weeks, the USD DXY index, which tracks the value of the US currency against reserve currencies, has fallen from 97 to 92, while Bitcoin has risen in price from $ 9,000 to $ 12,400 at its peak.

 

Therefore, a possible recovery of the American currency may negatively affect the value of bitcoin, and vice versa, a weak dollar should positively affect the BTC quotes. Nikita Zuborev, senior analyst at Bestchange.ru, noted that today there is indeed an inverse correlation between the US dollar and bitcoin, but there is no proven causal relationship.

 

This is partly due to the fact that the markets are sufficiently governed by emotion, when the mood in the market changes the behavior of investors. At the same time, it is difficult to track the dependence of sentiment on specific market behavior and it cannot be guaranteed that such behavior patterns will persist in the future. For this reason, one should not focus on the correlation between USD and BTC, the expert believes.

 

“We remain optimistic and expect the value of bitcoin to rise until mid-2021. According to our estimates, the price of cryptocurrency this year should not fall below $ 10,000,” Zuborev predicted.

 

The CEO of the EXMO exchange Sergey Zhdanov added that there is a feedback between the dollar and bitcoin, but there is no significant strengthening of the American currency. The value of BTC dropped below the $ 12,000 mark, since this is a significant psychological level and when it is reached, a part of long positions were fixed, which coincided with the growth of the stock market.

 

“Gold behaves in exactly the same way - that's where we really see a clear dependence with the price of bitcoin,” the specialist concluded.

 

Earlier, Bloomberg predicted an imminent drop in dollar quotes due to the Fed's monetary policy. Economists interviewed by the publication pointed to the similarity of the current situation with 1985 and 2002, when there was a decrease in the flow of foreign investment and a weakening of the American currency. Now the reason for such forecasts was the reduction of the FRS base rate to 0-0.25%.

 

Bitcoin has tripled since March this year. In August, the cryptocurrency crossed the $ 12,000 mark several times, but has not yet managed to gain a foothold above this value. On August 22, the coin rate dropped to $ 11,400, after which it began to gradually grow. At the moment, the main digital coin is trading at $ 11,779.

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28 August, 2020

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