Dollar appreciation index and central bank reserves indicate future of the crypto market

The continued strength of the US Dollar could put further downward pressure on cryptocurrency prices, which have already suffered along with other risky assets, as Bitcoin has lost nearly 60% of its value year on year.

In recent months, the dollar index, the DXY, has appreciated by 0.45% and has been heading towards historic levels against its main rivals.

The British pound GBPUSD, (-0.52%) last Friday the pound fell to its lowest level against the US dollar since 1985, trading at $1.14. In July, the EURUSD (-0.59%) fell below par against the dollar for the first time in nearly 20 years, before returning to par. In the chart below we see the trajectory of the dollar, pound and Bitcoin over the last 9 months.

Source: Marketwatch

Earlier this month, the Japanese Yen USDJPY, (+0.32%) fell to the lowest level against the US Dollar since 1998. The Dollar benefited from the Federal Reserve raising interest rates at a faster pace than others. major central banks.

“This gives international investors a lot of confidence that the US is going to be the place to be because they’re not going to let inflation get out of control,” said Mike Vogelzang, chief investment officer at Captrust. Speaking to CNBC.

Meanwhile, the US “probably won’t have a recession as deep as Germany, England or the UK say,” Vogelzang noted.

Dollar performance as a hedge hurts cryptocurrencies

The dollar’s performance is detrimental to cryptocurrencies, with most Bitcoin trading taking place with the dollar as a pair. About 70% of trading volumes between bitcoin against fiat currencies take place in dollars.

The BTC/USD pair, (-2.25%) is down 14% in the last week and is down nearly 60% year-to-date, according to Cointelegraph data.

The dollar rally is likely to continue strong as the overall picture is very bad for the world economy as several macro events are happening at the same time, such as the energy crisis in Europe, the negative rate policy in Japan and the Covid policy. zero from China. All these events are adding up to create a liquidity crisis in the world.

According to data from the International Monetary Fund (IMF), international reserves in dollars held by central banks are at their lowest levels in the last 20 years.

Source: Bloomberg Monitor

What this means in practice and what is its main consequence in turn: the demand for the dollar will grow at macro levels, raising the value of the dollar against all currencies, consequently devaluing them. A huge risk for the currencies of inflationary countries, such as Brazil and much of the developed world. There is also an implicit risk for the capital market and therefore for Bitcoin, which is correlated to the actions of technology companies and especially chip and ASIC producers.

The latter are getting ready to face a possible rise in copper, which is at levels below its historical average. There are many challenges for Bitcoin in the coming years.


The article is in Portuguese

Tags: Dollar appreciation index central bank reserves future crypto market

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