The United States dollar is on track to have its most successful five-day period since February 2023. In contrast, Bitcoin (BTC) has experienced a decline during this time due to expectations of high interest rates and the upcoming halving event on April 20, which has caused volatility in the cryptocurrency market.
The strengthening of the dollar can be attributed to the belief that interest rates will remain high. The Kobeissi Letter, a trading resource, stated that just a month ago, the market anticipated the Federal Reserve to begin cutting rates in June. However, the current expectation is that rates will remain higher for a longer period of time. Higher interest rates typically attract foreign investors who seek greater returns on bonds and deposits, thus increasing the demand for the dollar.
The Bloomberg Dollar Spot Index (BBDXY), which measures the performance of 10 major global currencies against the US dollar, has risen by approximately 2% over the past five trading days. This increase is the largest in 14 months. The BBDXY shows a score of 106.34, indicating a strengthening of the dollar against the other currencies in the index, including the euro, pound, and yen.
In contrast to the dollar’s rise, Bitcoin has experienced a 9% decrease in price over the past five days, dropping to $63,936. Historically, Bitcoin and the dollar have shown an inverse relationship. However, the relationship between the two is not always consistent.
Federal Reserve Chair Jerome Powell recently stated that the country’s inflation rate, which currently stands at 3.5%, is not moving towards the central bank’s 2% goal. This suggests that it will take longer than expected to achieve the desired level of inflation. Additionally, trader Justin Spittler warned that when the US dollar reaches “overbought levels,” a significant correction typically follows.
Bitcoin is often seen as a more volatile asset, and demand for it tends to increase when the dollar weakens. However, the upcoming Bitcoin halving on April 20 adds another factor to the equation. This event will reduce the amount of Bitcoin that can be mined per block by 50%. Despite the halving, crypto investors currently show more confidence in riskier crypto assets compared to the 2020 halving event.
The recent rise in the US dollar has also led to a decrease in the sentiment of the crypto market, as indicated by the Crypto Fear and Greed Index. This index has dropped by 11 points since April 10.
It is important to note that this article does not provide investment advice. Readers should conduct their own research before making any investment decisions.