Bitcoin (BTC) price is trying to stay above $ 56,000 where whale clusters are concentrated as of April 20.
Meanwhile, the US dollar index (DXY) has continued to decline in recent weeks, reaching a seven-week low (90.85).
Why is this worrying?
Alternative storage tools such as bitcoin and gold are priced in US dollars. So when the dollar falls, Bitcoin’s value should theoretically increase when trading against the dollar.
However, in recent days, Bitcoin performed poorly after Coinbase went public.
As shown in the chart above, it is worrisome that while the dollar is falling, Bitcoin is not going up when it should.
Recently, Bitcoin has been struggling to stay above the $ 56,000 whale cluster level. This reveals heavy selling pressure on BTC, especially when trying to move above the 50-day moving average (SMA). (Shown by the green line in the graphic below).
Moreover, some analysts predict that the dollar may enter a relaxation period. If this happens, it means that Bitcoin will have a harder time gaining momentum.
Commerzbank strategist You-Na Park-Heger, quoted by CNBC, said in a letter to customers that the eurozone’s optimism over vaccination and the Fed’s firm stance on inflation led the dollar to drop.
While this puts tremendous pressure on the dollar in the short term, Park-Heger said the trend could change in the coming weeks. He explained:
“The economic recovery in the US could further increase inflation expectations and a rate hike could fuel speculation. Increased uncertainty in connection with the Corona, the situation in the eurozone may change again.”
Not everyone agrees that the dollar will continue to rise. Credit Agricole researcher Valentin Marinov, for example, said that attractive returns in alternative markets put pressure on the dollar. Marinov quoted:
“In fact, the US dollar rally is a distant prospect. The currency’s low performance reveals a distinct difference between lower UST returns and higher returns on alternative products. This is almost the opposite of what we saw in March.”
Dan Tapiero, co-founder of 10T Holdings, stated that the bear market has not yet begun, suggesting that more downsides could be seen for the dollar.
How early is it still for #Bitcoin?
The US dollar bear market hasn’t even begun yet.
– Dan Tapiero (@DTAPCAP) April 19, 2021
In any case, the futures market and highly leveraged positions appear to have a stronger impact on Bitcoin’s price, while the weakening dollar should continue to be the bullish factor for BTC in the medium and long term.
Things could change for Bitcoin in the near term
In the short term, Bitcoin could gain support from some bullish news and regain momentum. For example, with Venmo’s support for Bitcoin and Ether (ETH), the price is back to $ 56,000.
When the new feature becomes available within three weeks, more than 70 million people will be able to buy, store and sell cryptocurrencies directly from within the Venmo app.
In addition, WeWork announced that it will accept cryptocurrency payments and include them in its balance sheet.
It was one of the rare moments when Bitcoin was underperforming with the dollar for a week. It is possible that the currency will gain momentum again in the near future.