Historically, a weaker US dollar has led to the strength of other “safe-haven” assets. By analyzing the correlation, such momentum and conclusion can also be drawn with Bitcoin (BTC) and USD.
Bitcoin gained in 2020 as the US Dollar Currency Index (DXY) had a tough year. But will this dynamic continue in the months to come? Let’s take a closer look at the graphics.
Bitcoin Must Maintain $ 11,000 Support Level To Avoid $ 9,600 CME Spread Test
BTC / USD 1 day chart. Source: TradingView
The triangle broke to the upside as the majority of markets awaited a peak, leading to a rally towards $ 11,700 and the breakthrough of the crucial resistance zone of $ 11,000 to $ 11,200.
However, to maintain the bullish momentum, support must remain in this $ 11,000-11,200 area for a test of the $ 12,000 resistance area to occur.
1 week BTC / USD chart. Source: TradingView
Bitcoin’s weekly chart shows the significance of the $ 12,000 resistance level. Since the start of the bear market, the area of $ 12,000 has been a big obstacle.
This crucial barrier has led to multiple tests in this area. However, a breakthrough has not yet taken place. But the general consensus is that the more often a level is tested, the weaker it becomes.
As an example, it took silver almost seven years to break through the resistance of $ 18.
1 week silver chart. Source: TradingView
This breakout took a long time, as the price of silver was constantly being pushed back to the $ 18 barrier. However, the breakthrough to the $ 18 level resulted in a massive move with the rally continuing towards $ 30, a 60% increase since the breakout.
But while that isn’t much for those who are passionate about the cryptocurrency markets, it is a big move for the commodities markets. Therefore, a breach of the $ 12,000 barrier is expected to result in a massive move for Bitcoin and the first big hurdle is between $ 16,500 and $ 17,500.
Such a move would also result in nearly 50%.
A weaker dollar would be a good fit for Bitcoin
DXY vs BTC / USD 1 day charts. Source: TradingView
In recent months, the US dollar currency index has been the focus of much discussion regarding Bitcoin’s movements.
Quite clearly, they are moving in opposite directions from each other, leading to the conclusion that a weaker US dollar benefits the price of Bitcoin. This is also the main reasoning behind the position taken by large institutional investors on Bitcoin, a major sign of a new cycle to come.
Indeed, the reverse correlation is obvious and quite natural because the world economy is built around the world reserve currency, the US dollar.
DXY vs Gold chart over 1 week. Source: TradingView
The main example of a weak US dollar can be found in the reaction of gold since the dot-com bubble of 2000.
Since the market crash that year, the US dollar has lost value, resulting in a 600% rally in gold in the years since. The money even increased by 1,100% during that time.
Likewise, when the US dollar began to show strength, gold and silver recovered strongly as expected.
Therefore, as the recent weakness in the US dollar has caused a rally around the commodities markets, this would also benefit any Bitcoin momentum in the years to come. This momentum is often referred to as a “withdrawal from the system” by Bitcoin enthusiasts.
The most likely scenario for Bitcoin
1 week BTC / USD chart. Source: TradingView
The most likely scenario would be a continuous range-linked structure with some additional testing at lower levels.
Several arguments can be drawn for this scenario. The first is the general weakness of Ethereum so far in the fourth quarter, resulting in the general weakness of the crypto market.
In general, January is a perfect month for Ethereum and the markets. However, a breakout during this quarter of the year is unlikely given all the uncertainties surrounding the global economy at this point.
The second argument is the conclusion that the market is still in the construction of a new cycle. Throughout these accumulations, ranges of accumulation are defined, creating momentum for the next impulse movement to occur.
4 day BTC / USD chart. Source: TradingView
Bitcoin’s 4-day chart shows similarities to the start of the previous cycle in 2016. Long and sideways builds were developing, after which a large impulse movement occurred towards the next resistance level.
This is the most likely scenario at this point, as the market is still preparing for the next big cycle. This cycle will take the market to levels never seen before, but it will not happen all at once.
Therefore, accumulation is an essential part of the formation of such a market, which seems to be happening now.
The views and opinions expressed herein are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You need to do your own research when making a decision.