The strength of the US dollar (USD) is causing the price of Bitcoin (BTC) to suffer

To measure the strength of the US dollar, the so-called Dollar Index (DXY) is used, which is the index that measures the strength ratio between USD and a basket of other global currencies.

The price of Bitcoin has been sharply declining for a couple of days: the reason could be related to the current strength of the United States dollar (USD).

In reality, there are several factors that are causing BTC to suffer, but the strength of USD is such that it could be the main reason. 

USD very strong: the price of Bitcoin suffers from it

To measure the strength of the US dollar, the so-called Dollar Index (DXY) is used, which is the index that measures the strength ratio between USD and a basket of other global currencies. 

According to the data from the site DollarIndex.org, the daily maximum peak of 2024 was reached just yesterday, exceeding 108.4 points, while this morning a very brief peak was also reached above 108.5 points, but it quickly receded.

The fact is that 2024 began with a Dollar Index at 101.3 points, and that before November the annual peak had stopped at 106.3 points. 

With Trump’s victory in the US presidential elections on November 5, the Dollar Index began to rise, first marking new annual highs for 2024 in mid-November, and then in the second half of November rising above 107 points.

At that point, it was thought that its run was over, but instead, starting from last Wednesday, it resumed. 

The impact on the price of Bitcoin from the strength of the US dollar USD

Until Wednesday, the growth of the Dollar Index after the victory of Trump had not had negative consequences on the price of Bitcoin, which went from less than 70,000 USD to more than 100,000 USD.

In fact, just on Tuesday, December 17, it had reached its all-time high above 108,000 USD. 

Instead, the sudden surge of the Dollar Index the day before yesterday immediately had a negative impact also on the price of Bitcoin.

It should be remembered that, in the medium/long term, the trend of Bitcoin tends to be inversely correlated to that of the Dollar Index, so if DXY rises BTC tends to fall. 

However, after Trump’s victory, while DXY rose from less than 104 points to more than 107 points, the price of Bitcoin rose from less than 70,000 USD to more than 100,000 USD. 

So from the beginning of November to mid-December there was a temporary suspension of the inverse correlation between DXY and BTC, due to macro conditions favorable to both USD and Bitcoin. 

The problem of mercoledì

But what happened on Wednesday that changed the cards on the table?

It happened that the Fed changed its mind about 2025. 

Until Tuesday, the markets believed that the Fed in 2025 would cut interest rates at least 4 times. Instead, President Powell made it clear that they have changed their minds, and now they are more oriented towards only two cuts.

The fact is that the Fed’s monetary policy is still restrictive, and the markets were hoping that next year it could become much less so. Instead, after Wednesday, they believe it could remain restrictive for a long time. 

In fact, just on Wednesday, the USA stock markets recorded a strong decline. 

For example, in a single day, the S&P500 index lost all the gains it had accumulated since mid-October thanks to the so-called “Trump trade”.

It’s as if a mini-bubble has burst, even though as far as the price of Bitcoin is concerned, it has only returned to the levels of about ten days ago. 

The near future

In any case, between today and tomorrow a cycle on the crypto markets should close, and another will begin. 

At this moment, it is still difficult to say what type of new cycle it will be. 

However, such a strong Dollar Index suggests that in the new cycle it should fall. 

For example, in 2016, after Trump’s first electoral victory, the Dollar Index went from 97 to 101 points in November, and then in December it rose again to 103 points.

At the time, the annual peak was reached on December 28 at 103.3 points, which is just above the level already reached on the 15th of the same month. 

This year the first post-election peak was reached on November 22, and the second was reached yesterday, even though at a level slightly higher than that of Wednesday. 

If history were to repeat itself, the Dollar Index might not rise significantly much beyond 108 points until the end