Bitcoin benefits from US dollar weakness: DXY sets 21-year record low

Bitcoin benefits from US dollar weakness: DXY sets 21-year record low

An interesting change has been taking place in the financial markets in recent weeks that could significantly affect the price of the world's largest cryptocurrency. The US Dollar Index (DXY), a key indicator of the strength of the US currency against a basket of major currencies, is hitting its lowest levels in more than two decades. This development creates favorable conditions for the growth of Bitcoin, which traditionally shows an inverse correlation with the dollar index.

DXY at 21-year low

According to the latest data, DXY plunged to 96.377 on July 1, the lowest level since early 2022 and the lowest since 2002. This decline marks a more than 10 percent weakening since the beginning of the year and means that the dollar is currently the weakest it has been in more than twenty years. Moreover, according to analysis by the CryptoQuant platform, the DXY is currently more than six points below its 200-day moving average, the largest deviation in 21 years.

What does this mean for Bitcoin?

Historically, Bitcoin tends to rise during periods when the dollar weakens. This relationship is based on an inverse correlation, where a weaker dollar usually means investors are looking for alternative assets, including cryptocurrencies. And it is this trend that is starting to become apparent now.

"As US debt reaches new highs, the DXY is falling to its lowest levels in two decades, trading 6.5 points below its 200-day moving average," says analyst Darkfost. "While this may seem worrisome, it actually creates favorable conditions for risk assets like Bitcoin."

Research and statistics confirm that periods of dollar weakness tend to be very favorable for cryptocurrencies. On-chain data from the CryptoQuant platform shows that the current situation is similar to the past, where Bitcoin has seen significant growth precisely during periods of weakness in the US currency.

It is not yet clear when exactly the market will see a significant reaction, but experts believe that a weaker dollar could spur new growth in BTC. The price of the cryptocurrency has so far remained below the $110,000 mark, although speculation and technical analysis suggest that we are nearing an important reversal.

What do economists and analysts say?

According to economist Lyn Alden, a weaker dollar is one of the main factors that may increase Bitcoin's attractiveness as an alternative asset. "When the dollar is strong, it makes sense to own it as a safe haven. But if the weakening continues, investors start looking for other options, which is beneficial for cryptocurrencies," she explains.

Overall, the current developments in the US dollar market create an attractive environment for Bitcoin's growth. Although the price has not yet fully responded to this trend, historical data suggests that we could be witnessing the beginning of a new period of growth for the largest cryptocurrency.

Conclusion

The weaker dollar and its record decline open the door to possible significant growth in Bitcoin. Investors should keep an eye on the DXY and its impact on the cryptocurrency markets, as these moments tend to be key to both long-term and short-term investment strategies.

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*This is not an investment recommendation.

Coingarage Team