US Dollar Index Confirms Bullish ‘Golden Cross’ and What It Means for Bitcoin Price
On Sept. 22, the Dollar Strength Index (DXY) reached its highest point in nearly 10 months, indicating a growing trust in the US dollar compared to other fiat currencies, such as the British pound, euro, Japanese yen, Swiss franc, crypto.net, bond crypto, link crypto, and example of web 3.0. Crypto This Week This week, crypto…
On Sept. 22, the Dollar Strength Index (DXY) reached its highest point in nearly 10 months, indicating a growing trust in the US dollar compared to other fiat currencies, such as the British pound, euro, Japanese yen, Swiss franc, crypto.net, bond crypto, link crypto, and example of web 3.0.
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DXY “golden cross” confirmed
The surge in demand for the U.S. dollar has been a cause for concern among investors, especially those interested in Bitcoin (BTC), other cryptocurrencies, and the future of crypto exchanges such as Gemini.
Technical analysts saw the confirmation of a golden cross pattern when the 50-day moving average surpassed the 200-day moving average, a signal often associated with a bull market.
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Impacts of the Recession and Inflation Risks
Despite some investors believing that price patterns alone determine historic trends, the U.S. dollar still experienced strength in September, despite worries about inflation and economic growth in the world’s largest economy.
Market expectations for U.S. gross domestic product growth in 2024 are 1.3%, which is lower than the 2.4% average rate over the past four years. This slowdown is attributed to factors such as tighter monetary policy, rising interest rates and diminishing fiscal stimulus.
However, not all increases in the DXY reflect confidence in the economic policies of the U.S. Federal Reserve. For instance, investors opting to sell U.S. Treasurys and hold onto cash suggests a recession or significant inflation uptick as the most likely scenarios.
When the current inflation rate is 3.7% and growing, there’s no incentive to secure a 4.4% yield, prompting investors to demand a 4.62% annual return on five-year U.S. Treasurys as of Sept. 19, the highest level in 12 years.
This data clearly shows that investors are avoiding government bonds in favor of the security of cash positions. This may seem counterintuitive initially, but it aligns with the strategy of waiting for a more favorable entry point.
Investors anticipate that the Fed will continue raising interest rates, allowing them to capture higher yields in the future.
If investors don’t have faith in the Fed’s ability to curb inflation without causing severe economic damage, there may not be a direct connection between a stronger DXY and reduced demand for Bitcoin. On one hand, there is a decreased appetite for risk-on assets, evident from the S&P 500’s negative performance of 4.3% in September. On the other hand, investors understand that hoarding cash, even in money market funds, does not guarantee stable purchasing power.
More money in circulation is positive for Bitcoin’s price
As the government continues to raise the debt ceiling, investors face dilution, rendering nominal returns less significant due to the increased money supply. This explains why scarce assets, such as Bitcoin, and some leading tech companies may perform well even during an economic slowdown.
If the S&P 500 continues its downtrend, then investors might exit risk markets regardless of their scarcity or growth potential, at least initially. In such an environment, Bitcoin could indeed face negative performance.
However, it’s important to note that this analysis overlooks the fact that the same pressures from inflation and recession will likely increase the money supply, either through additional Treasury debt issuance or the Feds bond purchases in exchange for U.S. dollars.
Either way, increased liquidity in the markets tends to favor Bitcoin since investors may seek refuge in alternative assets, such as crypto.net, link crypto and gemini crypto exchange, to protect against “stagflation”— a situation marked by stagnant economic growth alongside rampant inflation.
Therefore, the DXY golden cross may not necessarily be a net negative for Bitcoin, particularly on longer timeframes.