Bitcoin and altcoins are directly opposed to fiat currencies, typically offering a hard-capped supply while the dollar and others can be printed with no limit. That constant printing throughout 2020 has left the greenback with its back against the wall, facing off against gold, crypto, and other nation’s currencies to maintain its global reserve status.
And while that title is likely to be held for a long while longer, the almighty is showing enough weakness that it could let altcoins soon shine. In fact, a fractal playing out in the DXY dollar currency index could suggest a repeat of the late 2017 into early 2018 alt season that made crypto a household name.
USD: The Most Dominant Trading Pair And How It Impacts Bitcoin, Gold, Oil, and More
As the global reserve currency, all other assets are pegged to USD. The dollar is the most dominant currency and the base rate at which all other assets are set. Because it represents 50% of most trading pairs, its strength or weakness can have a dramatic impact on the asset it is tied to.
For example, USD trades against oil, but because supply is overwhelming demand right now due to the pandemic, the crude fossil fuel hasn’t performed well. Meanwhile, gold, thanks to its finite supply, use in technology, jewelry, and as a safe haven and store of wealth, has allowed its valuation to soar against the weakening dollar.
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The cryptocurrency asset class, particularly altcoins, has benefitted enormously from the greenback’s weakness. Any amount of dollars flowing into illiquid altcoins sends their prices soaring. And after an extended bear market and 99% drawdown, these assets are ripe for a recovery.
Sentiment surrounding altcoins has been poor for years, so no money has been coming in. But DeFi, Bitcoin breaking $10,000, and other perfect storm scenarios made the conditions ideal for capital to finally come back into crypto. In just a few months, the market has re-added billions, and a new generation of tokens was born, all while doomsday for the dollar has been approaching.
This all could just be the start, according to a DXY daily chart fractal that matches along with the 2017-2018 altcoin season that brought crypto assets to all-time high prices.
DXY Daily Price Chart Versus Total Altcoin Market Cap Comparison | Source: TradingView
Incredible Altcoin Season Possible If DXY Dollar Currency Index Fractal Follows Past
The DXY dollar currency index is a weighted basket of currencies representing their performance against USD. And although the DXY has nothing to do with cryptocurrencies like Bitcoin or altcoins, nor does it have anything to do with gold or other assets, it has a strong inverse relationship with most of what’s been mentioned, along with stocks, and much more.
The DXY recently formed an inverse head and shoulders and looked to be reversing. But a retest of the neckline isn’t holding, and the dollar appears to be ready to set new local 2020 lows. If that’s the case, it would follow a dangerous pattern that the last time dropped the DXY to under 90 points.
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At the same time, it also sent altcoins flying, and Bitcoin to an all-time high. Ethereum, XRP, and nearly all other crypto assets mooned right alongside the historic drop in USD’s strength.
The conditions are similar, yet even more seemingly “perfect” for cryptocurrencies this time around. When the dollar fell last time, it was post-halving, and right around the last election. Both of those scenarios are taking place around the same time, but now the dollar has been stretched to the max due to stimulus money, which only benefitted crypto further.
If it keeps falling, it could bring a return of an incredible altcoin season, eclipsing the all-time highs of 2017 and 2018, and its all thanks to the (once) almighty dollar.
Featured image from Deposit Photos, Charts from TradingView
