Bitcoin has been explosive for the past few weeks now, revisiting highs from 2019. But before the leading cryptocurrency by market cap could set a higher high and confirm a bull market, the dollar’s recovery might have gotten in the way.
According to the DXY Dollar Currency Index, the greenback has formed a rounding bottom and broken upward out from a falling wedge reversal pattern. But why exactly is this bearish for Bitcoin, and what could it mean for the cryptocurrency market bull run that might have been brewing?
Bitcoin Bull Market Was Just Inches Away, But The Still Dominant Dollar Says No
Nearly all signs are pointing to Bitcoin being on the cusp of a critical break out into a new bull market. The one thing holding the cryptocurrency back currently is resistance from last year’s high at around $13,800. Crypto analysts claim that above there, its clear skies for the top cryptocurrency by market cap to blast off into a new uptrend.
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The definition of an uptrend is a higher high following a higher low. The leading cryptocurrency by market cap surviving Black Thursday and maintaining a higher low was the first major sign that a bull trend was beginning.
Throughout 2020, the case for a bullish Bitcoin has only grown, with companies and institutions finally getting into the market, and the dollar’s sudden weakness letting hard assets like it and gold fly.
The cryptocurrency market pullback could be due to the dollar's rebound | Source: BTCUSD on TradingView.com
Bitcoin’s weekly RSI just broke into bull market territory for the first time, but a reversal in the DXY Dollar Currency Index has potentially caused the cryptocurrency to top out for the time being.
The DXY is a basket of top currencies trading against the greenback, which in the chart above is superimposed behind the Bitcoin price chart. The anti-correlation sharpened on Black Thursday, and the two completely different assets deviated further. But now things are turning around for the global reserve currency, and it isn’t a good thing for crypto.
Why The Cryptocurrency Bull Market Depends On Continued DXY Weakness
In the chart below, the spotlight is on the DXY itself, with BTCUSD instead superimposed behind the price action of the dollar trading against other top currencies. When the dollar ebbs and flows, Bitcoin does the opposite. It makes sense as the dollar makes up one-half of the most dominant trading pair in the crypto market.
USD is the most dominant currency in the world, and although Bitcoin’s market cap is rising compared to other national currencies, it is still far off from taking the greenback’s throne.
The greenback's rounding bottom is breaking out, potentially confirming falling wedge reversal | Source: DXY on TradingView.com
When the dollar is strong, the crypto market weakens and vice versa. The last major altcoin season, according to a fractal that could be playing out, suggests that the dollar could fall further and make for a cryptocurrency bull market that makes the last time around look like a practice run.
But if the opposite happens, and the dollar returns to full strength, Bitcoin’s missed higher high could lead to a bearish situation in the weeks ahead. While this doesn’t necessarily mean a downtrend is back on, talk of a higher low could keep crypto investors in disbelief a little while longer. And it all could be due to the dollar and its rounding bottom breakout, happening right now.
Featured image from Deposit Photos, Charts from TradingView.com