Bitcoin
The Many Reasons Why The Dollar Could Soon Put A Damper On Bitcoin Bullishness
Tony Spilotro · @tonyspilotroBTC | Dec 04, 2020 | 15:00
Bitcoin has just set a new all-time high, is trading just below $20,000, and is more bullish than its ever been as the digital narrative takes hold during the tail end of the pandemic.
But as the top cryptocurrency is directly opposed to the dollar, it is especially sensitive to extreme movements in the global reserve currency. The flight to cash caused Black Thursday, and according to technicals, another flash-type move could be coming as part of an aggressive last attempt to save the dying greenback.
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Two separate narratives have dominated the financial world all throughout 2020. The first is the weakening dollar, caused by unprecedented money printing in response to the pandemic and messy United States politics and social issues.
The global superpower and its almighty dollar – the current reigning global reserve currency – are losing their leadership role.
That leads to the second narrative: the emergence of Bitcoin as digital gold. Gold has long been the asset most investors bearish on fiat currencies like the dollar turn to. But with Bitcoin acting as a far better version of gold than the precious metal itself, the dollar may have finally met its match.
Bitcoin has become the best performing asset in USD terms of 2020, and that trend only looks to continue into the future. However, in the short-term, the DXY Dollar Currency Index could be signaling a fast and furious reversal in the cryptocurrency.
The dollar could soon see a sharp reversal if the signal works as well as the last perfected setup | Source: DXY on TradingView.com
Today’s daily DXY candle has triggered a perfected TD 9 buy signal. The last perfected TD 9 setup on the daily chart, was back at the top of the Black Thursday spike as investors cashed out everything they could into USD in panic.
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If the move is anywhere near as sharp, given that cases of the virus are once again surging to the highest levels yet, it could prompt another panic-type reaction in markets.
Several hidden bullish signals are building on dollar daily timeframes | Source: DXY on TradingView.com
There are also several more warning signs when looking at the DXY – which is a basket of forex currencies weighted against the dollar. A hammer reversal candle is forming on the daily, which if you recall triggered a TD 9 buy setup. Two hidden bullish divergences on Stoch and RSI, support a potential close and reversal inside the Bollinger Bands. When this happens, at least a rise to the middle-BB takes place. If the asset rises through it, it’s a confirmation to long the dollar.
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However, zooming out to high timeframes, things aren’t looking as bullish for the DXY, and suggest any pullbacks will be fast, and potentially frightening, but will be over just as quickly as it arrives.
The scenario is exactly what happened on Black Thursday, which began the increasing divergence between the two assets. As the dollar continued to dive, Bitcoin climbed. But has led to some of the most overbought conditions in the cryptocurrency, and the most oversold conditions in the fiat currency – the perfect storm for a violent reversal.
The comparison line chart shows how these two trade directly inverse to one another | Source: DXY on TradingView.com
As Bitcoiners have learned over the years, when crypto sentiment becomes incredibly bearish, reversals take place. At this point in 2020, few are bullish on the dollar, making a surprise move that much more effective and shocking.
The greatest investors and traders of our time, have advocated contrarian stances. The above chart shows how the dollar and Bitcoin trade almost perfectly in inverse. A shocking, surprise turnaround in the dollar due to extremely oversold conditions combined with the same type of surprise turnaround in Bitcoin due to similarly overbought conditions, and there is a recipe for disaster brewing.
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Bitcoin is at all-time highs, and the market is convinced a new bull run is here. And while they’re likely right, it has also set sentiment up perfectly for the coming correction. At this point in the year, everyone who put money into crypto and stocks, are now geniuses. Smart money and the institutions that recently entered the market, are far savvier and are about to show the crypto community what they are made of.
The dollar could be about to pull a violent throwback to retest lost support | Source: DXY on TradingView.com
But because Bitcoin’s bullishness is only just beginning, chances that even a major correction that causes jaws to drop once again arrives, the cryptocurrency will rebound and blast off to the projections most anticipate.
The idea also lines up well with the DXY yet again, which could be preparing a strong throwback to the decade-long trend line it lost recently. The trend line also appears to act as a neckline to a massive head and shoulders chart pattern, which if valid, increases the likelihood of a throwback scenario. According to the authority on chart patterns, Thomas Bulkowski, they have a 68% chance of a pullback before the final target is reached.
Targets of the structure suggest Bitcoin will be just fine, and the dollar is doomed for further weakness.
FEATURED IMAGE FROM DEPOSIT PHOTOS, CHARTS FROM TRADINGVIEW.COM
