- Bitcoin moves the cryptocurrency market
- Its dependency on the US dollar elevated
- Bitcoin holders higher imagine that the US dollar is in a bearish market
Investing in the cryptocurrency market isn’t for everybody. Volatility, for instance, is far greater than in different markets.
Sometimes, for no obvious motive, the costs of varied cryptocurrencies bounce or decline aggressively, resulting in hypothesis that the market is rigged. Lack of regulation would possibly clarify the moves, however absolutely traders marvel what moves the cryptocurrency market.
The one and the solely reply is Bitcoin. Its share of the whole cryptocurrency market capitalization nears 50%.
In different phrases, if Bitcoin’s worth is rising, Ethereum or different cryptocurrencies can’t decline. And the different manner round is true – if Bitcoin enters a bearish market, the different cryptocurrencies will comply with.
Therefore, the proper query isn’t what moves the cryptocurrency market however what moves Bitcoin?
Lately, Bitcoin moves following developments in the conventional foreign money market. More exactly, it follows the dollar.
Bitcoin follows the dollar’s power or weak spot
The chart above exhibits Bitcoin’s efficiency from late 2021 to the current. Above, in orange, is the dollar index (DXY).
It exhibits clearly that in the bear market of 2022, Bitcoin declined whereas the dollar strengthened. EUR/USD dropped beneath parity in 2022, buying and selling as little as 0.96 at one level. The euro is the foremost part of the DXY, and thus the EUR/USD foreign money pair is the related one to think about.
Bitcoin dropped, too, buying and selling effectively beneath $20k.
But then, in October 2022, the dollar bottomed. EUR/USD bounced above parity and rallied into the yr’s finish.
It took Bitcoin till the finish of the yr to meet up with the dollar’s weak spot. Eventually, it bounced too, rallying in 2023 and gaining over 75% in 4 months.
To sum up, Bitcoin holders higher imagine that the US dollar will weaken lies forward. Otherwise, it’s troublesome to carry Bitcoin if the dollar enters a bull market.
