Last week, bitcoin was seemingly driven by one factor, the US dollar. This dynamic is easily seen when blotting the USD index (DXY) against bitcoin.
Furthermore, Digital Assets research firm, Delphi Digital notes “Gold bugs have been rejoicing in recent weeks…dollar weakness coupled with deeply negative real yields has created a perfect storm for gold and precious metals.” Additionally, Delphi Digital states “Gold’s latest surge puts it among this year’s best performing assets, outpacing global equities by 34 percentage points. Its 35% gain year-to-date through August 6th is also its best since the early 1970s.”
Gold’s impressive returns are only outmatched by bitcoin in 2020, i.e. 34% and 72%, respectively. Bitcoin’s superior performance suggests investors are beginning to truly see it as a store of value asset, and that it might be a 2:1 leveraged beta play on Gold given the current weak dollar environment.
The Delphi Digital team is not the only high profile analysts that share this weak dollar view. Recently, Qiao Wang, made a strong declaration on Twitter, telling traders to differentiate between normal and non-normal environments.
This notion flies in the face of previous statements made by the famous Macro Investor Raoul Pal, who has been vocally long USD since early 2020 believing a global shortage will lead to a dollar squeeze, thus price appreciation.
Qiao Wang says “Raoul has been wrong on the USD thus far.” Noting, “time frame matters, e.g. the dollar can get stronger next week or handful of months, but over the next 2-5 years, the probability of it decreasing in value is quite high.”
If the inverse correlation between bitcoin and the dollar is as pervasive as analysts suggest, then the technical analysis charts should corroborate as well.
Charts produced by the anonymous trader on Twitter, Rekt Capital, seemingly validate the aforementioned analysts. Rekt Capital notes “Bitcoin has breached a multi-year resistance level. Any retraces are unlikely to dip below the multi-year trend line, i.e. the low to mid-$8000s…That being said, I’m looking for targets rather than retrace opportunities as this rally hasn’t yet fully overextended.”
Additionally, Rekt Capital says “Bitcoin has also managed to Weekly Close above a key historical area of supply ($11,400-$11,600) after consolidating within a classic continuation structure. The last time bitcoin managed a Weekly Close above this level was back in early December 2017, which could lead to a breach of $12,000 and an attempt towards $13,000.”
The future is unknowable, but massive global indebtedness, anemic economic growth, and exploding Central Bank balance sheets, seem likely to lead to a sustained period of dollar weakness, which has been reflected in store of value asset prices like bitcoin and Gold.
This dollar weakness coupled with a growing number of Millennials and Gen Z retail investors seriously allocating to digital assets like bitcoin, could be the perfect concoction for a multi-year bull market, which the technical analysis charts appear to suggest at the moment.
Disclosure: The author owns bitcoin and ethereum.
For educational purposes only, not investment advice.