Bitcoin (BTC) is pausing its rally at the $90,000 resistance level that CoinDesk identified last week, as forex traders focus on the dollar index’s (DXY) rally, raising the risk of a tight tightening financial conditions, which typically puts pressure on risk assets.
Since Tuesday morning, bitcoin's strong rally has hit a snag at the $90,000 mark, with prices temporarily falling to $85,000, according to data from CoinDesk.
This is normal after the price has skyrocketed by $20,000 in just one week, breaking previous highs. This pause usually gives investors a "recharge" to push the price up further, and traders Options traders are expecting a strong rally to $110,000-$120,000, according to data from QCP Capital.
Bet on the Dollar's Rise
Notably, the pause in bitcoin's rally appears to coincide with reports that traders are betting on continued gains in the dollar index, which tracks the value of the U.S. dollar against other major currencies. major fiat currencies
“Trading volatility is rising significantly as markets appear to be actively positioning or hedging against expectations of a stronger dollar,” ING said on Tuesday. “We would just say that don't go against this emerging trend."
Both BTC and USD, part of the “Trump trade”, have rallied following Donald Trump’s victory in the US election a week ago. The DXY index rose 2.7% to 106, 78, hitting a six-month high, according to TradingView.
Sustained strength in the dollar could restore the historically negative correlation between the two assets and could at least slow BTC’s rally, if not stop it altogether.
This is because the US dollar is the global reserve currency with an important Vai in international trade, international debt and non-bank lending. When the dollar appreciates, investors have debt and the cost Dollars typically reduce exposure to risk assets like stocks and cryptocurrencies.
Bond yields rise
Yields on U.S. Treasury bonds are also rising, providing further support for the dollar. The yield on the two-year note rose to 4.36% on Tuesday, its highest level since July 31. . The 10-year note rose near a multi-month high of 4.46% hit a week ago.
The market action may reflect concerns that President-elect Donald Trump's policies, especially mass evictions, could fuel inflation, prompting the Federal Reserve to cut interest rates. The federation is getting tougher next year.
“Strong migration is one of the big factors that makes central banks (not just the Fed) more comfortable about underlying price trends,” said Dario Perkins, managing director of global macro at TS Lombard. said in a note to clients on November 11. “It helps address the post-COVID labor shortage (not just in the US). Bringing millions of people home will reverse those trends and – depending on how many people are deported – will recreate the situation we had two years ago."
