Bitcoin Rises Along with US Dollar Strengthening, What’s Going On?
Published 10/05/2024, 09/53
Cryptoharian – Bitcoin (BTC) has risen 2.4 percent since hitting the support level of US$ 59,900 on October 3, and has continued to rise despite facing resistance at US$ 62,000. This increase was driven by several major factors in the world economy, such as employment data in the United States, Japan’s economic stimulus plan and concerns about America’s financial condition.
The US economy is booming right now, but its fiscal situation is a concern. Meanwhile, according to cointelegraph.com, the US dollar has soared to a 50-day high against major currencies such as the euro, pound sterling and Japanese yen.
One interesting thing is that usually when the US dollar rises, the price of Bitcoin falls. But this time, both assets actually rose together. This is a rare phenomenon.
One theory that could explain this is the “Milkshake Theory,” which states that the US dollar is absorbing global liquidity. With higher interest rates and a strong economy, America is attracting a lot of capital from other countries. On the other hand, investors are also starting to see Bitcoin as an alternative asset to secure their wealth.
Better-than-expected US economic data also played a role in strengthening the dollar and Bitcoin. On October 4, the Employment report showed that the US added 254,000 new jobs in September. This figure was well above economists’ expectations. The strength of the US economy has made the dollar stronger.
At the same time, investors are also starting to prepare for a possible increase in the fiat money supply, which could benefit Bitcoin. In Japan, concerns about global economic growth are also growing after the Japanese government hinted at economic stimulus plans to help low-income households and local governments.
This is a major change from previous policies, which struggled with deflation for decades.
Also Read: $58,000 Still Looming Over Bitcoin According to Two Analysts
Global Inflation Risk and Bitcoin as a Safeguard Asset
Amid economic uncertainty, oil prices also jumped 9 percent due to the conflict in the Middle East. This price increase is predicted to trigger transportation and logistics costs that can trigger global inflation. If this condition continues, the government may have to inject more money into the market, which could support the increase in Bitcoin prices.
However, Bitcoin’s rise could be countered by the so-called flight to politics phenomenon where investors prefer to hold cash or invest in large companies that are considered safe amid the crisis. In addition, the increasing yields of US bonds make debt instruments such as bonds less attractive to investors, so they switch to other safer tapes including large technology stocks
Typically, the S&P 500 is not considered a safe haven. However, in the current environment, big tech companies like Apple, Google and Microsoft are considered safer investments because they have large profits and strong financial positions. This is in contrast to the riskier property or corporate debt sectors.
A well-known investor named Stanley Druckenmiller expressed his concern that the Fed might be trapped, as it has difficulty lowering interest rates due to the strength of the American economy.
“I invest 15 to 20 percent of my portfolio in rising U.S. bond yields, which shows that many investors are worried about traditional debt instruments,” Druckenmiller said.
Concerns about the American financial system are growing as the Fed increasingly uses Repo agreements. These repo agreements allow financial institutions to exchange bonds for cash in emergency situations. This is intended to maintain market liquidity without the need for direct intervention.
However, some analysts say the increased use of repos suggests the Fed has limited room to add liquidity in the future.
The article has been published on Cryptoharian.com