Bitcoin (BTC) vs. US Dollar Index (DXY) - BTC Drop Incoming?

20 ส.ค. 2020

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The US Dollar and Bitcoin price correlation is almost sinisterly close to each other when we count the bull and bear runs from the years 2017-2018. Bitcoin and the US dollar has been almost playing opposite of each other, where if one rises higher, the other goes lower, and vice versa when we see opposite price action occurring simultaneously. We have drawn a clear map of what we have observed from those years and why the US dollar might be potentially seeing a bounce from current levels (or slightly lower) and also see a retrace for Bitcoin. In addition, this can be a rather healthy thing for Bitcoin to do once we see the retrace occur because we still have a void at 9.7K for the CME Gap.

There are a few things to consider when we look at Bitcoin's price action. For example, one of the most important visual observations we can make at the time of writing is that Bitcoin is heavily diverted away from the US dollar price. We are seeing a massive drop in the US dollar possibly due to many geopolitical factors such as the presidential elections, COVID 19, and many more issues. As the US dollar is heavily sensitive to price action since it is a global currency, Bitcoin has more or less remained as a store of value asset for many - and profit taking is always going to take place at crucial levels. Another factor that we have to keep in mind on why we might see Bitcoin retrace from current or slightly higher levels, is that the US dollar has always historically been great at respecting major support levels.

Technical reasoning behind the above chart:
1. From the years 2017-2018, we have seen Bitcoin rise parabolically, and the US dollar to drop.
2. From the years 2018-2020, we have seen Bitcoin do small cycles of bear and bull runs, while the US dollar remained a steady rise (this can be known as the consolidation phase).
3. The COVID19 crash has essentially made the US dollar rise incredibly fast, while the Bitcoin's price dropped massively.
4. The current bull run on Bitcoin is now making the US dollar value go down.

What we can speculate:
Bitcoin may be very close to seeing a retrace due to the US dollar dropping rapidly fast. We would assume that since the US dollar index has been respecting minor and major support levels, we would assume that Bitcoin's price would also retrace as the US dollar rises temporarily. We also believe that in conjunction with our previous theory on CME Gaps, we believe BTC has one more opportunity to fill the void at 9.7K, where the CME gap still remains unfilled. Here is a previous editor's choice post that we have done on CME gaps, and why we think the CME gap might fill: