Wednesday, September 28

Bitcoin’s Steep $ 50K Fall Pegged to Stronger US Dollar, Shows Gold’s Correlation


Bitcoin (BTC) and Spot Gold (XAU) remained below their key psychological levels on September 8, as a stronger US Dollar (USD) weighed on investors’ appetite for hedging assets.

The BTC / USD exchange rate fell 5.27% to its intraday low of $ 44,423, but recovered a portion of those losses after claiming the $ 45,000-46,000 range as support. The pair’s recovery also came as an extension of its ongoing rally from $ 42,830, a level it reached on Tuesday after falling more than 18% on the session.

BTC / USD hourly chart. Source: TradingView.com

The Bitcoin selloff coincided with a strikingly similar but dwarfed decline in the rival gold market. In detail, the precious metal suffered its worst daily decline in a month on September 7, as XAU / USD spot rates fell below $ 1,800 following an intraday move of minus 1.37%.

XAU / USD hourly chart. Source: TradingView.com

The big red hourly candle on the gold and Bitcoin charts appeared between 10:00 and 11:00 UTC. However, the precious metal consolidated sideways after the big drop in contrast to Bitcoin that extended its downtrend.

In detail, the cryptocurrency collapsed under the weight of overly leveraged bullish bets. ByBt data showed that around $ 3.68 billion in longs on the Bitcoin options market settled in the last 24 hours, marking it as the largest sell-off since June.

Bitcoin settlements in the last 24 hours. Source: ByBt.com

Automated settlements sparked selloffs in the Bitcoin market as traders were forced to sell their BTC holdings to cover their margin calls.

Is the US dollar responsible for the big drop?

It should be noted that the sudden drop in Bitcoin and gold prices coincided with a sharp rise in the US dollar index (DXY).

The index, which measures the strength of the dollar against a basket of major national currencies, rose 0.41% to 92.53 on Tuesday and continued to rise in the current session to close its intraday high at 92.73.

DXY hourly price chart. Source: TradingView.com

DXY moved away from its one-month low, benefiting from rising U.S. Treasury yields. Ahead of the sale of government debt this week, including $ 58 billion in three-year notes, $ 38 billion in 10-year notes and $ 24 billion in 30 years. captivity.

The yield on the benchmark 10-year US Treasury bond, which was around 1.32% after Friday’s weak nonfarm payroll report, rose to 1.377% on Tuesday. At the close of this edition, it stands at 1.351%.

10-year return on US government debt. Source: TradingView.com

Mixed outlook until the Fed meeting

Rising returns often compete for safe haven flows against Bitcoin and gold. But despite the latest hike, they remain below July’s 5.4% core inflation, making underperforming safe havens are more attractive bets in the face of rising consumer prices.

But with the Federal Reserve planning to begin liquidating its $ 120 billion-a-month asset purchase service later this year, some analysts believe bond yields would continue to rebound. In turn, they would provide the dollar with bullish support.

Shaun Osborne, Scotiabank’s chief currency strategist in Toronto, told CNBC:

“We think the Federal Reserve is likely to still move toward a gradual decline by the end of this year, the US economy is likely to perform relatively strong, so our view is that the dollar declines are minor, the Minor dollar weakness is probably a buying opportunity. “

Related: Bitcoin Price Will Hit $ 100K in 2021 or Early 2022: Standard Chartered

On the other hand, the ascending delta variant of Covid-19 threatens to dampen prospects for recovery. In turn, it would force the Fed to maintain its costly bond-buying program, thus keeping yields and the dollar alike in check.

As a result, the outlook for Bitcoin and gold looks mixed. The Federal Open Market Committee meeting later this month hopes to shed more light on the reduction schedule.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trade move involves risk, you should do your own research when making a decision.