If you follow Bitcoin/Goldbug Twitter, you probably experience a good level of DXY hatred. And rightly so, fiat is prone to devaluation, manipulation, and control. However, sometimes, when we view markets, we see what we want as opposed to what is. And what Bitcoin/Goldbug Twitter wants/champions is the imminent death of the dollar – especially in July when the dollar was struggling. But whenever people on Twitter (or X) declare the dollar dead, I usually become most cautious, and I recommend you do as well.
As I have been discussing on the AF here and here, the dollar is here to stay, at least in the short term. The DXY index briefly broke below 100 on July 12th but has been up-only since then to sit at 103. The recent DXY strength is why I have been less excited about the recent rally in crypto prices and largely why I think risk assets have stalled out. A strong dollar acts as a ceiling to Bitcoin and stalls any upward momentum until either Bitcoin or the dollar retraces.
As Bitcoin has entered the mainstream, it is more affected by macro conditions than ever, and the DXY is just one part of that. As our macro team has been highlighting, many medium to long-term catalysts are shaping up that could signal the start of a new bull market. But, the DXY is an important part of those trends and signals short-term headwinds for Bitcoin – which also lines up with Bitcoin’s September seasonality discussed here. As dull as forex can be, I recommend readers closely follow what the dollar and other national currencies do.
So far, the DXY and Bitcoin counter-trend has held. When the DXY is strong, Bitcoin struggles. And Bitcoin benefits from a weakened dollar. But I think this trend could change in the future. Eventually, the market may begin viewing the DXY, Gold, and Bitcoin as safe-haven assets, and all could rise together. This situation is probably close to doomsday and signals a collapse in other governments’ currencies and disastrous geopolitical issues as investors flee to more robust assets like the dollar, BTC, and gold. We may be seeing the early stages of this scenario. JPY (-6.6%) and CNY(-8%) have struggled lately against the dollar due to their economic weakness, rate cuts, and potential return to QE. The EUR could also start trending down against the DXY soon if they experience challenging headwinds, which may require QE and lower rates. Bitcoin and gold being north of $20K and $1.8K, respectively, signals that sometime in the future, we could simultaneously see a strong dollar, strong Bitcoin, and strong gold.
The dollar and national currencies are important to how crypto and other assets behave. As such, I recommend readers watch the dynamics between gold, BTC, and the dollar and what it could signal about markets.