The exhilarating Bitcoin (BTC) price rally has hit a formidable roadblock at the crucial $90,000 resistance level, as foreign exchange traders shift their focus to the resurgent US dollar index (DXY). This development has raised concerns among crypto enthusiasts about potential monetary tightening measures that could dampen Bitcoin’s upward trajectory.
Bitcoin’s Euphoric Rise Meets Resistance
Since the early hours of Tuesday, Bitcoin’s seemingly unstoppable surge has encountered a significant hurdle at the $90,000 mark, with prices briefly dipping to $85,000, according to CoinDesk data. Such a breather is entirely normal following an astonishing $20,000 price increase in just one week, which shattered previous all-time highs.
These momentary pauses typically serve to recharge the bullish engines for the next leg higher, and options market traders are positioning for a breakout towards the $110,000-$120,000 range, as indicated by data shared by QCP Capital.
Betting on a Dollar Rally
However, it may be more than mere coincidence that the rally has paused just as reports emerge of traders betting on a continued rise in the dollar index, which tracks the value of the US currency against major fiat currencies.
“The traded levels of conviction are rising notably as the market seems to be actively positioning (investors) or hedging (corporate treasurers) in the hope of a stronger dollar,” ING said Tuesday. “All we’ll say here is don’t fight this emerging trend.”
– ING
Both BTC and USD, part of the so-called “Trump trades,” have risen since Donald Trump’s victory in the US election held a week ago. The DXY has gained 2.7% to 106.78, reaching a six-month high, according to TradingView.
The dollar’s continued strength, however, could revive the historical negative correlation between the two and, at the very least, slow BTC’s ascent, if not halt it altogether.
Tightening Bond Yields Boost USD
Yields on US Treasury notes are also hardening, providing additional support for the dollar. The yield on the two-year note rose to 4.36% on Tuesday, the highest since July 31. The 10-year note is hovering near the multimonth high of 4.46% seen a week ago.
The market action likely reflects concerns that President-elect Donald Trump’s policies, especially mass deportations, could result in inflation, making it harder for the Federal Reserve to cut interest rates next year.
“Strong immigration has arguably been THE one big thing reassuring central banks (not just the Fed) about underlying price dynamics,” said Dario Perkins, managing director of global macro at TS Lombard, in a Nov. 11 note to clients. “It has helped solve post-COVID labor shortages (not just in the US). Sending millions of people back to their home countries would reverse those trends and – depending on how many people are deported – recreate the situation we had a couple of years ago.”
– Dario Perkins, TS Lombard
As the tug-of-war between the surging dollar and Bitcoin’s bull run intensifies, crypto traders and investors are keeping a close eye on how these competing forces will shape the market landscape in the coming days and weeks. While Bitcoin’s long-term prospects remain bright, the short-term dynamics may be influenced by the greenback’s unexpected resurgence and its potential to trigger a more cautious approach from the Federal Reserve.
