Guest Post: US Dollar and Bitcoin Correlation

This article is written by Aleksandar Ivanovic. To become a guest contributor please contact us here.

ABOUT THE AUTHOR: MSc Aleksandar Ivanovic is a Licensed Portfolio manager. He has been a financial markets and Forex trader for more than 10 years. He is chief strategist and a trader at his own company, Quinotaur Ltd, and also a founder of web presentation.

In recent days, Bitcoin is recognized not only as a currency for online Payments but also as a tradable global exchange currency. More and more online broker feeds have BTC currency pairs in their listing and are able to trade it like any other currency pair.

If you are a buyer of bitcoins or you get bitcoins by mining, you should be aware of its price changes and predictions, both short-term and also long-term. Regarding this, the financial and forex markets now have even more of an impact on Bitcoin than it used to, before it becomes a tradable instrument.

So what has been driving the markets recently? Ukraine crisis, Greece debt, oil price meltdown? Everything has an impact on currency pairs, and if there is an impact on currency pairs it has to be on Bitcoin, since it has value in the world's existing paper currencies like USD, EUR, GBP…

Ok, but what about USD strength? Oh yes, most people don’t see the connection here, but you will be amazed that the correlation of the DXY/USD index is almost perfectly negative (when DXY goes up BTC/USD goes down and vice versa). Take a look at the Chart 1.

Chart 1. BTC/USD in DXY Correlation

The adage, "A picture is worth a thousand words" can apply here. From last year July, we switched to negative correlation from none or a very small positive correlation.

And guess what, this should scare Bitcoin “lovers”. If the USD strength continues, which is a high probability with recent interest rate rise prospects and the health of US economy, then we will have another fall of BTC/USD to a historical low with poor prospects that the recent high of USD300 will be breached at any time soon.

And if we look at technical analyses, not good. If BTC/USD breaks the bearish continuation triangle which can be seen in the Chart2., then we could get a triangle measured move lower to USD50 in the coming weeks and months.

Chart 2. BTC/USD

BTC/USD Chart SOURCE: TradingView.com

So bitcoin holders and traders, not a good time to sell, and not a good time to buy. If you want to buy, wait for lower prices. It seems that USD strength has significant impact on bitcoin valuation, despite the paper currency weakness caused by more and more monetary easing from central banks from all over the world.

USD is still a good “bench” player, at least for now.