The Inverse Relationship Between Bitcoin and the Dollar Index is Declining; What Does This Mean?

  • Historically, it has been determined that Bitcoin, the most valuable digital asset in the world, has a negative relationship with the US Dollar (USD).
  • The inverse relationship between BTC and USD has decreased from -61% to -10% since the beginning of the year, almost to a negligible level.
  • The US Dollar Index (DXY), established by the US Federal Reserve, is a relative measure of the strength of the USD against six foreign currencies.

What does the weakening negative correlation between Bitcoin and the Dollar mean for Bitcoin in 2023?

The Negative Correlation Between Bitcoin and the Dollar Has Decreased

Bitcoin BTC

Historically, it has been determined that Bitcoin, the most valuable digital asset in the world, has a negative relationship with the US Dollar (USD). This essentially means that when the price of one asset rises, the other falls, and vice versa. However, this relationship has largely disappeared in 2023.

According to crypto market data provider Kaiko, the inverse relationship between BTC and USD has decreased from -61% to -10% since the beginning of the year, almost to a negligible level.

btc-correlation-us-dollar

The US Dollar Index (DXY), established by the US Federal Reserve, is a relative measure of the strength of the USD against six foreign currencies. Investors look at the dollar index as a reliable tool to evaluate US economic growth and demand for the dollar. Interest rate hikes implemented by the Fed create significant upward pressure on the DXY, as this policy increases demand for the dollar from foreign investors.

Throughout 2022, the dollar index performed better than other currencies, reaching its highest level in 20 years at 114.18 in September as the US Federal Reserve resorted to significant increases to reduce inflation. The DXY strengthened by more than 8% in 2023. In contrast to this trend, the broader crypto market was struggling with a punishing bear market during that period.

Bitcoin lost nearly 65% of its value, hitting a low of around $16,000 in 2022. A series of crashes undermined user confidence in the crypto market and especially in BTC, leading capital to flow into safe havens such as the USD. As a result, the negative correlation between the two assets strengthened.

A Reversal in 2023

The fate of the crypto market changed dramatically in 2023 due to a strong recovery. The price of BTC increased by 87% since the beginning of the year. On the other hand, the dollar index reached its lowest level in 15 months last week after a period of sideways movement, following encouraging US inflation data.

The weakening of the negative correlation since the beginning of the year means that issues related to US dollar movements will not have significant implications for BTC. It allows it to be marketed as an asset class increasingly independent of macroeconomic triggers such as US economic statistics, unemployment data, or interest rate hikes.

Bitcoin vs Gold

Bitcoin is often referred to as “Digital Gold” because, similar to physical gold, it is widely accepted as a safe haven asset. However, the performance of the two assets in 2023 revealed an interesting picture. As mentioned above, BTC saw an impressive 87% growth, while Gold [XAU] managed to achieve only about 8% gains since the beginning of the year.

bitcoin-vs-gold

To put things into perspective, the increasing value of Bitcoin against Gold means that the market may prefer it as protection against inflation.

However, due to BTC’s reputation as a volatile asset, investors should carefully evaluate this development. The gains of BTC in 2023 can quickly be reversed due to the hostility of the US regulatory environment towards the broader crypto market.

Don't forget to enable notifications for our Twitter account and Telegram channel to stay informed about the latest cryptocurrency news.
spot_imgspot_imgspot_imgspot_img

Latest News

Bitcoin BTC’s Roller Coaster: Plunge and Surge Amid Halving Event and Market Volatility

Explore the dramatic shifts in Bitcoin's price as it navigates through halving aftermath and potential market recoveries.

Exploring Blockchain’s Future: Insights from Gateio’s VC & Web3 Ecosystem Party at TOKEN2049

Join industry leaders from Gate.io and Huawei Cloud as they delve into the future of blockchain and Web3 technologies, following a successful gathering at TOKEN2049 in Dubai.

Bitcoin BTC’s Post-Halving Era Begins: Dominance Stabilizes as Altcoins Rally

Explore the evolving dynamics of the cryptocurrency market following Bitcoin's latest halving, which could set the stage for altcoin success.

Bitcoin Fees Skyrocket, Surpassing Ethereum – Could Ordinals Boost BTC Security?

Discover how Bitcoin fees have soared, the role of Ordinals in this trend, and the potential implications for Bitcoin's security model.

Bitcoin Halving Sparks Market Volatility: Demand Surge Meets Miner Challenges

Discover the key factors driving Bitcoin's trajectory after the halving. Get expert insights into the potential for a supply shock, the role of ETFs, and the challenges faced by miners.
spot_imgspot_imgspot_imgspot_img

PRO Analysis

Litecoin Could Be Preparing for a 20% Rise! Current LTC Analysis

Will Litecoin continue its upward trend? What should LTC investors expect? What are the targets in the current LTC analysis?

Ethereum Might Be Preparing for a Rise! Current ETH Analysis

Ethereum's daily chart has sustained a rise up to $3100 after strong buying in the $2867 - $2950 range. Current ETH Analysis

NEO Launches Uptrend to $25! Current NEO Analysis

Analyzed NEO's 3-hour chart, showing upward trend post $14.80 resistance breakthrough, eyeing $15.18 resistance; potential long positions suggested at $14.636 - $14.448 support range with a stop loss at $13.90, as NEO aims for $25 target amidst over 5% gains.

Is Litecoin Ready to Launch its Rise to $140? Current LTC Analysis

When examining LTC's technical chart, a downward trend is observed in recent days. The nearest support is at the level of 91.86 dollars. The support range between 97.61$ and 99.07$ on the 4-hour chart is significant. For long positions, the support range of 92.41$ - 91.07$ can be expected.

Bitcoin (BTC) Surges Past $70k: Could a Rally to $75k be Next?

Get expert analysis on Bitcoin's breakout above $70,000. Discover what's driving the price action, key levels to watch, and potential scenarios for BTC's near-term future.
Lucien Renard
Lucien Renardhttps://en.coinotag.com/
Lucien Renard is a 24-year-old writer specializing in cryptocurrency analysis and price action. With a focus on technical analysis, Lucien provides valuable insights into market trends and potential opportunities for investors.
spot_imgspot_imgspot_imgspot_img

Bitcoin BTC’s Roller Coaster: Plunge and Surge Amid Halving Event and Market Volatility

Explore the dramatic shifts in Bitcoin's price as it navigates through halving aftermath and potential market recoveries.

Exploring Blockchain’s Future: Insights from Gateio’s VC & Web3 Ecosystem Party at TOKEN2049

Join industry leaders from Gate.io and Huawei Cloud as they delve into the future of blockchain and Web3 technologies, following a successful gathering at TOKEN2049 in Dubai.

Bitcoin BTC’s Post-Halving Era Begins: Dominance Stabilizes as Altcoins Rally

Explore the evolving dynamics of the cryptocurrency market following Bitcoin's latest halving, which could set the stage for altcoin success.