The volatility of the Dollar Index (DXY), which tracks the value of the dollar relative to a basket of other currencies, has never been more important for bitcoin traders than it is right now.
Reason being, according to TradingView, the 30-day correlation coefficient between the two has reached its lowest point since September 2022, at -0.90. When the dollar falls, bitcoin rises, and when it rises, the dollar falls, indicating an inverse connection (reading below 0).
Remember that the reading, while being followed extensively, may be affected by bitcoin’s round-the-clock trading structure, especially weekend price movement, which is not reflected in the Dollar Index’s weekday-only trading.
With a coefficient of determination (also known as correlation squared) of 0.81, we can see that changes in the index account for around 81% of the short-term variation in bitcoin’s price. Notably, after reaching highs over $79,000 on Wednesday, the surge of bitcoin has come to a standstill. This occurs after DXY recovered from its low of 97.63 on April 17 to a new high of 98.75.
Long Way to Go
Broader macro issues, such as the ongoing U.S.-Iran deadlock over ceasefire talks and higher oil prices caused by interruptions in tanker traffic in the Strait of Hormuz, seem to be supporting the Dollar Index’s outlook.
Despite BTC’s persistent climb, macro is still attempting to take a stance. Hormuz is still successfully contained, and oil has climbed for five consecutive sessions. Since it maintains the inflation channel and prevents risk premia from completely unwinding, it should be seen as a headwind.
Consistent capital pouring into spot exchange-traded funds (ETFs) listed in the US is encouraging. Despite these factors providing pricing support, industry leaders are being cautious.