The United States dollar is on track for its “most impressive 5-day performance” since February 2023, while Bitcoin (BTC) has experienced a decline during this time due to expectations of high interest rates and volatility leading up to its April 20 halving event.
The strengthening of the dollar can be attributed to the belief that interest rates will remain elevated, according to trading resource The Kobeissi Letter. Just a month ago, the market anticipated the Federal Reserve to begin cutting rates in June, but now it seems that the expectation is for rates to remain higher for a longer period of time.
Higher interest rates typically attract foreign investors who seek greater returns on bonds and term deposits, ultimately increasing the demand for the dollar.
The Bloomberg Dollar Spot Index (BBDXY), which measures the performance of 10 major global currencies against the US dollar, has surged by approximately 2% over the past 5 trading days, marking its largest increase in 14 months.
The BBDXY currently stands at 106.34, a rise from 105.28 five days ago, indicating the dollar’s strengthening against other currencies in the index, including the euro, pound, and Japanese yen.
On the other hand, Bitcoin has experienced a 9% decrease in price over the past five days, dropping to $63,936, according to CoinMarketCap data. While Bitcoin and the dollar do not always move in the same direction, they have historically demonstrated an inverse relationship.
Federal Reserve Chair Jerome Powell recently stated that the country’s inflation rate, which currently stands at 3.5%, is not moving towards the central bank’s 2% target. This suggests that it may take longer than expected to achieve the desired level of confidence.
Trader Justin Spittler cautioned that whenever the US dollar has reached “overbought levels” in the past, it has been followed by a significant correction.
Bitcoin, being a more volatile asset, typically experiences increased demand when the dollar weakens. However, another factor affecting Bitcoin’s performance is the upcoming halving event scheduled for April 20. This event will reduce the amount of BTC that can be mined per block by 50%.
Comparing this halving event to the one in 2020, investors are showing greater confidence in riskier crypto assets. Three days before the 2020 halving, Bitcoin dominance (a measure of Bitcoin’s market cap compared to the total market cap of all other cryptocurrencies) was 15% higher than the current level, while the US dollar was 6% weaker.
Currently, Bitcoin’s dominance stands at 52%, according to CoinStats.
The recent rise of the US dollar over the past five days has also led to a decrease of 11 points in the Crypto Fear and Greed Index, which tracks sentiment in the crypto market, since April 10.