Take Note! This is the Important Point for Bitcoin Price to Strengthen Again

Zikrul
By -
0
Take Note! This is the Important Point for Bitcoin Price to Strengthen Again


There are a number of key points for Bitcoin to strengthen again, closely tied to the Fed's policy, if the US central bank fails to control inflation and the economy heads into recession.

When this article was written, Monday (11/4/2022) night, the market value of crypto assets was knocked out to US $ 1.8 trillion. The price of Bitcoin (BTC) itself has failed to climb higher than US$43 thousand per BTC. Last Monday night, the price of BTC even fell to US $ 40.8 thousand per BTC. The other top 20 cryptocurrencies, along with three coins, were blown away due to the mass selling.

To map the cause, it is actually quite simple, namely the strengthening of the US dollar. The origin is the policy of the US Central Bank, aka The Fed, which is predicted to be much more aggressive in selling its assets and raising the benchmark interest rate even more.

Let's break them down one by one, based on a common fundamental structure. First, the relationship between the value of the US dollar and Bitcoin.

The value of Bitcoin remains based on the value of the US dollar, considering that this currency is still the dream of many countries and is still used in international trade, even though for two decades many countries have begun to remove the currency from their foreign exchange reserves, such as Russia and China and several countries in Africa. . The dollar's weakness since 1982 is a fact that's hard to argue with.

The dynamics of the US dollar can be easily measured from the US dollar index (DXY). That is, if the dollar index weakens significantly, it will strengthen the crypto market, including Bitcoin. And vice versa, if the DXY index shows strengthening, the crypto market is depressed. This relationship occurs more often than not, historically.

This simple formula can also be applied to the stock market and other types of markets, including gold.

This kind of relationship has occurred, at least between December 2016 and December 2017. On December 16, 2016 the dollar index reached the range of 103.829, after advancing from the range of 71.211 on March 17, 2008. This was a remarkable achievement for the dollar, after going through the global economic crisis at that time.

 
The value of 103.829 is a very strong resistance that is difficult to break (including when it strengthened in mid-March 2020), until it finally fell at 88.727 on February 14, 2018.

What happened to Bitcoin at that time was a price boom, rising from around US$708.50 per BTC towards the end of 2016, then peaking at 20,000 per BTC on December 17, 2017. On that date the dollar index hovered around 94, ahead of the US dollar finding support. level, which was 88,601 on February 16 2018, then strengthened.

And the fact is that since the beginning of 2018 the crypto and Bitcoin market prices have indeed fallen because the green back is taking over. On December 15, 2018 alone the price of Bitcoin met the range of US $ 3,288.

Fed Policy Determines Bitcoin Price

Well, so far you can find patterns in the relationship between Bitcoin and the US dollar, in the context of the narrative Bitcoin is “a new gold in a digital form”: rare, opposite to the US dollar as a result of the Fed's policies.

Second, the supply and dynamics of the dollar's value. The weakening of the dollar stems from the large supply of that currency in the economy. The free market economy took the reins, that many dollars had to be diverted to more profitable assets.
 

Note that 2008 was a time when the US central bank poured a lot of dollars into the market to save the economy. That is the reason for the birth of Bitcoin from the hands of Satoshi Nakamoto.

Be the uncontrollable supply of dollars, leading to massive inflation, plus the arrival of the pandemic in March 2020, the dollar fell and Bitcoin began to be glimpsed again. The pandemic also forced the US to pour more dollars into the economy by adding assets to its balance sheet.

Until December 2021 the Fed actually could no longer hold back from controlling the situation. The reason is that inflation in the US has reached more than 7 percent year-on-year. That's the highest since 1982 in the same period. Critical! Experts also cornered the Fed, that the giant monetary institution was too late to deal with it, lulled by quantitative easing policies and the benchmark interest rate was almost zero percent.
 
So, what is the Fed's action? As usual, that is withdrawing the US dollar from the economy by selling assets off its balance sheet and increasing the benchmark interest rate. Now, because the supply of dollars is much more scarce than before, the value of the dollar is boosted up.

In November 2021, for example, the dollar index entered the 93.985 region, surpassing the March 2020 resistance, which is 93. And on April 8, 2022, it continued to rise to around 100, trying to aim for a strengthening March 20, 2020, which is 103.


This is the Important Point for Bitcoin Price to Strengthen Again


Recall, that in January 2021, even though the dollar index entered the 90 support region and tried to advance upwards, Bitcoin was involved. In this case, there is no strong signal from the Fed to anticipate the state of the economy and the dollar is still flooding the market.
 
So what about the hopes of the crypto market in an unprecedented situation like this? That if the dollar continues to strengthen and the crypto market crashes, at what point will it reverse direction?


The initial note to answer this question is whether the Fed's policy in relation to the Bitcoin price will succeed in controlling inflation or vice versa? The reason is, if it is too slow or aggressive to raise interest rates, for example, what happens is a crazy recession.

Remember, the impact of the pandemic is not over yet, made worse by Russia's military action against Ukraine. This has a negative impact on rising energy prices in western countries. Severe inflation! The Fed is actually in a dilemma and continues to be cornered.

So far, a number of observers expect the Fed to be more aggressive in raising its benchmark interest rate than at the beginning, which began in March 2022.

A Reuters poll, April 4-8, 2022, revealed that more than 100 economists expect two half-point rate hikes this year. This is the first move since 1994 to 1.25 percent-1.50 percent. This could happen in June 2022.

From the same poll, 85 of 102 economists expect a 50 basis point increase in May 2022, and a still solid majority of 56 say the Fed will follow through with 50 basis points also in June. In short, this policy is very monumental from a historical perspective in different contexts and conditions.
 
From that fact, economists believe that if such a big interest rate hike really takes place in order to tackle uncontrolled inflation, there will likely be a recession, because the market component is forced to save on investment spending, aka no expansion.

This potential was also confirmed by Bank of America a few days ago. For them, if a recession occurs, then the forex market, bonds including Bitcoin become the gaze of a large number of parties. Stocks are expected to fall heavily. That is, capital flows out of the stock market and into the crypto market, because the Fed failed.

The economist Mohamed El-Erian at Allianz said the same thing a few days ago. According to him, the policy of raising interest rates aggressively is likely to be a bigger policy error than misjudging inflation. The Fed risks pushing the economy into recession.

This is the most important point for Bitcoin to rise. This common thread is threaded by crypto market advocates, at least by Mike Novogratz Founder of Galaxy Digital. Just so you know, this company has collaborated with a number of top investment companies in creating a number of crypto-value investment products.


Novogratz put it this way, as quoted by Kitco: “While the market is bracing for aggressive Fed policy in the first half of the year, the US central bank may have to pause once the US economy slows down. This is the time for Bitcoin to strengthen.” He echoed those words at the Bitcoin 2022 grand conference in Miami.

It is easy to interpret, that Novogratz really expects a 50 basis point rate hike to happen this year, because he believes it will have a negative impact on the economy, namely a recession. This kind of interpretation is quite reflected in the thin strengthening of the Bitcoin price over the last 3 weeks.


TradingView Chart


This situation may make the Fed swerve, reluctant to continue its policy of raising interest rates and continuing with quantitative easing again, aka adding the US dollar to the market.

This is in line with El-Erian's suggestion, that the Fed should not be fixated on the financial market which makes it act very aggressively. He advised the Fed to restore the real sector. Well, theoretically this is the direction of that quantitative easing and will steer the market into the crypto market. This further confirms the relationship between the Fed's policy and the price of Bitcoin.

However, if the scenario is aggressive policy throughout this year, then the positive impact as expected by the Fed, at least can only be felt in 2023. This is the historical pattern. If this happens, the dollar will strengthen further, weakening the stock and crypto markets. Even if the opposite happens, then the scenario that Novogratz has in mind is what happens: Bitcoin heads north.

 
So, we are still waiting in early May and June 2022 when the results of the meeting of the Fed's top brass are announced whether it is so aggressive that it has a negative impact on the price of Bitcoin. Between those days, we can only wait and watch.

Follow Daily Post on Google News to update information quickly. Thank you for visiting our website..!! Don't forget to share any information to help develop our website..

Post a Comment

0Comments

Post a Comment (0)

#buttons=(Ok, Go it!) #days=(20)

Our website uses cookies to enhance your experience. Learn more
Ok, Go it!