Concerns about the impact of a stronger US dollar on digital gold may be exaggerated, especially over the long term. Both assets are not very interconnected, according to Cointelegraph.
On September 22, the US dollar index DXY expected additional tightening of monetary policy Fed reached a 10-month high.
The so-called “golden cross” has formed on the currency chart – the intersection of the 50-day and 200-day SMA down up. For fans of technical analysis, this serves as a signal of an imminent bullish trend.
The publication indicated that the connection between weakening demand for Bitcoin in the context of a strengthening dollar may weaken as doubts grow about the Fed’s ability to contain inflation without negative consequences for the economy.
Analysts explained that on the one hand there is a decrease in appetite for risky assets, on the other — an increase in the amount of money in circulation, which is positive for digital gold.
As the government continues to raise the debt ceiling, investors are facing erosion in their purchasing power. This makes the nominal yield less significant due to the increase in the money supply.
This situation explains why scarce assets like Bitcoin can remain resilient even during economic downturns.
If the downward dynamics of the S&P 500 index continues, investors may reduce their risk appetite, including by reducing positions in the first cryptocurrency, experts warned.
Analysts stressed that similar inflation and recessionary pressures are likely to increase the money supply, either through additional Treasury issuance or purchases by the Fed.
In both cases, saturation of the financial market with liquidity will favor digital gold. This will be possible as investors seek refuge in alternative assets to protect themselves from stagflation, a situation characterized by stagnant economic growth in an environment of high inflation.
Let us recall that against the backdrop of the stability of the first cryptocurrency, the correlation between Bitcoin and the US dollar dropped to zero, and with the leading stock indices it became slightly negative.
Previously, BitMEX co-founder Arthur Hayes admitted a possible short-term decline of digital gold below $20,000 followed by a new bullish impulse. However, in September, he pointed to the positive prospects for the first cryptocurrency, contrary to the Fed’s policy.
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