Historically, a weaker US dollar has strengthened other “safe haven” assets. Analyzing the ratio, such an impulse and conclusion can also be made with bitcoins (BTC) and the US dollar.
Bitcoin earned in 2020, as the US Dollar Currency Index (DXY) was going through a difficult year. But will this momentum continue in the coming months? Let’s take a closer look at the charts.
Bitcoin must maintain a support level of $ 11,000 to avoid the $ 9,600 CME gap test
BTC / USD 1-day chart. Source: TradingView
The triangle broke up as most markets waited for the onset of menopause, which led to an increase to $ 11,700 and a break of the critical resistance zone by $ 11,000-11,200.
However, to maintain a bullish momentum, support must be kept in this $ 11,000-11,200 zone to test the $ 12,000 resistance zone.
BTC / USD 1-week chart. Source: TradingView
The weekly chart of bitcoins shows a resistance level of $ 12,000. Since the launch of the bear market, the $ 12,000 area has been a major obstacle.
This most important barrier has led to numerous trials in this area. However, the breakthrough has not yet happened. But the general consensus is that the more often a level is tested, the weaker it becomes.
As an example, it took silver almost seven years to break through the $ 18 resistance.
Silver 1-week schedule. Source: TradingView
This breakthrough took a long time, as the price of silver was constantly rejected at $ 18. However, the breakout of the level of 18 dollars led to mass movement, when the rally lasted up to 30 dollars, which is 60% more since the breakthrough.
But while for cryptocurrency market enthusiasts it’s not much, for commodity markets it’s a big step. Thus, breaking the $ 12,000 barrier should lead to a significant movement of bitcoins, and the first big hurdle will be between $ 16,500-17,500.
This step will also lead to almost 50%.
A weaker dollar would suit bitcoins well
DXY vs. BTC / USD 1-day charts. Source: TradingView
In recent months, the US dollar index has been the focus of much debate over the movement of bitcoins.
It is clear that they are moving in opposite directions, which leads to the conclusion that the weaker US dollar is favorable to the price of bitcoin. This is also the main reason why large institutional investors are taking a position in bitcoins, which is the main signal of the future new cycle.
Indeed, the inverse correlation is obvious and quite natural, as the global economy is built around the world’s reserve currency – the US dollar.
DXY vs. Gold 1-Week Chart. Source: TradingView
A prime example of the weaknesses surrounding the US dollar is the gold response since the 2000 bubble dot.
After the collapse of markets this year, the US dollar lost its value, leading to a 600% increase in gold in subsequent years. During this period, silver even collected by 1100%.
Similarly, as the US dollar began to show strength, gold and silver retreated sharply as expected.
So, as the recent weakness of the US dollar has led to a rally around commodity markets, it will also help any momentum in bitcoins in the coming years. This impulse is often classified as a “failure of the system” by bitcoin believers.
The most likely scenario for bitcoin
BTC / USD 1-week chart. Source: TradingView
The most likely scenario would be a continued structure limited by the range, with some further tests at lower levels.
There are several arguments for this scenario. The first is the general weakness of Ethereum currently in the fourth quarter, which leads to a general weakness of the cryptocurrency market.
In general, January is an ideal month for Ethereum and markets. However, a breakthrough this quarter of the year is unlikely given all the uncertainties surrounding the world economy at this stage.
The second argument is the conclusion that the market is still being formed in a new cycle. During these accumulations the ranges of accumulation are defined, increasing an impulse for the subsequent impulse movement.
BTC / USD 4-day chart. Source: TradingView
The 4-day bitcoin chart shows similarities to the beginning of the previous cycle in 2016. Long side structures increased the speed, after which there was a large impulse movement to the next level of resistance.
This is the most likely scenario at the moment, as the market is still emerging for the next big cycle. This cycle will bring the market to levels not seen before, but it will not happen all at once.
Thus, accumulation is the most important part of building in such a market, which seems to be happening now.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading step involves risk. You should conduct your own research when making a decision.