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Bitcoin VS US dollar.

Feb. 29, 2024
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Can one forecast bitcoin price movement using the dollar index????

Correlation 

 

Correlation is a measure of interdependence between two variables. This article  will focus on the correlation between Bitcoin and the US dollar. Many believe that Crypto is an independent market, but historic data is proving otherwise. 

The degree of decoupling on Crypto, specifically bitcoin has evidently been insignificant over the past few years. Evidence suggests that there is a strong NEGATIVE correlation between Bitcoin price and dollar strength.

 

Charts

 

This article makes use of the Dollar Index (Left)  and Bitcoin(right) chart to reiterate the aforementioned points. For simplicity, negative correlation means that when one instrument goes up, the other goes down.

According to the data above, it shows that the US dollar reached a yearly high in the first week of March  2020, and Bitcoin inversely reached a yearly Low on the very same week. The dollar Index created a double top (evident on the chart) and Bitcoin created a double bottom (marked in grey). The data also suggests a further negative correlation from March 2020 until date. Bitcoin has had a historic bull run from its 2020 lows going into the year-end of 2021 and during the same time, the US dollar took a huge beating. 

Bitcoin and the US dollar reached their highs and lows, respectively, towards the end of 2021. Bitcoin is down ~52% YTD and the dollar is up ~13% YTD.  Another aspect to consider is the two assets' sensitive to the market, this is well known as the beta. As you would expect, Bitcoin has a higher beta as compared to the dollar. One is a speculative asset and the other is a stable fiat currency, their degree of sensitivity to the market makes sense.

 

Can you predict Bitcoin price using Dollar forecast??

 

The strong interdependence between the two instruments suggest that this is possible. However, the degree of reliability of the forecast may factor in many variables, an important factor would be how you can reliably forecast the US dollar price. In the past, I have used both the bitcoin and dollar chart to forecast Bitcoin price to the dollar and the forecast was a success. I have attached a YouTube video of Bitcoin  analysis that I posted few months ago for referral. 

This approach will be declared Null and void the day crypto fully decouples from the overall market. According to my current analyses, I am expecting a further appreciation on the US dollar and this will inversely correlate with weaker price in BTC/USD. It is probable that Bitcoin will go back below $20K and dollar will test a high of ~$113. A stronger dollar will also result in weaker Rand. 

 

I have also attached my analysis on the South African Rand. The analysis is partly influenced by dollar forecast. The next article will look into the relationship between Crypto and the stock market and will further reiterate this interdependence.

 

 

 

Disclaimer: None of the information shared above constitute financial advise. The information is a true reflection of the author's opinion and experience. Seek financial advice from a registered financial advisor.

 

 

 

 

 

 

 

 


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