Will the dollar provide support for Bitcoin?

In the last dozen or so sessions, we have observed a return of demand for the US dollar. None of the central banks, and even the Bank of Japan, convinced investors, so the only alternative was the American dollar. The strong dollar also hurt Bitcoin, which recently reached new highs around $73, and at one point tested $60. However, are we facing a correction in the dollar that could help Bitcoin hit new records?

The dollar is still king

We are already after a very intense week in which we learned many decisions of central banks. There were a few surprises, but in the end the US dollar remained the king. The time to reduce interest rates is approaching, but of course in the event of a positive surprise with inflation, it will be a chance to postpone the normalization of monetary policy, which could further strengthen the dollar. However, this is not the base scenario at the moment.

This week, investors' attention will be focused primarily on Friday's reading PCE inflation in Usa. Even though it is a holiday and most markets will be closed, high volatility can be expected in the currency market. What's more, The cryptocurrency market will be active throughout the holiday weekend, which is why the trend established on Friday may be of great importance for Bitcoin. It has been doing rather poorly over the last dozen or so days, but there are many indications that this may be the end of the correction in the world's most important cryptocurrency.

Waiting for halving

Firstly, there is a chance that the recently strong US dollar will weaken. Usually on a weaker dollar Bitcoin gains. Secondly, in recent days we have had rather poor data on inflows to Bitcoin ETF funds. The sell-off in Greyscale Bitcoin Trust has increased significantly. Of course, this can be related to large fees in this fund, but on the other hand, the sale was also related to the sale of shares in the fund by Genesis Global Holdco, which held shares in the fund in the amount of nearly USD 1,3 billion and due to bankruptcy and authorization from the court, they sell their shares to pay creditors. At this point, net outflows from the GBTC fund have reached $2 billion, which may mean that the intensified sell-off associated with Genesis Global may be coming to an end.

In terms of Bitcoin, it is also worth paying attention to the highly anticipated halving. It will take place in less than a month and has historically been very positive for the price of the cryptocurrency before and, above all, after it took place. However, it is worth being patient. The halving itself did not change much in the price of Bitcoin in the perspective of 100-180 days. However, later the increases often exceeded several hundred or even several thousand percent. Will it be the same this time? If ETFs go back to buying, it will certainly be possible given the limited supply.

After 09:30, EUR/USD was trading at 1,0819. Bitcoin, in turn, cost $66984. In Poland we pay PLN 3,9842 for a dollar, PLN 4,3107 for a euro, PLN 5,0234 for a pound and PLN 4,4373 for a franc.

Source: Michał Stajniak, CFA, XTB