Bitcoin Risks Deeper Drop if Dollar Rebounds

The bitcoin price could pull back even further should the dollar stage a full-blown recovery on the back of the latest Fed meeting.

Aug 20, 2020 at 10:49 a.m. UTC
Updated Sep 14, 2021 at 9:45 a.m. UTC

Bitcoin’s price pullback may worsen as the U.S. dollar shows signs of life on the back of the newly released minutes from July's Federal Reserve meeting.

  • The dollar index, which tracks the greenback's value against that of other reserve currencies, has jumped 1% to 93.000 in the past 24 hours – the biggest single-day rise in two months.
  • The U.S. dollar (USD) has picked up on the news the Federal Reserve is not planning on implementing controversial yield curve controls on bonds – something markets had been anticipating.
  • The correlation between bitcoin and the USD has been historically weak but has picked up in the past month as investors look for alternative safe-haven assets.

(Tradingview)

  • CoinDesk data shows bitcoin rising from $9,000 to $12,400 in the four weeks up to Aug. 17 just as the dollar index declined from 97 to 92.
  • But in the past week and in the face of a strengthening dollar, bitcoin has fallen to around 11,780 – down 5% from the recent high of $12,400 it reached earlier this week.
  • Continued recovery in the U.S. dollar could yield further losses for bitcoin but a sustained dollar rebound still looks unlikely – interest rates will remain at rock bottom to stimulate the economy, increasing the chances that the Fed might be forced to more radical monetary measures.
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