Bitcoin's Latest Rally Is Different as BTC Rises Alongside U.S. Dollar and Treasury Yields

Bitcoin has managed to chalk out a double-digit rally recently, ignoring the strength in the dollar index and Treasury yields.

AccessTimeIconFeb 16, 2024 at 11:30 a.m. UTC
Updated Mar 8, 2024 at 9:40 p.m. UTC
  • Bitcoin’s latest move above $50,000 contradicts its record of posting sharp gains, mostly during bouts of weakness in the dollar index and Treasury yields.
  • We could be seeing safe-haven demand for bitcoin from regions like China and Nigeria, one observer said.

Bitcoin (BTC) has jumped over 35% to over $52,000 since Jan. 23, consistent with its reputation of chalking double-digit gains in a matter of weeks. The latest move, however, stands out because it has materialized alongside a resurgent U.S. dollar index (DXY) and Treasury yields.

The DXY, which gauges the greenback’s exchange rate against major fiat currencies, has gained 3% this year, with the index gaining around 1% since Jan. 23.

Historically, bitcoin has been negatively correlated with the U.S. dollar, posting sharp rallies only during bouts of dollar weakness. For instance, the DXY fell 2% to under 90 in February 2021 when bitcoin first rose above $50,000.

As a global reserve, the U.S. dollar is outsized in international finance and non-bank borrowings. Thus, a strengthening dollar leads to financial tightening worldwide, disincentivizing investment in risky assets like technology stocks, cryptocurrencies and commodities like gold.

Similarly, an uptick in the 10-year U.S. Treasury yield, or the so-called risk-free rate, usually spurs outflows from other assets. The yield has risen from 4.10% to 4.26% in three weeks, with hotter-than-expected U.S. inflation figure denting the probability of an early Fed rate cut.

Bitcoin’s resilience likely stems from strong inflows into the U.S.-based spot exchange-traded funds in the U.S. Nearly a dozen ETFs began trading in the U.S. on Jan. 11 and have since amassed roughly $5 billion in net inflows.

“What we started seeing when BTC didn’t drop along with the jump in DXY and U.S. yields was the beginning of strong inflows – there was buying pressure offsetting the usual sell pressure, and that seems to be picking up,” Noelle Acheson, author of the popular Crypto Is Macro Now newsletter, told CoinDesk.

“We could be seeing more ‘safe-haven’ buying from regions such as China, Nigeria and others - we’re probably also seeing some speculative inflows front-running the growth of the investor base and the halving,” Acheson added.

China, the world’s second-largest economy, has been facing deflationary pressures, a property market crisis, and a stock market meltdown. Per Reuters, Chinese citizens have turned to bitcoin amid economic malaise. Similarly, Nigeria’s ongoing currency crisis and rampant inflation may have spurred cryptocurrency demand.

Acheson said that bitcoin has always been a safe haven for some and an emerging technology play (or risk asset) for others, explaining the hedging demand for the cryptocurrency. “The ETFs don’t change that, they just act as a channel,” he added.

Meanwhile, according to QCP Capital, the CME’s decision to increase the required margin for trading its bitcoin futures may have contributed to the bitcoin rally.

“This has recently become an important trigger for volatility. In this case, leveraged players were positioned short, and the new requirement resulted in widespread short covering over a relatively illiquid Lunar New Year weekend. This drove both spot prices and forwards higher. The forward spread trade in BTC is now back to around 11-12% annually,” QCP said on X.

Edited by Parikshit Mishra.


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Omkar Godbole

Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team.