The 90-day negative correlation coefficient of Bitcoin (BTC) with the (U.S.) Dollar Index (DI) had reportedly slipped four weeks ago to -0.70 from -0.11, per TradingView. The U.S. DI assesses the dollar’s exchange rate in comparison to other fiat currencies (such as the Euro).
Measured on a -1 to +1 scale, correlations having values inclined towards -1 denote that a variable’s lower prices has a relation with other variable’s higher prices.
The U.S. economy has been teased with a recessionary outlook for months owing to the bond market metrics and economic indicators. Beginning October 2023, the DI has fallen approximately 12% anticipating the Federal Reserve to cease its interest-rate hikes and embrace liquidity to cushion the economy.
After the U.S. GDP (gross domestic product) data was released on Thursday, a strengthening 90-day negative correlation coefficient of BTC with the DI signals speedy cryptocurrency gains.
Historically, BTC and the DI have had a negative correlation for the most part in the last three years, barring the times when factors pertaining to cryptocurrencies eclipsed the dollar trends. BTC’s price fell in the last quarter of 2022 following the FTX collapse, and Coinbase’s (COIN) April 2021 Nasdaq listing also presented a similar scenario.
Given the alarming First Republic Bank (FRB) financials that unfolded lately, traders are “pricing 3 rate cuts” by Q4 2023 even when the U.S. Fed refrained from a rate cut. Announcing the 3 rate cuts, Forex Live tweeted:
We've gone from pricing 3 rate cuts by year-end, to 2 rate cuts, and now back to 3 rate cuts again. This during the last two weeks. Tug of war. #Fed pic.twitter.com/jFKJVnNOaG
— ForexLive (@ForexLive) April 27, 2023
Analysts reason that if a sharp economic activity moderation occurs, a sell-off of the U.S. dollar might ensue, potentially rallying risky assets and cryptocurrencies. Alternatively, a promising data outlook might rule out rate cuts altogether, soaring the dollar.
Chris Weston, head (research), Pepperstone, tweeted: “The market eyes growth at 2% – shouldn’t move markets too intently given the backward nature of the data point – would need to be a big beat/miss to the move rates expectations and the USD, gold, Nasdaq.”
In related news, BTC’s correlation to gold is strengthening even as the stress on the regional banking sector in the U.S. is mounting. BTC’s 30-day rolling correlation with gold at 57% is at its two-year high, having soared since March.
