Why The Dollar’s Coming Dead Cat Bounce Could Be Devastating For Bitcoin
The dollar is in sharp decline, and it has allowed other currencies to gain the upper hand. It has also let Bitcoin, gold, altcoins, and other hard assets shine.
But will a coming dead cat bounce in the dollar devastate recent crypto market returns and cause a temporary pullback? Or is this the start of a bigger comeback by the king of all cash-based fiat currencies?
USD: After Dramatic Drop To Two Year Low, TD Sequential Triggers 9 & 13 Buy Signals
Nearly every financial asset across any market is traded against the dollar and its exchange rate is valued in USD. Even Bitcoin, gold, and altcoins typically trade against the dollar as the dominant base currency pair.
The dollar’s status as the global reserve currency gives it incredible influence over all other markets. When the dollar is strong, so is the United States economy, and stocks boom as a result.
But when the dollar is in decline, as we’ve witnessed recently, hard assets like gold, Bitcoin, and real estate climb. The recent fall in the once almighty and dominant dollar set the currency back to a fresh two-year low.
DXY TD Sequential 9 + S13 Setup | Source: TradingView
According to the TD Sequential indicator, a dead cat bounce or perhaps a full comeback is near. The market timing indicator has triggered a 9 and 13 buy setup on daily DXY charts. DXY is the dollar currency index weighing its performance against the rest of the market.
Related Reading | Here’s Why a Bouncing U.S. Dollar Is Bad News For Bitcoin
Further technical analysis backs up the indicator’s call that a reversal could soon be coming in the dollar. DXY is currently forming a falling wedge ready to break out, coinciding with a bullish divergence on the Relative Strenght Index.
DXY Falling Wedge and Bearish Divergence on RSI | Source: TradingView
Why A Dead Cat Bounce In The Dollar Is Bad For Bitcoin, Gold, and Altcoins
A bouncing dollar doesn’t bode well for Bitcoin’s recent rally, which could see a pullback as a result. This is best demonstrated by comparing Bitcoin against an inverse DXY dollar currency index chart to better depict the dollar’s continued weakness versus Bitcoin’s strength.
Inverse DXY Line Chart Rising Wedge | Source: TradingView
Flipping the DXY chart in the inverse, turns the falling wedge into a rising wedge, a bearish structure signaling a reversal.
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Removing the trendlines completely, and adding in a Bitcoin BTCUSD line chart from Bitstamp very accurately lines up the cryptocurrency’s rise with the dollar’s inverse decline. The resemblance is undeniably uncanny. It also shouldn’t be surprising as the cryptocurrency trades against USD on its primary base currency pair.
Bitcoin BTCUSD Bitstamp Versus Inverse DXY Line Chart Comparison | Source: TradingView
A breakdown of the inverse dollar’s rising wedge could take Bitcoin price down with it. Not just Bitcoin, either. The dollar reversing will also tarnish gold’s recent gains, and potentially deal a major blow to the recent altcoin rally.
Major altcoins like Ethereum, XRP, and several others have benefit even more so than Bitcoin due to the dwindling dollar. With USD reversing, altcoins may nuke on their fiat-bound trading pairs.
Markets are unpredictable, however, and even with all signs pointing to a rebound in USD, anything is possible given the ongoing pandemic situation in the US.