Bitcoin’s sharp drop of $ 50,000 is related to the strength of the dollar and gold

Bitcoin (BTC) and spot gold hovered below major psychological levels on Wednesday as the stronger US dollar weighed on investors’ appetites for asset hedging.

The BTC / USD pair fell 5.27% to its intraday low of $ 44,423, but made up for some of those losses after returning to the $ 45,000-46,000 area as support. The pair’s rebound also came as an extension of its current rally of $ 42,830, a level it hit on Tuesday after falling more than 18% that day.

1-hour candlestick chart for the BTC / USD pair. Source: TradingView

The Bitcoin sell-off coincided with a strikingly similar, if more modest, drop in the competing gold market. In particular, the precious metal suffered its worst daily decline in a month on Tuesday as the XAU / USD spot pair fell below $ 1,800 after moving -1.37% intraday.

XAU / USD 1 hour candlestick chart. Source: TradingView
Bitcoin’s sharp drop of $ 50,000 is related to the strength of the dollar and gold
Bitcoin’s sharp drop of $ 50,000 is related to the strength of the dollar and gold

The gigantic red hour candle on the gold and bitcoin charts appeared between 10:00 and 11:00 UTC. However, the precious metal consolidated sideways after the big decline, unlike Bitcoin, which extended its downtrend.

In particular, the cryptocurrency collapsed under the weight of overly leveraged bullish bets. Bybt’s data showed that in the past 24 hours Long positions worth $ 3.68 billion were liquidated in the Bitcoin options market, this is the biggest sale since mid-June.

Bitcoin settlements in the past 24 hours. Source: Bybt

The forced liquidations sparked more sales in the Bitcoin market as traders were forced to sell their BTC holdings to hedge their margin bets.

Is the US dollar responsible for the big crash?

It is worth noting that the sudden drop in the price of Bitcoin and gold coincided with a strong rally in the US dollar index (DXY).

The index, which measures the strength of the greenback against a basket of major national currencies, rose 0.41% to 92.53 points on Tuesday. and continued to rise for the day to hit its intraday high at 92.73.

DXY 1 hour candlestick chart. Source: TradingView

The DXY moved away from its 1-month low and benefited from higher US Treasury bond yields ahead of the sovereign sale this week. That includes $ 58 billion in three-year bonds, $ 38 billion in 10-year bonds, and $ 24 billion in 30-year bonds.

The US 10-year Treasury yield, which was around 1.32% after Friday’s weak report on non-farm employment, rose to 1.377% on Tuesday. At the end of this issue it was 1,351%.

10-year US Treasury bond yield. Source: TradingView

A mixed picture before the Fed meeting

Increasing returns often compete for safe havens against Bitcoin and gold. But despite the recent hike, they’re still below July core inflation of 5.4%, making unprofitable safe havens more attractive as betting on rising consumer prices.

But than that The Federal Reserve plans to begin reducing its monthly purchase mechanism of $ 120 billion in assets later this year. Some analysts believe that bond yields will continue to rise. In return, they will provide bullish support for the dollar.

Shaun Osborne, The chief currency strategist at Scotiabank in Toronto told CNBC:

“We expect the US Federal Reserve to pull further back towards the end of this year. The US economy should be relatively strong, so we think the small declines and dollar weakness are likely to be a buying opportunity. “

Meanwhile, the surge in cases of the delta variant of COVID-19 threatens to dampen prospects for recovery. In turn, it could force the Federal Reserve to maintain its costly bond-buying program, keeping both yields and the dollar in check.

As a result, the outlook for Bitcoin and Gold is not entirely clear. The Federal Open Market Committee meeting later this month is expected to shed more light on the tapered calendar.

The views and opinions expressed are those of the author only and do not necessarily reflect the views of Every investment and trading move involves risk, you will need to do your own research when making a decision.

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