This is why bitcoin traders should pay attention to the US dollar index, not Elon Musk’s tweets

Bitcoin’s price (BTC) fell nearly 5% on June 4 and continued to decline on Friday’s trading day when investors were confronted with cryptic tweets from Elon Musk about the cryptocurrency, adding to speculation that CEO Tesla might die remaining 43,2000 BTC could sell in the company’s coffers.

However, Bitcoin’s downward movement also coincided with a major rally in the US Dollar Index (DXY). Speculation that more than one factor accelerated the cryptocurrency’s dramatic decline during the Thursday evening and early Friday morning session.

In retrospect, the U.S. dollar index, which measures the strength of the currency against a basket of major foreign currencies, rose 0.18% after Musk’s tweet to hit a three-week high of 90,627. Meanwhile, Bitcoin’s price plunged 9.31% over the same period, hitting an intraday low of $ 35,593.

This is why bitcoin traders should pay attention to the US dollar index, not Elon Musk’s tweets
This is why bitcoin traders should pay attention to the US dollar index, not Elon Musk’s tweets

The graph below shows Bitcoin price’s immediate reaction to Musk’s tweet, a large red candle on the hourly charts, followed by sustained declines. While the dollar isn’t solely responding to Musk’s anti-Bitcoin tweet, it’s also starting to soar on sustained bullish bids in traditional markets, and eventually seeing its biggest daily gains since mid-September 2020.

Bitcoin’s price slide after Musk’s tweet also coincided with a rebound in the US dollar market index. Source: TradingView

More experienced traders perceive Bitcoin as an anti-dollar asset, largely because the leading cryptocurrency is proposing to act as a safe haven against the devaluation of the fiat currency. This narrative has gained momentum, especially after the global market crash in March 2020 in the wake of the COVID-19 pandemic.

The event prompted the Federal Reserve to take unprecedented relief efforts, such as: Almost zero interest rates and unlimited bond purchase programs to protect the US economy from the aftermath of the pandemic.

Meanwhile, the U.S. government has launched three consecutive stimulus programs ($ 2.8 trillion in March 2020, $ 900 billion in December 2020, and $ 1.9 trillion in March 2021) to help Americans through direct Check payments help, and it’s likely that likely have more on the go.

Monthly monitoring of US national debt since April 2020. Source: Statista

The expansionary policy increased the US national debt burden from $ 24.97 trillion in April 2020 to $ 28.174 trillion in April 2021. As a result, the dollar’s strength against major foreign currencies has plummeted by more than 12.5% ​​since March 2020. Bitcoin’s performance is now 855% over the same period.

The decline in the Bitcoin market on Thursday evening confirmed a brief negative correlation with the US dollar over shorter periods of time.

However, On the weekly chart, the two assets continue to trend in opposite directions, which is a reminder that Musk, with its $ 1.3 billion exposure to BTC in a $ 690 billion market, remains irrelevant in the face of much more pressing macroeconomic concerns like inflation.

The negative correlation between Bitcoin and the US dollar index has been intact since March 2020. Source: TradingView

Elon Musk is a phase

Tesla continues to struggle to make a profit from sales of its electric vehicles, the company’s reports for the first quarter show. Of the $ 594 million he reported, only less than $ 100 million came from his actual business; the rest came instead through the sale of its profitable BTC holdings ($ 272 million) and regulatory loans.

In summary, Musk’s Bitcoin strategy is similar to that of a retailer.

The billionaire businessman has so far treated cryptocurrency as a tool to make up for his company’s poor performance.

This becomes even more evident in his back and forth as he accepts BTC as payment, followed by tweets suggesting that he could get Tesla to sell all of its Bitcoin holdings and his recent divorce meme, which, by the way, is on the same Day Coming World Media reported a 50% drop in Tesla auto sales in China due to quality issues.

But Musk’s influence on the Bitcoin market is waning with each of his tweets against the cryptocurrency, as evidenced by the magnitude of the cryptocurrency declines. For example, His mid-May Twitter feud with cryptocurrency influencers saw the BTC / USD pair plummet from a high of $ 58,000 to a low of $ 30,000, a 42% decline. But even then, the pair later reduced nearly 30% of those losses.

Compared, the latest “Elon Candle” ended up cutting just $ 3,500 off Bitcoin’s price and posting an intraday loss of around 9%.

As a result, Bitcoin will continue to trade higher over the long term, fueled by the same anti-dollar fundamentals that have attracted companies like Tesla. Further bullish signals for the cryptocurrency are expected from President Joe Biden’s $ 6 trillion government spending package, which would put further pressure on the US dollar.

Bitcoin remains in technical limbo for the time being, waiting for a decisive move out of the current range of $ 32,000 to $ 40,000. Musk is old news. Go on, bitcoiner.

This article does not provide investment advice or recommendations. All investments and business movements involve risk and readers should conduct their own research in making their decision. The views, thoughts, and opinions expressed herein are those of the author only and do not necessarily reflect the views and opinions of Cointelegraph.

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