Will Dollar Weakness Eventually Cause Bitcoin to Break $ 12,000?


Historically, a weaker US dollar has led to the strength of other “safe-haven” assets. By analyzing the correlation, such momentum and conclusion can also be drawn with Bitcoin (BTC) and USD.

Bitcoin gained in 2020 as the US Dollar Currency Index (DXY) had a tough year. But will this dynamic continue in the months to come? Let’s take a closer look at the graphics.

Bitcoin Must Maintain $ 11,000 Support Level To Avoid $ 9,600 CME Spread Test

BTC / USD 1 day chart. Source: TradingView

The triangle broke to the upside as the majority of markets expected a peak, resulting in a rally to $ 11,700 and the breakthrough of the crucial resistance zone of $ 11,000 to $ 11,200.

However, to maintain the bullish momentum, support must remain in this $ 11,000-11,200 area for a test of the $ 12,000 resistance area to occur.

1 week BTC / USD chart.  Source: TradingView

1 week BTC / USD chart. Source: TradingView

Bitcoin’s weekly chart shows the significance of the $ 12,000 resistance level. Since the start of the bear market, the $ 12,000 area has been a big obstacle.

This crucial barrier has led to multiple tests of this area. However, a breakthrough has not yet taken place. But the general consensus is that the more often a level is tested, the weaker it becomes.

As an example, it took silver almost seven years to break through the resistance of $ 18.

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1 week silver chart.  Source: TradingView

1 week silver chart. Source: TradingView

This breakout took a long time, as the price of silver was constantly being pushed back to the $ 18 barrier. However, the breakthrough to the $ 18 level resulted in a massive move with the rally continuing towards $ 30, a 60% increase since the breakout.

But while that isn’t much for those who are passionate about the cryptocurrency markets, it is a big move for the commodities markets. Therefore, a breach of the $ 12,000 barrier is expected to result in a massive move for Bitcoin and the first big hurdle is between $ 16,500 and $ 17,500.

Such a move would also result in nearly 50%.

A weaker dollar would be a good fit for Bitcoin

DXY vs BTC / USD 1 day charts.  Source: TradingView

DXY vs BTC / USD 1 day charts. Source: TradingView

In recent months, the US dollar currency index has been the focus of much discussion regarding Bitcoin’s movements.

Quite clearly, they are moving in opposite directions from each other, leading to the conclusion that a weaker US dollar benefits the price of Bitcoin. This is also the main reasoning behind the position taken by large institutional investors on Bitcoin, a major sign of a new cycle to come.

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Indeed, the reverse correlation is obvious and quite natural because the world economy is built around the world reserve currency, the US dollar.

DXY vs Gold chart over 1 week.  Source: TradingView

DXY vs Gold chart over 1 week. Source: TradingView

The main example of a weak US dollar can be found in the reaction of gold since the dot-com bubble of 2000.

Since the market collapse that year, the US dollar has lost value, causing gold to rally 600% in the years since. Money even increased by 1,100% during that time.

Likewise, when the US dollar started to show strength, gold and silver recovered strongly as expected.

Therefore, given that the recent weakness in the US dollar caused a rally around the commodity markets, this would also benefit any bitcoin momentum in the years to come. This momentum is often referred to as a “withdrawal from the system” by Bitcoin enthusiasts.

The most likely scenario for Bitcoin

1 week BTC / USD chart.  Source: TradingView

1 week BTC / USD chart. Source: TradingView

The most likely scenario would be a continuous range-linked structure with some additional testing at lower levels.

Several arguments can be drawn for this scenario. The first is the overall weakness of Ethereum so far in Q4, leading to the overall weakness in the crypto market.

In general, January is a perfect month for Ethereum and the markets. However, a breakout during this quarter of the year is unlikely given all the uncertainties surrounding the global economy at this point.

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The second argument is the conclusion that the market is still in the construction of a new cycle. Throughout these accumulations, ranges of accumulation are defined, creating momentum for the next impulse movement to occur.

4 day BTC / USD chart.  Source: TradingView

4 day BTC / USD chart. Source: TradingView

Bitcoin’s 4-day chart shows similarities to the start of the previous cycle in 2016. Long and sideways builds were developing, after which a large impulse movement occurred towards the next resistance level.

This is the most likely scenario at this point, as the market is still preparing for the next big cycle. This cycle will take the market to levels never seen before, but it will not happen all at once.

Therefore, accumulation is an essential part of the formation of such a market, which seems to be happening now.

The views and opinions expressed herein are solely those of author and do not necessarily reflect the views of TBEN. Every investment and trading move involves risk. You need to do your own research when making a decision.