Historically, a weaker US dollar has led to strength across other assets in the safe haven. By analyzing the correlation, such momentum and conclusion can also be drawn with Bitcoin (BTC) and USD.
Bitcoin has won in 2020, as the US Dollar Currency Index (DXY) has had a tough year. But will this momentum continue in the coming months? Let’s take a closer look at the charts.
Bitcoin needs to maintain a $ 11,000 support level to avoid a $ 9,600 CME gap test
BTC / USD 1-day chart. Source: TradingView
The triangle broke up as the majority of markets waited for a climax to occur, resulting in a rally against $ 11,700 and the breakthrough of the crucial $ 11,000-11,200 resistance zone.
However, in order to maintain the bullish momentum, support must be maintained in this $ 11,000-11,200 range for a test of the $ 12,000 resistance range to occur.
BTC / USD 1-week chart. Source: TradingView
The weekly chart of Bitcoin shows the importance of the $ 12,000 resistance level. Since the bear market started, the $ 12,000 area has been a major obstacle.
This crucial barrier led to several tests of this zone. However, a breakthrough did not occur yet. But the general consensus is that the more often a level is tested, the weaker it becomes.
As an example, it took silver nearly seven years to break through the $ 18 resistance.
Silver 1-week chart. Source: TradingView
This breakout took a long time as the silver price was constantly rejected at the $ 18 barrier. However, the breakthrough at the $ 18 level resulted in a massive move with the rally continuing at $ 30, a 60% increase since the breakout.
But while it is not much for enthusiasts in the cryptocurrency markets, it is a big move for the commodity markets. Therefore, a breakthrough on the $ 12,000 barrier should result in a massive move for Bitcoin, as well as the first major hurdle found between $ 16,500-17,500.
Such a move would also result in almost 50%.
A weaker dollar fits well with Bitcoin
DXY vs. BTC / USD 1-day charts. Source: TradingView
In recent months, the US dollar currency index has been at the center of many discussions about Bitcoin’s movements.
Clearly, they are moving in the opposite ways of each other, resulting in the conclusion that a weaker US dollar benefits the price of Bitcoin. This is also the main reason why large institutional investors are taking a position in Bitcoin, a big signal of an upcoming new cycle.
In fact, the reverse relationship is clear and quite natural, as the global economy is built around the world’s reserve currency, the US dollar.
DXY vs. Gold 1-week chart. Source: TradingView
The prime example of weaknesses around the US dollar is found in the reaction of gold since the dot com bubble in 2000.
Since the market crashed that year, the US dollar lost its value, resulting in a 600% rally on gold in the years that followed. Silver even fought 1.100% during this period.
Similarly, as the U.S. dollar began to show strength, gold and silver withdrew sharply as expected.
As the recent weakness of the US dollar resulted in a rally around commodity markets, this would also benefit any momentum in Bitcoin in the coming years. This momentum is often classified as “opting out of the system” “by Bitcoin believers.
The most likely scenario for Bitcoin
BTC / USD 1-week chart. Source: TradingView
The most likely scenario would be a continued range-bound structure with some additional tests at lower levels.
Several arguments can be drawn for this scenario. The first is Ethereum’s overall weakness so far in Q4, resulting in the overall weakness of the crypto market.
In general, January is a perfect month for Ethereum and the markets. However, a breakout in this quarter is unlikely given all the uncertainty surrounding the global economy at this stage.
The second argument is the conclusion that the market is still building a new cycle. Through these constructions, accumulation areas are defined, which creates momentum for the next impulse movement.
BTC / USD 4-day chart. Source: TradingView
The 4-day chart of Bitcoin shows similarities with the start of the previous cycle in 2016. Long, sideways constructions were building up speed, after which there was a large impulse movement towards the next resistance level.
That’s the most likely scenario at this point, as the market is still building up to the next big cycle. This cycle takes the market to levels not seen before, but it does not happen all at once.
Therefore, accumulation is a critical part of building in such a market that seems to be happening at the moment.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risk. You need to do your own research when making a decision.