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Does Bitcoin benefit from the devaluation of Tether and the dollar?

Bitcoin and the US dollar (USD) share some similarities regarding certain features and uses. Both are used as tools for storing value and conducting financial transactions. However, the relationship between Bitcoin and the dollar remains a complex and debated topic.

In this article, you will find:

Historical Correlation Between the Dollar and Bitcoin

The dollar index before and after the release of inflation data; Increase in Bitcoin price

Looking into the future of the dollar and Bitcoin

 

Historical Correlation Between the Dollar and Bitcoin

Whether an increase in the value of the dollar leads to a decline in Bitcoin or not is a complex question with no easy answer. We need to examine perspectives, historical developments, and recent market movements to better understand the relationship between these two.

In the past, the dollar and Bitcoin have demonstrated a negative correlation. This means that when the value of the dollar increases, the value of Bitcoin may decrease, and vice versa. This correlation is one of the influential factors in determining the price of Bitcoin. However, it should be noted that this is just one factor among many affecting the price of Bitcoin, and considering only this factor is not sufficient for predicting Bitcoin price movements.

To assess the strength of the US dollar and examine its correlation with Bitcoin, the DXY index (US dollar index) is used. This index indicates how powerful the US dollar is compared to a basket of global currencies such as the British pound (GBP), euro (EUR), Swiss franc (CHF), Japanese yen (JPY), Canadian dollar (CAD), and Swedish krona (SEK).

Historical comparison charts of the DXY index and Bitcoin show that these two assets have often had a negative correlation. One reason for this inverse relationship is that Bitcoin, as an investment asset, can hedge during inflation and economic pressures. Therefore, when the value of the dollar increases and the dollar becomes stronger, some investors may be directed towards traditional assets like the dollar and exit Bitcoin. This may lead to a decrease in the price of Bitcoin.

Furthermore, other factors such as changes in financial markets, global events, political and economic decisions, the economic situation of countries, and their impact on the value of the dollar and Bitcoin can also affect the relationship between the two. Therefore, it cannot be definitively claimed whether an increase in the value of the dollar leads to a decline in Bitcoin or not.

It should be noted that the Bitcoin and US dollar markets are highly dynamic and complex, requiring a thorough examination of multiple and diverse factors. Additionally, Bitcoin and the US dollar operate as two independent assets, and their relationship may change over time. Therefore, making precise and definitive predictions about the relationship between these two assets is very difficult.

 

The dollar index before and after the release of inflation data; Increase in Bitcoin price

According to CNBC, on February 13, the dollar index reached its highest level in three months (104.952). However, after the release of the Consumer Price Index (CPI), data showed that inflation in the United States was decreasing, and prices rose unusually in January.

In other words, the dollar index declined after this information. Traders carefully follow economic data to find clues as to when the Federal Reserve might reduce interest rates.

Many economists predict that the US economy will grow more slowly in the coming months. Meanwhile, data shows that inflation in the United States is decreasing, and the inflation rate is approaching the central bank’s annual target of 2 percent.

On Friday, February 29, the value of the dollar decreased after the release of the Personal Consumption Expenditures (PCE) index. This index showed that inflation in the United States is in line with economists’ forecasts and concerns about price pressure decreased.

This decline in the dollar index (DXY) along with a decrease in the inflation rate increases investors’ motivation to invest in Bitcoin because Bitcoin is one of the factors that can be affected by dollar prices and inflation.

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Looking into the future of the dollar and Bitcoin

The US dollar has been recognized as the world’s stable currency for over 60 years. However, its dominance in the future is uncertain. While the United States maintains considerable economic power, it faces challenges regarding the absolute dominance of the dollar with the emergence of rival powers like China and the growth of digital currencies.

The future path of Bitcoin and its relationship with the US dollar is still in a realm of ambiguity. It is predicted that Bitcoin will gradually detach from its historical relationship with the US dollar and traditional assets. This could lead to increased power and acceptance of Bitcoin by companies and the launch of exchange-traded funds (ETFs). These potential changes could strengthen Bitcoin in the financial market.