The dollar touches the trend line that brings the best return on investment for Bitcoin
Bitcoin price is still in a short-term downtrend. Meanwhile, the dollar has gone completely parabolic in the face of the Fed’s tightening of monetary policy and record inflation figures.
The DXY spike hit the 103 level and at the same time hit a trend line that has in the past delivered some of the best returns Bitcoin has ever seen. Is it the third time the charm for crypto holders hoping for a dramatic end to the cycle? Or will the dollar break the trend line and send the market into a deep crypto winter for many years?
DXY touches the trend line moving up at the start of the uptrend
If you had asked investors where they saw Bitcoin a year ago, the answer would likely have been around $100,000 or more. At that time, they had every reason to think so. Cryptocurrency was unstoppable. New dollars were being printed and BTC was the fastest horse in the race against inflation. Coinbase was listed on the stock exchange. NFTs created a new paradigm.
A year later, ask the same question and the answer is closer to $20,000, where the cryptocurrency’s previous peak was. The narrative of hope turned into fear of a possible recession, nuclear war, and the collapse of the fiat monetary system. The mere promise of the Fed to fight inflation with rate hikes crushed the stock market and cryptocurrencies.
Related Reading | How the breakout of the dollar parabola could boost the price of Bitcoin
The flight of risk assets has further increased the value of the dollar, which is the base rate at which most assets are traded around the world due to its status as a reserve asset. But DXY, a weighted basket of currencies trading against the dollar, hit its highest level since Black Thursday.
Before Black Thursday, the last time the trend line was touched was in December 2016, just before the historic cryptocurrency bull run that made Bitcoin a household name. DXY is back on this trend line and while that is important on its own, what is happening in Bitcoin is even more profitable.
DXY versus BTCUSD compared | Source: BTCUSD on TradingView.com
What to expect from Bitcoin if the dollar is rejected
Every time the DXY touched this trend line, it resulted in BTCUSD returns of 1,500-2,500%. 1,500-2,500% would be between $570,000 and closer to a million per coin.
The law of diminishing returns almost guarantees that such numbers are no longer possible. Even a 500% return from current levels of $38,000, but the price per coin would be closer to $200,000. 300% to over $100,000 BTC. The leading cryptocurrency by market cap grew so much from the 2018 bear market trough to the 2019 peak. Why wouldn’t another 300% be reasonable if the dollar crashed again?
Related Reading | Timing the Dollar (DXY) Trend Reversal and its Impact on Bitcoin
DXY itself could possibly be trading in an Elliott Wave triangle, which would suggest a strong but short rejection to fill wave E of the corrective phase. A parabolic uptrend is at risk of breaking, with daily, weekly and monthly indicators showing overheating conditions on the DXY.
Once the electronic wave ends, the DXY would move in the direction of the major trend and create the next big bear market in crypto and risk assets like the stock market. Given the trend line, DXY, and possibly Bitcoin, are at a turning point. An orientation movement is coming, in which direction will it be?
Follow @TonySpilotroBTC on Twitter or join TonyTradesBTC Telegram for exclusive daily market insights and technical analysis training. Note: The content is educational and should not be considered investment advice.
Featured Image from iStockPhoto, Charts from TradingView.com
- Click to share on Twitter (Opens in a new window)
- Click to share on Facebook (Opens in a new window)
- Click to share on LinkedIn (Opens in a new window)
- Click to share on WhatsApp (Opens in a new window)