The Dollar Strength Index (DXY) has reached its highest level in almost 10 months, indicating a growing confidence in the US dollar compared to other fiat currencies. This surge in demand for the dollar has raised concerns among investors regarding its potential impact on Bitcoin and cryptocurrencies. However, it’s important to note that these concerns are not necessarily interconnected.
Despite concerns over inflation and economic growth in the US, the dollar has exhibited strength in September. Market expectations for US gross domestic product (GDP) growth in 2024 are lower than the average rate of the previous four years, attributed to tighter monetary policy, rising interest rates, and diminishing fiscal stimulus. However, not every increase in the DXY reflects confidence in the economic policies of the US Federal Reserve. If investors choose to sell US Treasuries and hold onto cash, it suggests a looming recession or a significant uptick in inflation as the most likely scenarios.
Investors are avoiding government bonds in favor of cash positions, indicating a strategy of waiting for a more favorable entry point. Anticipating that the Federal Reserve will continue raising interest rates, investors aim to capture higher yields in the future. However, if investors lack confidence in the Fed’s ability to curb inflation without causing harm to the economy, a direct link between a stronger DXY and reduced demand for Bitcoin may not exist. It is important to consider that a higher money supply due to inflation and recession pressures could benefit Bitcoin, as increased liquidity in the markets often favors alternative assets in times of economic uncertainty. Ultimately, the impact of the DXY golden cross on Bitcoin may not necessarily be negative, especially when looking at longer timeframes.