Bitcoin and the US dollar stopped worrying about their reverse correlation around 2021.
The flagship cryptocurrency a closed the first quarter over 100% higher as more and more iInstitutions have become accustomed to its characteristics of a safe haven. For example, US automaker Tesla revealed that it had replaced $ 1.5 billion of its cash reserves with bitcoin, stating that it viewed cryptocurrency as a store of value.
This was a clear example of how a large corporation chooses bitcoin over the dollar, especially since the latter would lose value against other fiat currencies after closing the dollar. previous year down 6.80%. The analogy itself followed a wave of selling predictions for the dollar, making Bitcoin, an emerging safe haven alternative , an attractive asset for investors.
But the strong consensus on a weakened dollar has started to crumbler in 2021.
The US dollar index…
…. which tracks the value of the greenback against six other major currencies, climbed 3.6% in the first trimester.
The US dollar index rebounds 3.43% from its session low. Source: DXY on TradingView.com
It later fell 1%, keeping its annual upward bias. The index rose mainly due to the underperformance of foreign currencies, coupled with a sharp rise in inflation expectations in the United States, with President Joe Biden's $ 1.9 trillion stimulus package.
The hike requested a strong liquidation in the bond market . In turn, this pushed yields higher, making government debt more attractive to foreign investorsgers, particularly in Japan, where the yen fell 7.5% against the dollar in the first quarter. Nevertheless, many macroeconomic analysts remained convinced that the dollar would fall.
Zach Pandl, Co-Head of Global Foreign Exchange, Interest Rate & Emerging Markets Strategy at Goldman Sachs, reiterated his earlier stance on a weaker dollar, saying a rebound in the dollar euro would lower the greenback.
Citi analyst Calvin Tse, who predicted a 20% crash in the US dollar index in 2021, also followed his bearish call, saying the long-term outlook for the greenba ck has not changed. He noted that all of the existing bullish factors that drove yields up - faster vaccine deployments, resumption of global trade, rising commodity prices - would still bearish against the dollar.
What about Bitcoin?
On the other hand, Bitcoin is notIt rose from $ 20,000 in December 2020 to just over $ 61,000 as in March 2021, showing that he remains a hot asset among hyperinflation conspiracies.
One of the main reasons Bitcoin may have held up against a stronger dollar is foreign demand itself. Recently, exchanges in South Korea has reported higher trading volumes than the global crypto platform Binance is trading. Other regions of the world, including Turkey and Nigeria, have also seen increased demand for bitcoin and other cryptocurrency assets against weaker local currencies.
So it seems that Bitcoin has emerged as a safe haven also against wild cyclical exchanges between the dollar and other fiats. This year's uncertain currency outlook makes cryptocurrency a safer destination to park, especially for companies that are excessively exposed to liquidity on their balance sheets.
Photo by Bermix Studio on Unsplash