The weak US dollar continues to affect Bitcoin prices

The US dollar finds itself in a precarious position. Some analysts are even predicting a total collapse over a short-term slump. As a result, Bitcoin prices have become more volatile than ever. In this article we discuss the future of the dollar and its impact on Bitcoin.

The US dollar is retreating, falling against global currencies such as the Euro and British Pound. With payroll reports due and interest rate cuts almost certain, the future looks volatile. All of this has had a huge impact on Bitcoin, which has experienced low lows and rapid breakouts over the past few months. In this article, we discuss how the weak dollar affects Bitcoin prices.

The continuation of the US dollar frenzy

There was some rebound from the dollar in the midweek sessions. The EUR/USD pair had some recovery as the Federal Reserve began a policy easing cycle. However, the prospect of interest rate cuts still looms large and attracts speculation.

Part of this was due to data from the JOLTS job opening report. It produces data on job surveys, hiring and other employment statistics. It showed that jobs in the US fell to their lowest levels since January 2021. This shows a cooling in the labor market. Open positions fell to 7.67 million in July, down from 7.91 million in June. However, the actual statistics were that the figure was revised downwards from the initial estimate, which was 8.19 million.

How will a weak dollar affect cryptocurrencies

The correlation between the strength of the US dollar and cryptocurrencies is, like crypto itself, a temperamental one. Many are waiting for interest rates to be lowered in the hope that this will spur people into riskier asset classes, such as Bitcoin. However, the strength of the dollar and the price of crypto do not always match.

Rewind to 2002 and in September of that month, historically a gloomy month for crypto, the dollar was in a very different position. It was riding high against a basket of other global currencies. This included the JPY, EUR and GBP. However, this force affected Bitcoin and pushed it into a downward spiral. In that month, nearly 60% of Bitcoin’s year-to-date value was wiped, according to Marketwatch. This would indicate that a strong dollar tends to push cryptocurrencies like Bitcoin downward. However, the price of Bitcoin today against a weak dollar shows that there are many alternative factors at play that keep the value of the currency low.

Some of this can be attributed to the fact that there have been two major events related to Bitcoin in the past year, and investors are still hoping to see how it will play out. It was the Bitcoin halving event and the launch of Bitcoin ETFs.

Bitcoin halving happens once every four years. This is a way for Bitcoin to guard against inflation. When this happens, Bitcoin miners see the reward for mining halved. This usually reduces the amount of Bitcoin that is created. Historically, this has led to price increases at the three-month and the six-month mark. As it happened in April, these increases should be due for the end of September and the beginning of October.

However, investors question whether this will happen this year. With mining efficiency at an all-time low, these lows could trigger a mass sell-off. The 1.8 million Bitcoin held by miners has remained static for the past two months.

Bitcoin ETFs are the second factor. They were initially launched in January of this year and were extremely successful as they provided a way for people to invest in Bitcoin with the added stability of doing so through an exchange traded fund. At the end of August, over four days, they recorded $455 million in inflows, which were quickly followed by $480 million in net outflows. Of course, this could all be related to concerns about the US economy.

The weak US dollar on the global market

A weak US dollar has several implications, not just for cryptocurrencies, but for the broader global economy. The biggest implication for people at home is that imports become more expensive, and any goods not produced in the US will rise in price.

This means it is almost certain that the Federal Reserve will move to lower interest rates. Higher interest rates mean better returns for investors and will attract foreign investment. However, it also encourages people to save money. When the economy needs a boost, low rates are better so that people are encouraged to spend.

This spending also includes using money to purchase riskier assets, of which Bitcoin is one. Thus, a cut in interest rates is expected to boost the appeal of Bitcoin and other cryptocurrencies.

At the moment, many people seem to be in a holding position. Bitcoin remains fairly static as people wait to see which way the US economy will go. However, if it looks promising and you buy now, you could see Bitcoin even enter a bull run as the economy recovers over the next few months.