NAIROBI (CoinChapter.com) — Bitcoin’s bullish momentum in 2024 could face a headwind as a surprisingly strong U.S. dollar could delay the expected “dollar crash” typically associated with cryptocurrency surges. Historically, Bitcoin rallies have occurred during periods of dollar weakness, and negative correlation has played a key role in determining the cryptocurrency’s market bias.
Correlation between Dollar Bitcoin and Cryptocurrency
Wall Street is bracing for the release of key PCE data on Friday, an event that has the potential to shake up markets this week. This measure of inflation is the Federal Reserve’s preferred measure and can have a significant impact on investor sentiment and market volatility.
Core PCE is expected to decline slightly, but a surprising rally mirroring recent CPI and PPI trends could have serious consequences for Bitcoin’s trajectory.
Stronger-than-expected inflation numbers could signal that price pressures remain, prompting the Federal Reserve to extend its rate-hiking campaign into 2024. This change in monetary policy could push the dollar higher, potentially weakening the Bitcoin rally.
Why Dollar Burst Strength Matters for Bitcoin
Bitcoin has a well-documented history of inverse correlation with the US dollar. This means that periods of dollar weakness often coincide with Bitcoin rallies. For example, the Dollar Index (DXY) fell 2% below 90 in February 2021, when Bitcoin soared above the landmark $50,000 mark.
The performance of the dollar is very important for Bitcoin as the two assets have historically moved in opposite directions.
A strong dollar could create a headwind for Bitcoin bulls who are hoping for a rally. It is worth noting that January had some positive effects for Bitcoin enthusiasts. There have been robust inflows totaling $4.8 billion into spot Bitcoin ETFs from major players such as BlackRock and Fidelity. These inflows could potentially temper a steeper decline in the near term.
Although a strong dollar is casting a shadow over Bitcoin’s near-term prospects, there is still a glimmer of hope. Strong inflows into spot Bitcoin exchange-traded funds (ETFs) operated by BlackRock and Fidelity are a positive sign. These investments amounted to nearly $4.8 billion in January and could help cushion the cryptocurrency’s potential decline.