June 22, 2021

Boom for Bitcoin as Macro Analysts Stick to Their Bearish Dollar Calls

3 min read

Bitcoin and the United States dollar have stopped appreciating their inverse connection heading into 2021.

The flagship cryptocurrency closed the first quarter more than 100 percent higher as a growing number of institutions ended up being accustomed to its safe-haven attributes. For example, US carmaker Tesla exposed that it changed $1.5 billion of its money reserves with bitcoin, mentioning that it thinks about the cryptocurrency as a store-of-value.

That was a clear example showing how a big company chooses bitcoin over the dollar, especially under the impression that the latter would lose its value against other fiat currencies after closing the previous year down 6.80 percent. The analogy itself followed a flurry of sell-side forecasts for the dollar, making Bitcoin an emerging safe-haven alternative, an appealing asset for financiers.

But the strong agreement over a weakening dollar started crackling in 2021.

The US dollar index…

…… …. which tracks the greenback’s value versus 6 other major currencies, climbed up 3.6 percent in the first quarter.

US dollar index rebounds 3.43 percent from its sessional low. Source: DXY on TradingView.com

United States dollar index rebounds 3.43 percent from its sessional low. Source: DXY on TradingView.com It later drew back by 1 percent, preserving its annual advantage bias. The index increased mostly since of underperforming foreign currencies, coupled with a sharp increase in inflation expectations in the United States, starred by President Joe Biden’s $1.9 trillion stimulus bundle.

The uptick triggered a sharp sell-off in the bond market. In turn, that pushed the yields greater, raising the federal government debts’ appeal amongst foreign financiers, especially in Japan, whose yen fell 7.5 percent versus the dollar in the very first quarter. Nevertheless, many macroeconomic analysts remained persuaded that the dollar would decrease.

Zach Pandl, co-head of international forex, interest rates, and emerging markets technique at Goldman Sachs, reiterated their earlier position about a weaker dollar, stating a rebound in the euro would drive the greenback lower.

“I do have some concerns about the very near-term outlook. [however] we have stuck with the bearish view due to the fact that I eventually believe that the dollar is most likely to damage over the next few months,” he informed the Financial Times.

Citi analyst Calvin Tse, who forecasted a 20 percent crash for the United States dollar index in 2021, likewise stuck to his bearish call, saying that the long-term outlook for the greenback has not changed. He noted that all the existing bullish elements that drove the yields higher– faster vaccine rollouts, global trade healing, higher product rates– would still prove bearish for the dollar.

What About Bitcoin?

On the other hand, Bitcoin rallied from $20,000 in December 2020 to a little over $61,000 as in March 2021, showing that it stays a hot property amongst hyperinflation conspirationalists.

Among the main factors Bitcoin may have held up against a stronger dollar is foreign demand itself. Just just recently, exchanges in South Korea reported trading volumes greater than what worldwide crypto platform Binance processes. Other parts of the world, including Turkey and Nigeria, also saw a spike in demand for bitcoin and other cryptocurrency possessions versus weaker regional currencies.

Conclusion

So it appears, Bitcoin became a safe-haven also versus wild cyclical trades between the dollar and other fiats. This year’s unpredictable forex outlook even more makes the cryptocurrency a much safer destination to park, especially for corporates with extreme direct exposure to money in their balance sheets.

Photo by Bermix Studio on Unsplash