Bitcoin price on the rebound

Today, Monday 15 May 2023, the price of Bitcoin is recovering slightly. 

To understand what is happening these days, it is possible to compare Bitcoin’s price trend with that of the Dollar Index (DXY), which is the index that measures the strength of the US dollar against a basket of the world’s other major fiat currencies. 

Until 7 May, there seemed to be no correlation between the performance of the two curves, but as of last Monday an inverse correlation seems to have returned. 

It is worth mentioning that there has often been an inverse correlation between these two curves at certain times in the past, but it does not appear to be lasting over time. For example, over the past 30 days the Dollar Index has almost always lateralized between 101 and 102, while the price of Bitcoin first fell from $30,000 to $27,000, then rebounded to $29,000 before falling below $27,000. 

Bitcoin price news: the recent inverse correlation

This period of apparent decorrelation seems to have ended last Monday, when the Dollar Index began an upward climb that ended Friday at 102.7 points, while Bitcoin’s price began a descent from $29,000 to $25,900 that also ended Friday. 

In five days the DXY has almost steadily risen, while the price of BTC has almost steadily fallen. Something similar had also happened at the turn of February and March, but not in such an obviously correlated way. 

It is worth noting that during the same days the Nasdaq 100 index had earlier risen, until Thursday, but during the last session of the week had fallen. In theory, the performance of this index should also be inversely correlated with that of the Dollar Index, so it is rather curious that in the very week when the Bitcoin price returns to be inversely correlated with DXY the Nasdaq instead did the opposite. 

Well, as of tonight the Dollar Index began to fall slightly and slowly toward 102.5 points, or just below the 102.7 points with which it closed last week. 

As soon as it started to fall, the price of Bitcoin almost immediately reacted with a slight rise, culminating for now at $27,500. 

The correlation with gold

Something very similar is happening with the price of gold. 

Last week it closed at $2,008 an ounce, but when DXY began to fall tonight, the price of gold began to rise, marginally and slowly, to its current level of about $2,020. 

Today’s trend for the price of gold is not identical to that of the price of Bitcoin, but it looks a lot like it. Perhaps right now they are simply both correlated inversely with the Dollar Index, but reacting slightly differently. 

It is worth specifying that these are apparent correlations, because it is by no means certain that the inverse correlation goes beyond what can be observed on the charts. 

The apparent correlation of Bitcoin’s price with that of gold seems to have been in place since the beginning of the month, and at this time it may also have a concrete underlying reason. 

Given the crisis in the US banking sector, which is still in fact ongoing, it is not surprising that some savers are preferring to invest dollars in gold rather than leave them in the custody of banks. Indeed, in March, as soon as the US banking crisis became apparent, the price of gold began to rise from $1,810 on 8 March to a peak above $2,050 in early May. 

Bitcoin’s price trend has been only slightly different from that of the gold price during this period, perhaps precisely because BTC is also seen by some as an alternative to bank custody of fiat money. 

The drop in recent days

It is possible that there is another reason behind the past few days’ drop in Bitcoin’s price from $30,000 on 19 April to $25,900 on Friday. 

It certainly has something to do with the fact that after Ethereum’s Shapella update on 12 April, the price of ETH went up for a few days, dragging the entire crypto market behind it. As soon as that momentum stopped, ETH started to fall bringing down the prices of many other cryptocurrencies as well, including Bitcoin. 

However, on 8 May this momentum seemed to have finally died down, with Bitcoin’s price returning to $27,600. 

Instead, as of Thursday 11 May, the descent resumed, coinciding with a new sharp rise in the Dollar Index. 

Fears over the possible sale by the US Department of Justice of a substantial portion of the 214,000 BTC seized over the past three years may also have been influential. 

There is speculation that a significant portion of those BTC could be sold by year-end, and this has created some fear in the crypto markets. What’s more, the return of the 142,000 BTC from Mt.Gox is also expected to take place between now and the end of the year.

Putting all these things together, it is easy to see that last week’s drop was fully justified. 

Today’s rebound in Bitcoin’s price

It is worth noting that the decline in the Dollar Index has not been much. 

Right now it has only fallen as far as 102.5 points, but on Thursday it was at 101.3. So it cannot be ruled out that it may fall further in the coming days. 

That of today therefore may not just be a rebound in Bitcoin’s price after Friday’s drop. 

For all intents and purposes it looks like a rebound for now, not least because it has simply returned to Thursday’s levels, undoing all the losses of the following day. 

However, in the event that DXY’s decline continues, and BTC’s price trend continues to be inversely correlated with that of the Dollar Index, a further rise could be expected. 

To this, it should be added that the current level of the Dollar Index is by no means high, since it is in line with that of 10 April, and is still significantly lower than the 105.6 points of March, when the banking crisis broke out in the US. However, if that crisis turns out to be behind us, it could return to the 101.1 points of early February, which is a significantly lower level than the current one.