U.S. Dollar Is Breaking Out, Here’s How It Affects Bitcoin and Cryptocurrencies

Veteran trader Peter Brandt has shared a U.S. Dollar index chart showing that the world’s leading currency is breaking through the previously existing resistance. While not making any comments about DXY influencing the cryptocurrency market, traders already expect major pressure on Bitcoin and other cryptos on Monday.

Unpleasant correlation

Thanks to TradingView’s comparison tool, we can clearly see a reverse correlation between Bitcoin and DXY. Wherever the U.S. Dollar is showing strength on the market, Bitcoin tends to retrace from local tops and resistance.

Major upside breakout in U.S. Dollar $USD pic.twitter.com/omikNqe9bd

— Peter Brandt (@PeterLBrandt) July 2, 2022

The main reason behind such a trend is simple: investors choose less volatile assets whenever the U.S. currency is strong and prefer making slow and steady income from tools like bonds rather than exposing themselves to risk assets like cryptocurrencies.

Fed’s hawkishness taking shape

Thanks to the most recent rate hike and upcoming hikes until 2023, the U.S. Dollar is feeling comfortable compared to the rest of the world’s currencies. We are most likely to see the continuous strengthening of the currency in the future and lack of inflows into risk assets and markets.

According to institutional netflows last week, large investors are getting away from the cryptocurrency market, also because of the U.S. Dollar’s rally on the market. Investors took almost $500 million away from the cryptocurrency industry after the flash crash of assets like Bitcoin and Ethereum.

Luckily, institutional investors ‌often end up as a minority of the buying power on the cryptocurrency market as large retail investors and funds that operate solely on the crypto market can push the price of the digital gold up even without the help of traditional institutions.