The pessimistic outlook for the U.S. dollar may give Bitcoin a chance to continue to rise towards $20,000.
The dollar’s sell-off accelerated this week as its value to foreign currencies in overnight trading dropped another 0.21%. The dollar index (DXY) reached 90.22 on Thursday, the lowest level since April 2018, which prompted Morgan Stanley to predict further declines in trade-weighted instruments.
Mark Wilson, Morgan Stanley’s chief investment officer and chief U.S. equity strategist, told Bloomberg that he expects the dollar to fall another 10% in the next twelve months. The analyst pointed out that during the coronavirus pandemic, the Federal Reserve and the U.S. government have maintained “the most positive structural deficit.”
Bitcoin he added: “The devaluation of the U.S. dollar is helpful to the world. A powerful force has caused more widespread contraction in global growth… which will eventually lead to a negative story of deflation.”
Analysts at JP Morgan & Chase Co. also believe that the U.S. dollar will remain bearish on the outlook for 2021. Julio Calegari, chief investment manager of the bank’s Asian interest rate and foreign exchange business, said that economic growth after the pandemic has reduced the investment attractiveness of the dollar.
This statement appears to be because Bitcoin continues to maintain its recently established all-time high near $19,915. As of this Tuesday, its profit so far has increased by 179%. The BTC/USD exchange rate has risen by 5.61% every week, which is completely opposite to the performance of the US dollar index.
Bitcoin BTC/USD and DXY (dollar index) both showed a negative correlation this year, especially after the global market crash in mid-March. In March of this year, the price of Bitcoin dropped by nearly 60% in just two days. On the other hand, the U.S. dollar performed strongly, rising 8% during the same period.
They are the opposite because investors seek cash safety to deal with the uncertain economic outlook caused by the rapidly spreading COVID-19 pandemic. When the government announced the blockade, the stock market crashed. This has led people to transfer lucrative positions to other places to raise funds.
Nevertheless, large-scale interventions by the Federal Reserve and the US government eased demand for cash. Together, they are committed to injecting about $3 trillion in liquidity through unlimited purchases of bonds and a decision to expand the fiscal deficit. As a result, the U.S. dollar fell, while Bitcoin rose because of its safe-haven rhetoric.
Perhaps by 2021, the situation will not change. The COVID-19 infection rate in the US economy is rising rapidly. At the same time, the bipartisan bill proposes to inject approximately US$ 908 billion into the US economy to further expand the deficit.
Bitcoin In the recent minutes of the meeting, the Federal Reserve has confirmed that it will keep the pace of bond purchases unchanged in a lower interest rate environment. At the same time, investors have increased their bets that the bank will now start buying long-term US Treasury bonds because the yield on short-term Treasury bonds is close to zero.
Overall, this situation makes Bitcoin a stronger investment alternative to the U.S. dollar and bonds. This explains why cryptocurrencies may exceed $20,000 in performance in the next quarter.
