There has been much talk lately about the relationship of Bitcoin and the USD. I have even published a chart last month (September 27 the original that was deleted and I re-posted it last week) analyzing the relationship on BTC with the USD and the Money Supply:
In this study I will examine the correlation of BTC and stocks (S&P in particular) to the USD (Dollar Index: DXY).
** When Dollar Bottoms, Bitcoin makes All Time High ** As seen on the chart (even though absolute correlation is not the rule), generally when DXY (blue line) makes a bottom after a strong and lengthy (usually 12 months) downtrend (the orange ellipse), BTC (orange line) makes a Cycle Top (or All Time High/ ATH). However this is not always true (Bitcoin rising only when DXY is falling) as there have been numerous instances when both BTC and DXY increased simultaneously (October-December 2011, April-July 2012, February-April 2013, May-December 2016, January-April 2019, December 2019-February 2020).
** The stock market 1, 2, 3 count ** So if this correlation with DXY isn't absolute, what makes BTC rise when DXY also rises? A lot has to do with the stock market (black line). Stocks do rally when cash is cheap (as seen recently with the massive stimulus) but when economic growth is healthy, the stock market can continue rising even when the DXY rallies. What is even more interesting is that the stock market can make systemic corrections when DXY is on a low (i.e. August 2011, September 2015, March 2018).
What I've found on this cross study is that, after the DXY makes a bottom, the first three corrections (1, 2, 3 count) on the stock market that follow are highlighted by extreme market volatility but serve as an accumulation region for a lengthy (and very aggressive) Bull Phase that follows.
Of course with the effect of the COVID pandemic devastating, the current count (2) was far more aggressive than that of the previous Cycles but still remains valid. As you see DXY appears to have currently bottomed and stocks made count (3). It is therefore possible to see in the coming months both Bitcoin and stocks rise along with DXY, before the latter makes a new sharp decline (orange ellipse) which should be the new ATH for BTC. Of course this won't be a matter of a few months but around 1.5 - 2 years.
What do you think? Do you agree with the above data-set showing that all three are about to rise in the coming months? Feel free to share your work and let me know in the comments section!
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It seems from the charts, that Bitcoin is slowly accumulating more and more value of the dollar. It's still very small and weak, almost speculative asset, but changing and getting stronger and more stabile slowly. The DXY is not a valuable representation of the dollar's real value, because other economies and currencies are falling too and some of them even faster, so it can happen, that BTC, DXY, SPX and even M1 and M2 will rise simultaneously with smaller, bigger corrections in the future. I do not see DXY anymore as a representation of a dollar's real value. It's only a relative value. Regarding BTC, I think it will have It's place in the future depending on a meaning and plans of a "great reset". We will see. I see no reason for the SPX to fall as well in the future, while the value is represented in USD. While in a real world environment we see some deflation actually, which can continue for some time, but this deflation is relative too; in a synthetic world I see no space for longterm deflation. Deflating the dollar can have catastrophic consequences for the economy and I see no space in this environment to do it. We are living in complicated times. God will show.
Balabalois
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@Barrabert, wow, GOOD COMMENT (but the very fairy tale "God" doesnt show anything, lol)
Barrabert
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@Balabalois, Yes, you are maybe right, sometimes He just do or allow to happen, He don't need to show anything. And if you don't know Him, why should He even show?
TradingShot
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@Barrabert, Well said, particularly regarding deflation. The world's central banks have already placed their economies on the axiom of cheap money and they will do whatever it takes to protect it. And this can take decades or maybe the new paradigm may be 15-20% drops that are corrected within 6-9 months time as we saw recently with COVID. This is a new economic world order much different from what we learned in Finance Schools years back. As for the "God" reference that @Balabalois mentions, it is everyone's personal belief and I don't have the right to comment. Even though personally I choose not to mix the technicalities of how an economic system works with faith.
@TradingShot, Yes, it can be. We don't know the exact steps of the reset yet, but I'm convinced it will not be so simple and we can see a lot of volatility and turbulence in the next months or years. Digital economy, blockchain, IoV, CBDCs, 4th industrial revolution - AI, robotics, smart cities, IoT. It can be a crazy ride and nobody can predict the reactions to these changes yet. The dollar is still used as a safe heaven and reserve asset, but it's under strong attack and the new system is inevitably implementing. How will it exactly happen I have no idea, but this is only the beginning, what we see now.
Regarding our Creator and our only Saviour, the lord Jesus Christ ; this is not about faith, these are clear facts and I'm sure He know better the technicalities and the economical system from us.
Otherwise really wasn't my intention to mix this very important topic here, but it seems my one word in the first comment did meet a significant demand, so I need to clarify.
Thank you again for sharing the chart. Nice work.
TradingShot
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@Barrabert, You are welcome and thank you for sharing your opinion.
Gunslinger2005
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@Barrabert, the only intelligible thing of this post is your comment
Barrabert
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@Gunslinger2005, Thank you. I really appreciate your comment.