The US Dollar Index (DXY) has broken the price record for 2022 and that is usually bad news for bitcoin. Incidentally, the DXY has little to do with inflation, but more with the performance of the dollar against other major currencies.
In general, the bitcoin price plunges when the US dollar flexes its muscles. In this case, pretty much everything dives down except bitcoin. Stocks are having a hard time, gold is in the negative, but bitcoin remains relatively stable above $ 19,000.
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Pretty out of the norm that #Bitcoin is holding up while:— Matthew Hyland (@MatthewHyland_) September 23, 2022
-Stocks market dropping
It may be that the bitcoin bears have lost their gun in recent months and that there is little selling pressure left in the barrel. There is also a possibility that a large buyer is now working to steal relatively cheap bitcoin from the market and that the price will therefore remain relatively stable.
There are a hundred different scenarios for this development, but it is at least a good thing for bitcoin. Unless of course there is some delay in the line and bitcoin starts a nosedive later today, we can’t rule that out in this market either.
Long way to go
Ultimately, inflation, which is at record levels worldwide, is the main culprit for bitcoin. To fight inflation, central banks around the world are raising interest rates and risk assets like bitcoin are suffering. From that perspective, it’s interesting to see how long it often took in the past for inflation to return to healthier levels.
The graph above shows that this happened in the Netherlands, for example, in 2001, after which we had to wait three years for the holy 2 percent. However, it could be a lot worse. In 1980 in Greece it took 29 years for inflation to finally fall back to 2 percent.
If the Federal Reserve does indeed fail to take back control with the rate hikes, we may have to deal with high interest rates for a longer period of time. That is a scenario where bitcoin is likely to struggle to move towards new highs.