- Bitcoin moves the cryptocurrency market&
- Its dependency on the US dollar increased&
- Bitcoin holders better believe that the US dollar is in a bearish market
Investing in the cryptocurrency market is not for everyone. Volatility, for example, is much higher than in other markets.&
Sometimes, for no apparent reason, the prices of various cryptocurrencies bounce or decline aggressively, leading to speculation that the market is rigged. Lack of regulation might explain the moves, but surely investors wonder what moves the cryptocurrency market.&
The one and the only answer is Bitcoin. Its share of the total cryptocurrency market capitalization nears 50%.&
In other words, if Bitcoin’s price is rising, Ethereum or other cryptocurrencies can’t decline. And the other way around is true &- if Bitcoin enters a bearish market, the other cryptocurrencies will follow.&
Therefore, the right question is not what moves the cryptocurrency market but what moves Bitcoin?&
Lately, Bitcoin moves following developments in the traditional currency market. More precisely, it follows the dollar.&
Bitcoin follows the dollar’s strength or weakness
The chart above shows Bitcoin’s performance from late 2021 to the present. Above, in orange, is the dollar index (DXY).&
It shows clearly that during the bear market of 2022, Bitcoin declined while the dollar strengthened. EUR/USD dropped below parity in 2022, trading as low as 0.96 at one point. The euro is the main component of the DXY, and thus the EUR/USD currency pair is the relevant one to consider.&
Bitcoin dropped, too, trading well below $20k.&
But then, in October 2022, the dollar bottomed. EUR/USD bounced above parity and rallied into the year’s end.&
It took Bitcoin until the end of the year to catch up with the dollar’s weakness. Eventually, it bounced too, rallying in 2023 and gaining over 75% in four months.&
To sum up, Bitcoin holders better believe that the US dollar will weaken lies ahead. Otherwise, it is difficult to hold Bitcoin if the dollar enters a bull market.&
The post What moves the cryptocurrency market? appeared first on CoinJournal.
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