Forget Inflation: Bitcoin Rallies When The Dollar Falls, Study Finds

Christian Encila

11 hours ago

3 mins read

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According to NYDIG research, Bitcoin’s price moves are driven more by the strength of the US dollar and broad liquidity conditions than by direct ties to inflation.

Greg Cipolaro, NYDIG’s global head of research, said the data show weak and inconsistent links between inflation measures and Bitcoin. That view shifts attention away from the old narrative that Bitcoin is mainly an inflation hedge.

Inflation Link Weak

Cipolaro argued that expectations for inflation are a slightly better signal than headline inflation readings, but still not a tight predictor of Bitcoin’s price.

Instead, Bitcoin and gold both tend to gain when the US dollar weakens. While gold’s inverse relation with the dollar is long established, Bitcoin’s opposite movement to the dollar is newer but visible.

Gold And Bitcoin React To Dollar Moves

Based on reports, gold has historically climbed as the dollar falls. Bitcoin is following that pattern, though its correlation is less steady than gold’s.

As Bitcoin becomes more connected with mainstream finance, NYDIG expects that its inverse relationship with the dollar will likely strengthen.

This makes sense to traders who price everything in dollars and seek alternatives when the greenback loses purchasing power.

Interest Rates And Money Supply

Cipolaro highlighted interest rates and money supply as the two major macro levers that move both gold and Bitcoin.

Lower interest rates and looser monetary policy have tended to support higher prices for these assets.

In simple terms: when borrowing costs drop and liquidity rises, Bitcoin often benefits. The note framed gold as more of a real-rate hedge, while Bitcoin is described as acting like a gauge of market liquidity — a subtle but important distinction for investors.

BTCUSD trading at $115,997 on the 24-hour chart: TradingView

Illiquid Supply Drops, Selling Pressure Returns

On-chain data show signs of renewed selling. Reports say illiquid Bitcoin — coins held in long-dormant wallets — fell from 14.38 million earlier in October to 14.300 million on the 23rd of October.

That change means roughly 62,000 BTC, worth about $6.8 billion at recent prices, moved back into circulation. In the past, large inflows did exert price pressure. In January 2024, a substantial sum of coins came available that caused the price momentum to soften.

According to Glassnode data, there has been a consistent selloff from wallets holding from 0.1 to 100 BTC, and first-time buyer supply has contracted down to ~213,000 BTC.

The overall assessment from a macro perspective and on-chain metrics is not favorable. Demand from new buyers appears to be lighter, momentum traders appear to have stepped aside, and more coins are now available to trade. This combination can blunt rallies or deepen pullbacks until liquidity conditions improve or the dollar weakens.

Featured image from Gemini, chart from TradingView

Christian Encila

They say journalists never truly clock out. But for Christian, that's not just a metaphor, it's a lifestyle. By day, he navigates the ever-shifting tides of the cryptocurrency market, wielding words like a seasoned editor and crafting articles that decipher the jargon for the masses. When the PC goes on hibernate mode, however, his pursuits take a more mechanical (and sometimes philosophical) turn.

Christian's journey with the written word began long before the age of Bitcoin. In the hallowed halls of academia, he honed his craft as a feature writer for his college paper. This early love for storytelling paved the way for a successful stint as an editor at a data engineering firm, where his first-month essay win funded a months-long supply of doggie and kitty treats – a testament to his dedication to his furry companions (more on that later).

Christian then roamed the world of journalism, working at newspapers in Canada and even South Korea. He finally settled down at a local news giant in his hometown in the Philippines for a decade, becoming a total news junkie. But then, something new caught his eye: cryptocurrency. It was like a treasure hunt mixed with storytelling - right up his alley!

So, he landed a killer gig at NewsBTC, where he's one of the go-to guys for all things crypto. He breaks down this confusing stuff into bite-sized pieces, making it easy for anyone to understand (he salutes his management team for teaching him this skill).

Think Christian's all work and no play? Not a chance! When he's not at his computer, you'll find him indulging his passion for motorbikes. A true gearhead, Christian loves tinkering with his bike and savoring the joy of the open road on his 320-cc Yamaha R3. Once a speed demon who hit 120mph (a feat he vowed never to repeat), he now prefers leisurely rides along the coast, enjoying the wind in his thinning hair.

Speaking of chill, Christian's got a crew of furry friends waiting for him at home. Two cats and a dog. He swears cats are way smarter than dogs (sorry, Grizzly), but he adores them all anyway. Apparently, watching his pets just chillin’ helps him analyze and write meticulously formatted articles even better.

Here's the thing about this guy: He works a lot, but he keeps himself fueled by enough coffee to make it through the day - and some seriously delicious (Filipino) food. He says a delectable meal is the secret ingredient to a killer article. And after a long day of crypto crusading, he unwinds with some rum (mixed with milk) while watching slapstick movies.

Looking ahead, Christian sees a bright future with NewsBTC. He says he sees himself privileged to be part of an awesome organization, sharing his expertise and passion with a community he values, and fellow editors - and bosses - he deeply respects.

So, the next time you tread into the world of cryptocurrency, remember the man behind the words – the crypto crusader, the grease monkey, and the feline philosopher, all rolled into one.

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