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Home Cryptocurrency news Bitcoin

How The Dollar (DXY) Index Is Responsible For Today’s Bitcoin Carnage

Tony Spilotro by Tony Spilotro
7 months ago
in Bitcoin, Cryptocurrency news, Technical analysis
Reading Time: 3min read
bitcoin dollar dxy btcusd

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Bitcoin price is down $800 in just over 24 hours, and elsewhere in the finance space, there is pure carnage. Gold fell below $1900, and stocks are downward spiraling. And behind it all is the dollar. But why is the Dollar Currency Index (DXY) potentially responsible for the market-wide collapse and what exactly is driving it?

Bitcoin Price Collapses $800 In Early Week Selloff, Another Test of $10,000 Next?

Bitcoin price tapped over $11,000 one last time before a deadly drop began later Saturday night and into Sunday. The drop extended deeper into the weekday trading week, with a fall to under $10,400 starting Monday morning.

Related Reading | “Intense” Bitcoin Whale Exchange Flow Could Be Behind Weekend Crash

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It wasn’t just Bitcoin, Ethereum, Ripple, and even top DeFi tokens tanked in the selloff. Blockchain data shows that miners were partly responsible for driving prices down, however, the drop is really due to the dollar.

The Dollar (DXY) Index Deals Devastating Blow To Crypto, Metals, and Stocks

Although Bitcoin has dragged down the rest of the crypto market, the leading cryptocurrency by market cap is just part of a market-wide collapse.

Alongside Bitcoin’s steep breakdown, the Dow Jones Industrial Average has bled over 800 points and gold is now trading back below $1900 an ounce.

Behind it all could be the dollar. The DXY Dollar Currency Index is a weighted basket of top forex currencies trading against the dollar.

Related Reading | Bitcoin, Metals, And Equities “Will Fly” If Dollar Downtend Deepens

Bitcoin and gold are directly opposed to the dollar, both trading against it as USD pairs and due to their finite supplies. Together, these assets ebb and flow at varying degrees.

When Bitcoin is strong, the dollar is often weak and vice-versa. And that’s exactly what has been behind the crypto asset’s recent climb to over $12,000 an inverse correlation with DXY shows.

bitcoin dollar dxy comparison

Inverse BTCUSD Versus DXY Dollar Currency Index Correlation | Source: TradingView

The March Black Thursday collapse was a panic-driven flight out of assets and into the safe haven of the dollar. Since then, however, markets have been soaring and the dollar has been in decline. Stimulus efforts to save the stock market and the economy have dampened the dollar’s legacy.

According to the DXY, the dollar recently found support and formed an inverse complex head and shoulders bottom. These reversal patterns are essentially an inverse head and shoulders with an extra head.

dxy dollar inverse complex head and shoulders

Inverse Complex Head And Shoulders DXY Dollar Currency Index  Source: TradingView

Coincidentally, Bitcoin recently retested and confirmed a head and shoulders top pattern, adding to the inverse correlation theory. The cryptocurrency is currently headed back down after a throwback, while the DXY is only just now breaking through resistance.

This early break of resistance has already sent crypto, metals, and equities crashing, and the dollar’s recovery could only just be getting started.

dxy dollar bitcoin btcusd

Falling Wedge Reversal Pattern DXY Dollar Currency Index  Source: TradingView

Zooming out, the complex bottom formation is breaking out of a falling wedge reversal pattern on daily timeframes. After the initial breakout, DXY ground down diagonal support but has since made a strong rebound.

That rebound has absolutely crushed Bitcoin, and it may only just be getting started. If investors panic once again and money moves into the safety net of the dollar, markets could be in for another Black Thursday style collapse.

Tags: bitcoinbtcbtcusdBTCUSDTcryptodollardollar currency indexdxyxbtxbtusd
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Tony Spilotro

Tony Spilotro

I'm Tony Spilotro. Behind the pseudonym, I'm a global remote work leader with a decade of award-winning content experience and excellence. Here, I explore my newfound passions pertaining to privacy, finance, economics, politics, cryptography, property rights, and other libertarian-esque views. I am a Bitcoin evangelist, maximalist, and educator whenever I can be, helping to spread its message of freedom from government control, monetary policy mismanagement, and passing the buck - literally – to future generations. My journey from a curious retail crypto investor to a serious Bitcoin advocate, trader, and technical analyst is an unusual one, but life-changing nonetheless and has become less about money and more about a long-overdue revolution. While a firm believer in the laws governing math and science, I am profoundly fascinated by the impact of astrology and astronomy including moon and solar cycles and planetary alignment and their ability to influence and potentially predict markets. It hasn't yet clicked for me as to how to put anything to use, but I consider it my current rabbit hole I can't yet dig out of. My perspective of growing up alongside the internet, the dot com era, the Great Recession, and roots in video games collecting coins and rare items caused Bitcoin to immediately make sense to me. Through all of these lenses, I seek to produce content that is educational and entertaining, and I thank you sincerely for taking the time to read what I have to say. Please follow me on Twitter and feel free to drop me a line if you would like to work together.

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