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Boom for Bitcoin as Macro Analysts Stick to Their Bearish Dollar Calls

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Bitcoin and the US dollar have stopped caring about their inverse correlation heading into 2021.

The flagship cryptocurrency closed the first quarter more than 100 percent higher as more and more institutions became accustomed to its safe-haven characteristics. For instance, US carmaker Tesla revealed that it replaced $1.5 billion of its cash reserves with bitcoin, stating that it considers the cryptocurrency as a store-of-value.

That was a clear example showing how a big firm chooses bitcoin over the dollar, especially under the impression that the latter would lose its value against other fiat currencies after closing the previous year down 6.80 percent. The analogy itself followed a flurry of sell-side predictions for the dollar, making Bitcoin an emerging safe-haven alternative, an attractive asset for investors.

But the strong consensus over a weakening dollar started crackling in 2021.

The US dollar index…

….which tracks the greenback’s value against six other major currencies, climbed 3.6 percent in the first quarter.

US dollar index rebounds 3.43 percent from its sessional low. Source: DXY on TradingView.com

US dollar index rebounds 3.43 percent from its sessional low. Source: DXY on TradingView.com

It later pulled back by 1 percent, maintaining its yearly upside bias. The index rose primarily because of underperforming foreign currencies, coupled with a sharp rise in inflation expectations in the US, starred by President Joe Biden’s $1.9 trillion stimulus package.

The uptick prompted a sharp sell-off in the bond market. In turn, that pushed the yields higher, raising the government debts’ appeal among foreign investors, especially in Japan, whose yen fell 7.5 percent against the dollar in the first quarter. Nevertheless, many macroeconomic analysts remained convinced that the dollar would decline.

Zach Pandl, co-head of global foreign exchange, interest rates, and emerging markets strategy at Goldman Sachs, reiterated their earlier stance about a weaker dollar, saying a rebound in the euro would drive the greenback lower.

“I do have some concerns about the very near-term outlook . . . [but] we have stuck with the bearish view because I ultimately think that the dollar is more likely to weaken over the next few months,” he told the Financial Times.

Citi analyst Calvin Tse, who predicted a 20 percent crash for the US dollar index in 2021, also stuck to his bearish call, saying that the long-term outlook for the greenback has not changed. He noted that all the existing bullish factors that drove the yields higher — faster vaccine rollouts, global trade recovery, higher commodity prices — would still prove bearish for the dollar.

What About Bitcoin?

On the other hand, Bitcoin rallied from $20,000 in December 2020 to a little over $61,000 as in March 2021, showing that it remains a hot asset among hyperinflation conspirationalists.

One of the main reasons Bitcoin may have withstood a stronger dollar is foreign demand itself. Just recently, exchanges in South Korea reported trading volumes higher than what global crypto platform Binance processes. Other parts of the world, including Turkey and Nigeria, also saw a spike in demand for bitcoin and other cryptocurrency assets against weaker local currencies.

Conclusion

So it appears, Bitcoin emerged as a safe-haven also against wild cyclical trades between the dollar and other fiats. This year’s uncertain forex outlook further makes the cryptocurrency a safer destination to park, especially for corporates with excessive exposure to cash in their balance sheets.

Photo by Bermix Studio on Unsplash 



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Dogecoin, CryptoCurrency Reddit communities surge as crypto euphoria heats up

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With much of the market fixated on Bitcoin’s (BTC) sudden price correction over the weekend, retail interest in digital assets appears to be on the rise, according to the latest statistics from Reddit.

The r/dogecoin community added 145,859 weekly subscribers, according to Subreddit Stats. The gains are hardly surprising given DOGE’s dramatic rally over the past week. The meme-based cryptocurrency skyrocketed 400% during that period, bringing its yearly returns to an eye-watering 5,000%.

DOGE’s parabolic rally moderated over the weekend, with social media sentiment data from The TIE and Cointelegraph indicating more pain in the short term. That’s because price action is often correlated with social media engagement; a decline in the latter is sometimes a precursor to bearish price action in the near term. 

Meanwhile, the r/CryptoCurrency community, which is devoted to all things digital assets, added 86,838 new subscribers during the week. New community members were welcomed by platinum award recipient “mirza1h” on Sunday. In a subreddit post, miraza1h said:

“Past week has been insane in the crypto world, so naturally things here weren’t like they normally are. Your curious posts/comments may have been ignored a bit. In the weekend things are a bit more chill, so feel free to ask us anything you want.

The user also introduced new subreddit followers to Moon, the native token of the r/CryptoCurrency community.

Much like DOGE, the overall cryptocurrency market limped into Sunday’s session, having declined by a cumulative $386 billion, according to CoinMarketCap. The digital-asset market cap briefly fell below $1.9 trillion before recovering to around $2 trillion.

Massive shakeouts are nothing new for seasoned cryptocurrency investors. Even during bull markets, declines of 20% or more are fairly common, especially after major rallies. Speculation about an abrupt decline in Bitcoin’s hash power and the possibility of U.S. regulatory action against crypto-friendly banks may have contributed to the decline on Sunday.

Even with the latest decline, the cryptocurrency market is still double the size it was in January when it first crossed the $1 trillion milestone.