Why there’s good reason behind Bitcoin [BTC] waiting on the Dollar Index

While Bitcoin continues to perform within a tight range, attention is now shifting towards the U.S dollar. This is particularly due to the Dollar index’s impressive rally over the last few months, one which saw it rally to its highest levels in 20 years. However, it is currently showing signs of weakness. This has led many to wonder whether the Dollar index’s bearish correction may trigger a Bitcoin rally.

Bitcoin and the crypto-market at large have been heavily bearish in the last few weeks. This has been the case with the securities market too. This, amid interest rate hikes aimed at curbing inflation and economic downturn. Bonds are traditionally the go-to when rates go up but even those have performed poorly, leaving investors running towards the dollar.

Will the Dollar index’s drop contribute to risk-on conditions?

This week has brought forth chatter that the Dollar index might be about to experience a sizeable bearish correction after its impressive rally. The Dollar turned out to be the best hedge against recent crypto and stock crashes. However, the Dollar index recently slid from 104 to 102, resulting in a slight recovery in the DOW.

The current expectation is that a bearish performance in the DXY would shift the tide in favor of risk-on assets such as the U.S dollar. While the DOW responded positively to the DXY’s slight drop, the crypto-market and Bitcoin were unaffected.

Twitter user @tedtalksmacro clarified that the European Central Bank’s hawkish sentiments triggered the U.S dollar’s slight downside. He also noted that it did not necessarily translate to a risk appetite increase. That may explain why cryptocurrencies have not reacted so far.

Can a big enough dip in the DXY trigger a crypto-rally?

Some top crypto-analysts and investors believe that the Dollar index will trigger a wave of BTC acquisition if it drops lower. This is based on the anticipation that investors will want to move their wealth into assets that will hedge against the drop. Bitcoin and stocks are already trading at discounted prices, making them attractive candidates.

The outcome will ultimately depend on whether investors will increase their risk appetite. Such an outcome would pave the way for Bitcoin inflows, hence allowing it to break out of its current range. However, investors are still cautious about potential rate increases which might encourage risk averseness. This, in turn, would trigger more downside.