what’s next for BTC?

what’s next for BTC?

Bitcoin (BTC) has been moving in the opposite direction of the US dollar since the beginning of 2022; and now that inverse relationship is more extreme than ever.

Bitcoin and the dollar move in reverse

Notably, the weekly correlation coefficient between BTC and the dollar fell to 0.77 below zero in the week ending July 3, its lowest level in seventeen months.

Meanwhile, Bitcoin’s correlation with the tech-heavy Nasdaq Composite reached 0.78 above zero in the same weekly session, according to TradingView data.

Correlation coefficient between Bitcoin and the US dollar. Source: TradingView

This is largely due to year-to-date returns in these markets amid recession fears, led by Federal Reserve benchmark interest rate hikes to curb rising inflation. Bitcoin, for example, has lost more than 60% of its value in 2022, while Nasdaq returns in the same period are around minus 29.72%.

On the other hand, the dollar has been a strong performer, with its strength index, the DXY, a metric that measures its strength against a basket of major national currencies, hovering around its January 2003 high of 105.78.

what's next for BTC?
Chart with the weekly behavior of the BTC/USD pair, DXY and the NDAQ. Source: TradingView

Will the dollar continue to rise?

The Federal Reserve seems compelled to raise benchmark interest rates based on how traders have priced blue-chip derivative contracts.

In particular, traders expect the Fed to raise rates by 75 basis points (bps) in July. They are also betting that the Fed will not raise rates beyond 3.3% later this year, from the current range of 1.25%-1.5%.

However, a rise to as much as 3.4% in the first quarter of 2023 could see the central bank scale back its aggressive tightening.

This could lead to a 50 basis point cut by the end of next year, as shown in the chart below.

what's next for BTC?
Changes in Federal Reserve target interest rates. Source: TradingView

An early rate cut could come if inflation data cools, limiting investors’ appetite for the dollar, according to Wall Street analysts surveyed by JPMorgan. In particular, around 40% estimate that the dollar will end 2022 at its current price levels, around 105.

Read:  Nasdaq falls back more than bitcoin and mining grows in the US

Meanwhile, another 36% were betting that the US national currency would correct before the end of the year.

“Forex is not a linear world. At some point, things change,” said Ugo Lancioni, head of global forex at Neuberger Berman, adding:

“Personally, I have an inclination to short the dollar at some point.”

Will Bitcoin Bottom in 2022?

Additionally, the dollar’s ability to continue its rally for the remainder of 2022 could be hampered by a classic technical pattern.

Agres, independent market analyst, detected for the first time that the DXY “double top” pattern is partially confirmed due to its two consecutive highs and a common support level of 103.81.

As a rule of technical analysis, the double top pattern could be resolved when the price breaks below the support and falls as much as the maximum height of the structure, as shown in the chart below.

what's next for BTC?
DXY daily chart. Source: TradingView

Consequently, the target for the DXY double top pattern is near 101.8, which is down over 3.25% from current price.

“The dollar is extremely overbought and overheated,” Agres explained, adding that its correction in the coming days could benefit stocks and cryptocurrencies.

“Finally, it looks like [el DXY] will go down hard. In a perfect confluence for a fusion scenario. When [el] Dollar goes down, stocks and cryptocurrencies go up.”

Meanwhile, Bitcoin’s “MVRV-Z Score” has also fallen into a range that has historically preceded a large long-term reversal to the upside. This on-chain indicator predicts that Bitcoin could bottom around $15,600 in 2022.

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