The dollar strengthens due to strong demand. Why is there so much demand for the dollar? On the one hand, the strength of the dollar is related to the weakness of the other currencies. And, on the other hand, there is certainly an aspiration to take refuge in the relative stability of the dollar.
Now, we speak of “strength” in a certain context, but we must clarify that this supposed strength of the dollar is, of course, relative. Because right now, in the midst of a global inflationary crisis, all currencies are quite undervalued. The dollar strengthens in relation to other currencies. But, at the same time, its value has been falling relative to goods and services.
What is certain is that the US dollar is indeed on a very bullish streak and, for the first time in two decades, has outperformed the euro. What happens is that, due to the macroeconomic uncertainty, investors have become quite conservative. Which means they are avoiding risk and taking refuge in the stability of cash.
What does “risk” mean in this context? Risk, in this context, means volatility. This “conservative” attitude is very detrimental to variable income instruments. In particular, it mainly hurts the most speculative assets. Because? Good because speculation requires optimism and liquidity. And the first depends a lot on the second. With credit costs soaring, buyers abound due to cheap money. That is, speculation thrives under certain conditions.
In this case, the dollar is negatively correlated with the stock markets and Bitcoin. In other words, what we actually have are pairs. An element goes up. The other goes down. One goes down. The other goes up. And this oscillation occurs with the change in sentiment on the part of investors. At any given time, investors want stability. And, at another point in time, investors want growth.
We must remember that the investor always makes decisions based on an expectation. Buy with a bullish forecast. Sell with a bearish forecast. After all, growth lies in buying at one price today and selling at a better one tomorrow. In times of uncertainty, the most sensible thing to do is to choose stability. Because most investors prefer to sacrifice growth in favor of not losing.
In the crypto space, tends to minimize the importance of losses due to idolatry for the hodling. In other words, the idea is promoted that the best strategy is to buy and wait. The strategy itself is not bad. However, an investor cannot lose the North. If the goal is to grow financially, we cannot be lenient about losses (realized or not). Unrealized losses are also losses. And that is true for all time frames. That means sometimes it’s time to sell. It is sold to take profit or to avoid further losses. In this way, we are managing the risk. Fans demonize the sales as a great act of treason. Mistake. The investor’s priority should be his pocket. If the best thing is to sell, you have to sell. As simple as that.
Investors when selling gain stability. And, with this stability, they get liquidity and predictability. In the fantastical world of social media, the advice is usually to wait and never sell. But, in the real world, people eat every day. In other words, we are all full of debts and commitments. Which, in general, are fixed in dollars. In times of crisis, the uncertainty of a fluctuating market implies greater risk. In times of accessible credit, this risk is not so high, because debts and commitments can be covered with credit. And that possibility incites optimism. In times of less accessible credit, it is best to act with greater caution.
The strong dollar represents an advantage in many ways. But it also represents a problem in many others. A strong dollar means that corporations with foreign operations post less revenue. What is reflected in the quarterly reports. A strong dollar favors imports. And it hurts exports. But a strong dollar also affects producers of merchandise priced in dollars in the international market quite a lot. And, additionally, a strong dollar hurts debtors with dollar debt because the debt becomes heavier. This combination of factors implies, in general terms, an economic slowdown.
In fact, you could say that a strong dollar means economic slowdown. And the opposite is also true. A weak dollar means economic acceleration. Now B.itcoin, in the past, has thrived a lot in a context of a weak dollar with low inflation. That is the perfect combination. Now we have a very different context. We have a strong dollar with high inflation.
Every cryptocurrency investor must understand very well the relationship that exists between the dollar and crypto. The official narrative of crypto-libertarians tells us that Bitcoin is digital gold. In other words, apparently, it is the alternative currency that will conquer the future taking all other currencies ahead. However, Bitcoin is simply a code on a computer network.. That is, numbers and letters in a decentralized database. There is no intrinsic value. A code is an abstraction. What happens is that that code is used as a currency exchange rate. In the end, it is only a couple. And a pair is made up of two elements. In this case, the most important pair is BTC/USD. In other words, B.itcoin is basically its price in dollars. In other words, it is a code that, when sold, receives dollars.
Who are we kidding? The vast majority of people see Bitcoin as an opportunity to make money. Obviously, not everyone is in this because of the ideological crusade that is so widely touted on Twitter. Or, put another way, not everyone who buys BTC does so for the libertarian utopia proposed by the narrative. The vast majority of people see Bitcoin as a financial promise. This is a market made up mainly of businessmen, speculators, opportunists, tradersinvestors, developers, startupsventure capitalists and ambitious young people. It’s a Wall Street on steroids that presents itself on social media as a libertarian rebellion.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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