Bitcoin is trading at over $20,000, but the start of what might be the first real correction since the uptrend first began could be forming. However, looking more closely at the DXY Dollar Currency Index, the leading cryptocurrency by market cap could be in for another extended bear phase if a fractal on the dollar chart plays out.
Could fear related to the newest strain of the coronavirus and more potential lockdowns cause another Black Thursday-style flight to the dollar?
Bitcoin Safe Haven Narrative In Jeopardy If Greenback Momentum Shifts
2020 has been the year of the great search for the next safe haven. When the pandemic first struck, and panic took over markets, investors cashed out assets to the safest haven currently known to man: the US dollar.
As the global reserve currency and due to its general stability, it is considered a safe haven asset alongside the Swiss franc and Japanese yen. Outside of fiat and forex currencies, precious metals enjoy safe-haven status, and both gold and silver are shining examples – figuratively and literally – of strong performance during economic uncertainty.
But for the first time in history, Bitcoin was also part of the conversation surrounding safe havens, thanks to the cryptocurrency’s digital scarcity and attributes that make it an ideal store of value.
Gold set a new all-time early in the year, but after that, it has been all about Bitcoin. The cryptocurrency is up 500% in 2020 alone from the Black Thursday low, crushing the performance of all other safe-havens.
But with fear and uncertainty back because of a new, more contagious, mutant strain of COVID called VUI–202012/01 or lineage B.1.1.7, Bitcoin is already pulling back, and the dollar is reawakening, according to the DXY Dollar Currency Index.
Bitcoin price action is layered behind the detailed technical chart of the DXY | Source: DXY on TradingView.com
The Dollar Emerges From Slumber, Could Send Crypto Back Into Bear Clutches
The DXY Dollar Currency Index is a basket of top global forex currencies weighted against the US dollar. The index does a solid job at providing a basic snapshot of the greenback’s strength or weakness.
2020 has not been a good year for the global reserve currency. More than 30% of all US dollars in circulation have been printed this year, and it has caused inflation fears to send chills up the spines of institutional investors.
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It has turned many of them towards Bitcoin, which trades directly opposed to the dollar on its main base currency pair. But a fractal is forming on the DXY that could signal that the dollar is about to reverse, and it could possibly bring another bear phase to Bitcoin and crypto.
A nearly exact falling wedge pattern match what is forming now on the DXY broke up previously after a pair of hidden bullish divergences. The last major bull div and reversal in the greenback caused Bitcoin’s bear market from $20,000 to $3,200 while the dollar regained strength.
The dollar’s weakness in 2020 let the same asset run from $3,800 to $24,300 in under nine full months – what could a return to strength do to the cryptocurrency now that was supposed to be breaking out into a new bull run?
Featured image from Deposit Photos, Charts from TradingView.com