Could the rising Dollar instigate a Bitcoin recovery?

Lavina Daryanani
Source: Forbes

The macro conditions continue to be choppy, and as a result, Bitcoin and most other cryptos are finding it challenging to pull off a sustainable run. Even in such an environment, however, the greenback has been thriving.

Despite the economic pessimism in the Eurozone, Fed Reserve remaining hawkish, and the yield curve inverting, USD bulls have been able to uphold the value of the dollar. In fact, post crossing the 107 threshold earlier this week, the US Dollar Index began trading at a two-decade high.


Curate’s Egg?

A strengthening US dollar implies that it can buy more of a foreign currency than before. Basically, the purchasing power of the USD is rising at this stage. So, with the ability to buy more using the same limited amount, investors usually get triggered to allocate their funds towards various instruments to earn additional yields.

So, what are investors up to at this stage?

Well, to answer that question, let’s peek into the money supply dynamics. The DXY rising, obliquely implies that the M1 is marching on the same path. Simply put, M1 includes liquid cash and currency in circulation. Alongside, demand deposits and traveler’s checks also fall under this category.

The M2 on other hand has been treading on a differently chalked-out path. M2 money basically takes into account all elements of M1 along with savings deposits, money market funds, certificates of deposit, and other time deposits.

Source: TradingView

M2’s fall, to a fair extent, hints that people are not diverting their funds towards deposits and other money market instruments. The same might end up being a blessing in disguise for Bitcoin.

The rise in liquid cash, on the other hand, means more money in the hands of investors. Them not diverting funds towards traditional instruments doesn’t mean that they’ll keep it idle. There are high chances that they are already propelling funds towards crypto.

Making a Case for Bitcoin

Supporting the aforesaid speculation was the macro decline in the stablecoin supply ratio. The SSR, on its part, gauges the ratio of Bitcoin’s market cap relative to the cumulative market cap of all stablecoins. Low readings tend to indicate a high stablecoin supply. The same, in essence, indicates that there’s dry powder lying on the sidelines for investors to divert towards Bitcoin.

So, if the decline continues further, the buying pressure would potentially rise. In retrospect, going forward, it could lead to a price rise for Bitcoin and instigate its recovery.

Source: CryptoQuant

However, the path ahead wouldn’t be clear-cut for Bitcoin. With inflationary concerns mounting up and employment numbers still looking unhealthy, investors might play the slow game to strike a balance.