Bitfinex Alpha | In a Strong Dollar Environment, Accumulation Continues
The inverse correlation between Bitcoin and the dollar is increasingly clear. A strengthening US dollar index has seen Bitcoin price weakness, and the reverse is also true – making it an important gauge to watch
The surge in the US Dollar Index throughout 2022 has had serious consequences on other weakening currencies, too, especially the Euro with Europe’s ongoing energy crisis. But the rise in Bitcoin last week corresponds to a recent weakening in the US dollar. We believe a strong dollar cannot be sustained in the long-term without damaging the economy, and even some central banks are diversifying away from the dollar for this reason, among others. However, demand for dollar assets still remains strong, and this will continue to put upward pressure on the dollar index – and have a negative effect on Bitcoin.
In our weekly on-chain analysis, we deep dive into a fair valuation metric for Bitcoin and note that the ‘shrimps’ (0.1-2 BTC-size wallets) are buying aggressively. And who is selling? The miners. In a special Learning Section of this week’s Bitfinex Alpha, we conclude that miners continue to play a very significant role across bitcoin’s history. We deep dive into the dynamics at play around Bitcoin mining and how miners tend to behave through market cycles.
We also update on the latest market news; from California allowing crypto-denominated political donations to Tesla selling 75% of its Bitcoin holdings and Genesis emerging as the largest creditor to Three Arrows Capital.
In short, we continue to be in an uncertain macroeconomic environment, which means that the outlook for all asset prices – including Bitcoin – remains unclear. However, on a number of metrics, we are at or near historic bottoms, which should bode well for the market in the longer term.