The fall of the US dollar and the Bitcoin surge happened at the same time. So why? Before explaining the answer, let’s examine the multiple factors underlying, starting with the downward adjustment of US Treasury bond interest rates and monetary expansion policies.
These policies caused too many US dollars to be sold, causing the dollar index to fall further. The latest data show that the US dollar index has dropped below 93. This marks not only the lowest point this year, but the drop that passed the lowest in two years.
In the US dollar derivatives market, short positions have also reached a new high since April 2018. Global Hedge funds believe the US dollar will fall further. The total decline on the USD increased by approximately $ 5.3 billion this week to $ 24.5 billion.
In terms of correlation, the correlation between Bitcoin and the US dollar and gold and the US dollar decreased while the correlation between Bitcoin and gold increased. Price reaction came to this, showing that both gold and Bitcoin are rising rapidly on the ground of the falling US dollar index.
The increase in gold can be explained by the decline in the US dollar, which has increased global demand for safe-haven assets such as precious metals. Although Bitcoin has not yet reached the safe haven asset status, it is another global alternative investment destination besides gold. Moreover, as gold rises to people’s psychological peaks, most of the US dollar currently being sold begins to flow into Bitcoin and other digital currency markets.
For example, data from Coinmetrics show that USDT supply continued to increase, especially in July, when the upward curve became steeper. At the same time, the upward momentum of gold has slowed somewhat, indicating that more US dollars are beginning to flow into the digital currency market to print more money than before.
The money flowing to the exchanges is a large amount of USDT, but data from Glassnode shows that the stock exchanges’ USDT balance has dropped since April. At the same time, the Bitcoin exchanges balance continued to rise. Based on this, we can say that most of the USDT flowing into the exchanges is used to buy Bitcoins.