Hello and welcome to another edition of Overbit News. Though we kicked off the year bursting upwards, this week's start has been the first tumultuous week for Crypto of the new year. We saw Bitcoin and other coins completely tank on Monday, 11 January, wiping off $150 billion from the total crypto market. At the time of writing the market was $930 billion, down from $1.08 trillion the previous day, according to CoinMarketCap.
Bitcoin, the biggest Crypto, fell to $34,000 by more than 10 per cent and reached a swing low of $30,864 briefly, while Ethereum, the second-largest Crypto, briefly touched below $1000 until recovering above. Some speculate that the sell-off in cryptocurrencies comes after a massive rally and could signal some investor profit-taking. Bitcoin is still up over 300% in the last 12 months and last week hit an all-time high just below $42,000.
Banking Giant JPMorgan has an estimate that Bitcoin could reach $146,000 in the long term as it competes with Gold as an alternative currency and depending on how the US Dollar performs this year (something we're covering later in the article), it's definitely possible.
Over the past few months, we've written extensively about the US dollar's performance and its impact across financial markets. Ever since the pandemic took hold on the world economy, the US dollar has been primarily bearish, thus elevating some of its riskier counterparts like GBP, EUR, Gold and cryptocurrency, to name a few. This trend continued into 2021, with the US dollar index (DXY) hitting lows not seen since 2018 around the 89.225 level on 4 January.
For now, though, it appears the US Dollar Index (DXY) is bouncing with some room to make a run to the upside before a critical resistance level. This is happening after DXY has been in a medium-term downtrend, in which we observed alternative currencies such as Gold and Bitcoin rise in value as the DXY dropped.
Currently, the DXY is up by more than 0.40%, trading at the highest level since 23 December 2020. At the time of writing, DXY has bounced around 1.70% from the 89.225 level to 90.588.
The DXY rise's catalyst could be related to the upcoming new administration in the US and rising Coronavirus cases in other countries, as investors hope for a more "stable" US economy in 2021. From a technical analysis point of view, it appears possible that the DXY will continue rising as bulls target the next resistance at $91.00, but with many factors at hand, it's hard to predict how the DXY and BTC will correlate in 2021. Given the previously established bearish trend, it would be wise to wait for a clear break of the downtrend before doing anything.
Although the dollar rallying and cryptocurrency plummeting may have caught you off guard in the new year, it's important to remember the old trading adage - "the trend is your friend". As we have written about time and time again, the US dollar and cryptocurrency markets have been inversely correlated for nearly the past year. Whilst this trend can end at any time, and it's by no means foolproof, it should act as a useful blueprint until the trend is broken. The dollar showed real signs of strength on 7 January, days before the cryptocurrency dump on 11 January, and anyone closely watching this correlation would have been prepared.
Thanks again for reading Overbit News, where we cover the top market news, globally every week.