The Tokenist | Aug 10, 2022 01:34AM ET
Bitcoin continues growing as a digital class. Will it become a risk-off asset?
It took many years for Bitcoin to manifest what kind of asset it is. Since 2016, it became apparent that Bitcoin inversely correlates with the US dollar index, reaching a 5-year high negative correlation at -0.87.
In other words, as the dollar gains in strength, Bitcoin weakens. Likewise, when the dollar weakens, Bitcoin appreciates. With DXY at a 20-year high of 106.2, what does this mean for Bitcoin’s rally potential?
Many wonder how it is possible that the Dollar Strength Index (DXY) grew to a 20-year high this year while simultaneously having a 40-year high inflation rate of 9.1%. After all, isn’t inflation equivalent to currency devaluation, as one has to pay more banknotes for the same products?
The missing link is that this logic applies to national currencies, not the dollar as the global reserve currency. DXY is weighted against six national currencies: euro (EUR), Japanese yen (JPY), British pound (GBP), Canadian dollar (CAD), Swedish krona (SEK), and Swiss franc (CHF). Of the six, Euro has the largest weight at 57.6%.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.