Bitcoin Risks Deeper Drop if Dollar Rebounds

Bitcoin’s price pullback may worsen as the U.S. dollar shows signs of life on the back of the newly released minutes from July’s Federal Reserve meeting.

• The dollar index, which tracks the greenback’s value against that of other reserve currencies, has jumped 1% to 93.000 in the past 24 hours – the biggest single-day rise in two months.
• The U.S. dollar (USD) has picked up on the news the Federal Reserve is not planning on implementing controversial yield curve controls on bonds – something markets had been anticipating.
• The correlation between bitcoin and the USD has been historically weak but has picked up in the past month as investors look for alternative safe-haven assets.

• CoinDesk data shows bitcoin rising from $9,000 to $12,400 in the four weeks up to Aug. 17 just as the dollar index declined from 97 to 92.
• But in the past week and in the face of a strengthening dollar, bitcoin has fallen to around 11,780 – down 5% from the recent high of $12,400 it reached earlier this week.
• Continued recovery in the U.S. dollar could yield further losses for bitcoin but a sustained dollar rebound still looks unlikely – interest rates will remain at rock bottom to stimulate the economy, increasing the chances that the Fed might be forced to more radical monetary measures.
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