Following the Bitcoin price’s extreme loss of volatility over the past few weeks, yesterday’s rally feels like new hopium and a massive move to the upside. Many people were surprised to see that the Bitcoin price has reached $20,000 for the third time in three days.
The crypto market has been dominated by inflation worries and macroeconomic uncertainties in recent years. These fundamental changes did not take place yesterday. So what was the reason for yesterday’s upswing in the Bitcoin market?
It is clear that yesterday’s earnings announcements by Microsoft and Google among other companies, led to a rise in the stock markets. However, whether this was enough to revive Bitcoin’s volatility is questionable. Perhaps the Dollar Index, DXY (Deuce Index) is a more plausible explanation.
When the DXY began to loose its ground between 8 and 10 a.m. EDT, Bitcoin’s price surged shortly thereafter. Within two hours the DXY lost 112.072 and 110.846 points. At the same moment, Bitcoin prices showed some initial strength which was then followed by a rally. This is not a new phenomenon.
Bitcoin and dollar index strongly correlated during much of 2022. This meant that while DXY was increasing, BTC was decreasing. While the correlation has declined again in recent weeks, yesterday’s move may suggest a resumption of the correlation.
The DXY’s weakness could determine whether BTC is able to post greater gains. This is why investors will once again be focused on the Federal Reserve.
The markets will next be eyeing tomorrow’s Gross Domestic Product (GDP) report in the United States to gauge the FED’s future policy. Current estimates indicate that the U.S. economic growth was 2.4% in the third quarter. This means that the interest rate rises have not had a major negative effect on the US economy.
This could encourage the FED’s pursuit of higher interest rate increases. The central bank reiterated recently that it would continue raising interest rates until there is a break in the economy. The Fed may soon need to stop its aggressive plans to increase interest rates if the economy is weakening. This could be further confirmed by the FOMC meeting scheduled for November 02, which may provide additional insight.
Here are more insights on the bitcoin price rally
Arthur Hayes is the co-founder of BitMex, and a widely recognized voice in the crypto community. Hayes also discovered another explanation for why DXY fell and BTC rose. Hayes explains: discussedTo alleviate a shortfall, the U.S. Treasury might consider providing more short-term Treasury Bills to the market.
Money Market Funds like short term T-bills, but there ain’t enough so they park their money in the Fed’s reverse repo facility. […]RRPs money is considered dead money, and can’t be leveraged by any bank system. The money in T-bills can be used to purchase risky assets.
The RRP is currently $2.2 trillion. If that figure goes down, BOOM BOOM BOOM! Let’s Fucking Go, Lambo’s for errbody!
Hayes reports that RRP balances are down slightly in the last month. However, market participants expect this buyback to further reduce RRP balances. But, there haven’t been any buy backs or re-issues on-the-run Treasury bills. If this does not happen, there could be a dramatic reversal of yesterday’s trend.