The US dollar has been in rally mode for months. What are the implications of this for cryptocurrencies?
In view of the currently tense geopolitical situation, numerous investors are fleeing to the supposedly safe greenback. The US dollar index, which measures the strength of the US currency in comparison to a basket of six other currencies, has fallen by around 4.8 percent in the last three months to currently 111.71 points (as of October 3, 2022 ) increase.
Although the US economy is also struggling with difficulties, the situation in Europe, for example, is much worse. On the one hand, Europe is more dependent on Russian oil and gas supplies, and on the other hand, the ECB only initiated the interest rate turnaround months after the Fed to counter the growing risk of inflation.
Bitcoin & Co. in a downward spiral: crypto market suffers
Other asset classes, including cryptocurrencies, are suffering from the current US dollar strength. For example, Bitcoin has lost around 3.4 percent in value in the past three months (as of October 3, 2022).
“We are in a situation where as much money as possible is flowing into the US dollar globally,” Glen Goodman, crypto advisor at eToro, told CoinDesk. And further: “That means that everything else is starving.” In addition to other fiat currencies, he also means cryptocurrencies and even US government bonds. “There are no safe havens” to protect against US dollar strength, Goodman said.
What is the outlook for cryptocurrencies?
However, according to Glen Goodman, the situation for cryptos could improve if investors start to take profits from their dollar investments. Then the US dollar bubble would burst.
Good news for stock and crypto investors, for example, according to Goodman, would be if the Fed took a break from raising interest rates. This could well become necessary in order to prevent another “dangerous economic and market situation”. However, at the last interest rate meeting in September, Fed Chair Jerome Powell clearly signaled that the big rate hikes were far from over. “Without price stability, the economy doesn’t work for anyone,” said the top US monetary authority.
It seems questionable whether the greenback will weaken in the foreseeable future. Morgan Stanley, at least, doesn’t expect the US dollar’s uptrend to end anytime soon. As “MarketWatch” reports, the US investment bank even saw the US dollar index at 118 points at the end of the year.