Bitcoin Struggles as Dollar Breaks 16-Month Downtrend

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  • Bitcoin is struggling having failed to pass $48,000, with $41,000-$42,000 on the cards
  • The U.S. Dollar Index is also looking very strong suggesting potential further stagnation for Bitcoin
  • Dollar strength could lead to Bitcoin acting in a $40,000-$50,000 channel for some time

Bitcoin is edging closer to a correction down to the $41,000-$42,000 level following its inability to pass $48,000, while the U.S. Dollar Index is looking ominously strong. The DXY recently broke a 16-month downtrend after putting in a clear double bottom, suggesting that a recovery could be well underway. This is typically bad news for Bitcoin, and could mean that 2021 isn’t as explosive for crypto as had been hoped.

Bitcoin Facing Further Correction

Bitcoin has of course been staging a fantastic month-long recovery since threatening to dump below $29,000, but $48,000 proved too tough a nut to crack and Bitcoin has since experienced a perfectly natural correction:


Should Bitcoin fail to break through the line of resistance on its next try, a further drop to the $41,000-$42,000 area is a likely point of support given the previous activity around this level:


U.S. Dollar Index Primed

Even if Bitcoin does find support at this level, what happens next could be determined by the U.S. Dollar Index. The DXY and Bitcoin have historically experienced opposing fortunes, with one running while the other falls. The DXY has collapsed 11% since the Coronavirus pandemic began in March 2020, during which time Bitcoin famously ran from $3,500 to $65,000. With the DXY putting in a strong reversal pattern however, it seems that money could be about to flow from traditional markets and Bitcoin into dollar-based equities:


As we can see from a higher time frame outlook there is plenty of room for the DXY to run:


If the DXY does go on a run, as seems probable, the best case scenario for Bitcoin is a rapid rise to previous highs to prepare for a push towards all time highs later in the year. Given that Bitcoin spent almost three months trapped between $30,000 and $42,000 there is no reason it can’t remain between $40,000 and $50,000 for the next few months while the dollar shows some strength, followed by a typically strong winter.