Crypto

Bitcoin Crashes As US Dollar Hits 20-Year High

Bitcoin Crashes As US Dollar Hits 20-Year High

Bitcoin is losing its safe-haven status to the US dollar and mutual funds are adding $208 billion in cash holdings in the first half of 2022.

On September 6, the price of Bitcoin (BTC) fell below $20,000 and it looks like the asset will fall again in September due to a strong US dollar and a disturbing technical analysis pattern.

The Bitcoin price is then targeted at $15,000.

From a technical standpoint, the price of Bitcoin is likely to drop to $15,000 or lower in the coming weeks after it breaks the dominant bear flag pattern.

For the uninitiated, bear flags form when price consolidates higher in a parallel uptrend after a strong downtrend. They usually resolve after the price breaks below the lower trendline and falls by the length of the previous downtrend.

Bitcoin (BTC/USD) chart with bull flag pattern

Source: Trade review

The price of Bitcoin has entered what is known as the breakout phase of its bear flag, with its downside target lurking south of $15,000 as shown in the chart above.

cash king

The outlook for a weaker bitcoin in 2022 is increasing primarily due to a worsening economic backdrop.

The 60% drop in the price of bitcoin since the beginning of the year is one of the unfortunate consequences of the hawkish policy of the Federal Reserve to bring inflation down to 2% from its current level of 8.5%. Specifically, the U.S. central bank raised its benchmark rates, ranging from 2.25% to 2.5%, in four consecutive hikes in 2022.

The rise has boosted the appetite for cash securities compared to riskier assets like bitcoin.

For example, US banks with savings accounts are offering their customers an annual interest rate of 2% or more, up from about 0.5% earlier this year, according to data from BankRate.com.

Meanwhile, Goldman Sachs analysis shows that mutual funds with $2.7 trillion in equity under management increased their cash holdings by $208 billion in the first half of 2022, the highest distribution rate so far.

Mutual fund asset turnover recorded in the first half of 2022

bitcoin goldman sachs fundSource: Goldman Sachs.

Wider demand for cash helped the US dollar index (DXY), which measures the dollar’s strength against a pool of major foreign currencies, rise to 110.55 on Sept. 6, its highest level since 2002.

Daily chart of the US dollar index (DXY)

US dollar dxy September 6, 2022Source: Trade review

As a result, cash has significantly outperformed equities, bitcoin, ethereum, copper, timber, and other assets in 2022.

This trend may continue as the Federal Reserve plans to continue raising rates, according to Jerome Powell at a recent Jackson Hole symposium.

Yashu Gola, Cointelegraph

Yashu Gola is a Mumbai-based financial analyst who has been involved in the cryptocurrency industry since 2014. Prior to his career in journalism, Yashu was a security analyst at Premiershield and an editor at Appin Technology.

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The opinions expressed here are solely those of the author and do not necessarily reflect the views of Forex Quebec. Every investment and trading move involves risk, so you should do your own research when making a decision.

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Disclaimer: The information and opinions contained in this report are for general information only and do not constitute an offer or solicitation to buy or sell foreign exchange contracts, CFDs and cryptocurrencies. Although the information contained herein has been obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness and accepts no liability for any direct, indirect or consequential damages that may result from anyone relying to such information.

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