Will the weakness of the dollar cause Bitcoin to finally break...

Historically, a weaker US dollar leads to strength in other “safe havens”. By analyzing the correlation, such impulses and conclusions can also be drawn with Bitcoin (BTC) and the USD.

Bitcoin rose in 2020 as the US dollar currency index (DXY) had a difficult year. But will this dynamic continue in the coming months? Let’s take a closer look at the diagrams.

Bitcoin must maintain the support level of $ 11,000 to avoid a CME gap test at $ 9,600

BTC / USD 1-day chart. Source: TradingView

The triangle broke up as the majority of markets waited for a peak, causing a rally towards $ 11,700 and breaking the critical resistance zone of $ 11,000-11,200.

However, in order to maintain upward momentum, support must be held in this $ 11,000-11,200 area for a test of the $ 12,000 resistance area to take place.

BTC / USD 1 week chart. Source: TradingView

Bitcoin’s weekly chart shows the importance of the USD 12,000 resistance level. Since the bear market began, the $ 12,000 area has been a major hurdle.

This critical barrier resulted in multiple tests of the zone. However, a breakthrough has not yet occurred. However, the general consensus is that the more often a level is tested, the weaker it becomes.

For example, it took silver almost seven years to break the $ 18 resistance.

Silver 1 week chart. Source: TradingView

Silver 1 week chart. Source: TradingView

This breakout lasted a long time as the price of silver was consistently declined at the $ 18 mark. However, the break of the $ 18 level resulted in a massive move, with the rally continuing towards $ 30, up 60% since the breakout.

While this isn’t much for enthusiasts in the cryptocurrency markets, it is a big step up for the commodities markets. Hence, breaking the $ 12,000 barrier should result in a massive move for Bitcoin, and the first major hurdle is between $ 16,500 and $ 17,500.

Such a step would also lead to almost 50%.

A weaker dollar would be a good fit for Bitcoin

DXY vs. BTC / USD 1-Tages-Charts. Quelle: TradingView

DXY vs. BTC / USD 1-Tages-Charts. Quelle: TradingView

In the past few months, the US dollar currency index has been the center of much discussion about Bitcoin’s movements.

Clearly, they move in opposite ways to each other, leading to the conclusion that a weaker US dollar will benefit the price of Bitcoin. This is also the main reason large institutional investors are taking a position in Bitcoin, an important signal of a new cycle ahead.

In fact, the reverse correlation is obvious and natural, as the world economy is built around the world reserve currency, the US dollar.

DXY vs. Gold 1 week chart. Source: TradingView

DXY vs. Gold 1 week chart. Source: TradingView

The main example of weakness related to the US dollar is the reaction of gold since the dot-com bubble of 2000.

The US dollar has depreciated since the markets collapsed that year, causing it to rally 600% against gold in the years that followed. Silver even rose by 1,100% during this period.

As the US dollar started showing strength, gold and silver declined sharply, as expected.

As the recent weakness of the US dollar caused a rally around commodity markets, it would also benefit Bitcoin’s momentum in the years to come. This dynamic is often classified as “logging out of the system” by Bitcoin believers.

The most likely scenario for Bitcoin

BTC / USD 1 week chart. Source: TradingView

BTC / USD 1 week chart. Source: TradingView

The most likely scenario would be a continued divisional structure with some more testing at lower levels.

Several arguments can be drawn for this scenario. The first is the general weakness of Ethereum in the fourth quarter, which leads to the general weakness of the crypto market.

In general, January is a perfect month for Ethereum and the markets. However, given the uncertainties surrounding the global economy at this stage, it is unlikely to break out this quarter of the year.

The second argument is to conclude that the market is still building a new cycle. During these build-ups, areas of accumulation are defined which build up the momentum for the next momentum movement.

BTC / USD 4-day chart. Source: TradingView

BTC / USD 4-day chart. Source: TradingView

Bitcoin’s 4-day chart shows similarities with the start of the previous cycle in 2016. Long, sideways constructions took off, prompting a large momentum move towards the next level of resistance.

This is the most likely scenario right now as the market is still preparing for the next big cycle. This cycle will take the market to unprecedented levels, but it won’t happen all at once.

Hence, accumulation is a critical part of the buildup in such a market that is currently taking place.

The views and opinions expressed here are solely those of Author and do not necessarily reflect the views of Cointelegraph. Every investment and trading step is associated with risks. You should do your own research when making a decision.

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