The historically weaker US dollar has led to strength in other “safe haven” assets. By correlation analysis, such an impulse and conclusion can be made with both bitcoin (BTC) and US dollars.
Bitcoin won in 2020 as the US Dollar Currency Index (DXY) experienced a difficult year. But will this momentum continue in the coming months? Let’s take a closer look at the graphs.
Bitcoin must maintain a support level of $ 11,000 to avoid a $ 9,600 CME leak test
BTC / USD 1-day chart. Source: TradingView
The triangle broke up as most markets waited for a climax, leading to a rally to $ 11,700 and a break of the key resistance zone of $ 11,000-11,200.
However, to maintain the bullish momentum, support must be kept in this $ 11,000-11,200 zone to obtain a $ 12,000 resistance zone test.
BTC / USD 1-week chart. Source: TradingView
The weekly chart of Bitcoin shows the importance of the resistance level of $ 12,000. Since the launch of the bear market, the area of $ 12,000 has been a big obstacle.
This crucial barrier has led to numerous tests in this area. However, a breakthrough has not yet occurred. But the general consensus is that the more often the level is tested, the weaker it becomes.
As an example, it took silver almost seven years to break the $ 18 resistance.
Silver 1-week chart. Source: TradingView
This breakthrough took a long time, as the price of silver was constantly pushed back to a $ 18 barrier. However, the break at the level of $ 18 led to a massive move, as the rally continued to $ 30, which is a 60% increase after the break.
But while this is not much for cryptocurrency market enthusiasts, it is a big move for commodity markets. Therefore, breaking the $ 12,000 barrier should lead to a massive move for bitcoin, and the first big hurdle is between $ 16,500-17,500.
Such a move would lead to almost 50%.
A weaker dollar would suit Bitcoin well
DXY vs. BTC / USD 1-day charts. Source: TradingView
In recent months, the US dollar currency index has been at the center of much discussion about bitcoin movements.
Clearly, they are moving in the opposite direction, leading to the conclusion that the weaker US dollar favors the price of bitcoin. This is the main argument behind the large institutional investors who have taken a position in bitcoin, a major signal for the upcoming new cycle.
In fact, the inverse correlation is obvious and quite natural, as the world economy is built around the world’s reserve currency, the US dollar.
DXY vs. Gold 1-Week Chart. Source: TradingView
The main example of weaknesses around the US dollar is the reaction to gold from the 2000 bubble point.
After the collapse of the markets this year, the US dollar lost its value, leading to a 600% rally on gold in the following years. During this period, silver even collected 1100%.
Similarly, as the US dollar began to show strength, gold and silver recovered strongly as expected.
Therefore, as the recent weakness of the US dollar has led to a rally around commodity markets, this would also benefit any momentum in bitcoins in the coming years. This impulse is often classified as a “rejection of the system” by Bitcoin believers.
The most likely scenario for bitcoin
BTC / USD 1-week chart. Source: TradingView
The most likely scenario would be a continuous structure linked to the scope, with some additional tests at lower levels.
Many arguments can be drawn for this scenario. The first is the general weakness of Ethereum so far in Q4, which leads to the general weakness of the crypto market.
Overall, January is an ideal month for Ethereum and the markets. However, the breakthrough in this quarter of the year is unlikely given all the uncertainties surrounding the global economy at this stage.
The second argument is the conclusion that the market is still in the process of building a new cycle. During these accumulations, accumulation ranges are determined, building a pulse for the next pulse stroke.
BTC / USD 4-day chart. Source: TradingView
The 4-day Bitcoin chart shows similarities with the start of the previous cycle in 2016. The long side constructions gained momentum, after which there was a large impulse move to the next level of resistance.
This is the most likely scenario at the moment, as the market is still under construction for the next big cycle. This cycle will bring the market to levels never seen before, but it will not happen in one go.
Accumulation is therefore a critical part of the accumulation in such a market, which seems to be happening at the moment.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every move of investment and trading involves risk. You need to do your own research when making a decision.