Revived USD Strength Bad News for Crypto Market
- Blog
- September 26, 2022
Revived USD Strength Bad News for Crypto Market
Bitcoin is finding it hard to match the US dollar. The dollar index, the tracker of the dollar value against several other currencies, recorded a 20-year high Friday. This pushed the value of other global currencies and risk assets down.
DXY hit 112, and this resurgent strength of the US dollar has disproportionately impacted the crypto market negatively. Bitcoin’s August upswing came after the drop in the currency. Bitcoin rose above $25,000 for a while then. But what followed was a continuous upward movement of the dollar and the smashing of the risky assets.
The US dollar pressurized Bitcoin’s price as it rose steadily.
The rise in the dollar’s value may be accredited to the rise in interest rates by the Federal Reserve. The Federal Reserve reduces the availability of dollars when it increases the interest rates. This makes it expensive to borrow money and consequently reduces demand and also brings inflation down. But one consequence that the Federal Reserve does not intend is the rise in the dollar’s appeal as a store of value.
With the supply of dollars ebbing, investors are unlikely to have money to invest in riskier assets like cryptocurrencies and equities. This shoots the demand down along with the value of the assets.
The Federal Reserve’s tightening strategy also involves ceasing the purchase of US Treasury bonds. Consequently, the US bond rates have risen, and this is good for the dollar as it makes more people buy US debt.
