The US dollar’s ongoing strength could put more downward pressure on crypto prices that have already suffered along with other risk assets, as bitcoin has lost more than half of its value so far this year.
In recent months, the dollar has DXY,
have rallied to historic levels against their major rivals.
The British pound GBPUSD,
on Friday crashed to its lowest level against the US dollar since 1985, trading as low as $1.14. In July, the euro EURUSD,
fell below parity against the dollar for the first time in almost 20 years, before returning to parity. Earlier this month, the Japanese yen USDJPY,
fell to its lowest level against the US dollar since 1998, while the dollar rose above 7 yuan CNYUSD,
to the dollar for the first time in more than two years.
The dollar has benefited from the Federal Reserve raising interest rates at a faster pace than other major countries, analysts said.
“It gives international investors a lot of confidence that the U.S. is going to be the place to be because they’re not going to let inflation get out of hand,” said Mike Vogelzang, chief investment officer at Captrust.
Meanwhile, the United States is “probably not going to have a recession as deep as the one in Germany or England or Great Britain,” Vogelzang noted.
The dollar’s outperformance is detrimental to cryptocurrencies, with most bitcoin trades taking place against the USD, or USD-backed stablecoins USDTUSD,
USDCUSD,
The largest cryptocurrency BTCUSD,
is down 17.6% in the past week and down more than 57% so far this year, according to data from CoinDesk.
Worse for the crypto, the dollar rally is likely to continue, noted Martha Reyes, head of research at crypto exchange Bequant. “The only way the dollar can go is still up,” Reyes said, citing the energy crisis in Europe, the negative interest rate policy in Japan and China’s zero Covid policy.
Read: Why an epic rally in the US dollar could be a ‘wrecking ball’ for financial markets
That said, dollar strength appears to be stretched, according to Todd Morgan, chairman and partner at Bel Air Investment Advisors.
“I think the surprise with the dollar will come and next year it will start to fall back to a more normalized level,” Morgan said in an interview. “But it’s also quite difficult to call it a dollar movement as there are interest rates.”
Hear from Mike Novogratz at the Best New Ideas in Money festival on September 21st and 22nd in New York. The Galaxy Digital boss has ideas for navigating the crypto winter.
