Why a strong US dollar could benefit crypto in the long term

By Frances Yue

Hello, welcome back to Distributed Ledger, our weekly crypto newsletter that hits your inbox every Thursday. I’m Frances Yue, crypto reporter at MarketWatch. I’ll be walking you through the latest and greatest in the digital resource world this week.

Find me on Twitter at @FrancesYue_ to send feedback or tell us what you think we should cover. You can also reach me via email to share your personal crypto stories.

Crypto in a flash

Bitcoin was up about 8% over the past seven days, trading at around $20,617 on Thursday, according to CoinDesk data. Ether rose over 20.6% during the seven-day stretch to around $1,548. Meme token Dogecoin gained 28.8% while another dog theme, Shiba Inu , rose 10.2% from seven days ago.

Cryptometrics

Biggest Gainers   Price   %7-day return 
Klaytn            $0.26   89.7% 
Tokenize Xchange  $17.93  38.5% 
Evmos             $2.17   36.4% 
Dogecoin          $0.08   32.2% 
Aptos             $9.21   28% 
                          Source: CoinGecko as of Oct. 27 
Biggest Decliners      Price    %7-day return 
Maker                  $921.91  -15.3% 
Chain                  $0.05    -14.4% 
Axie Infinity          $9.2     -9.4% 
BTSE Token             $3.52    -4.7% 
Ethereum Name Service  $17.74   -4.4% 
                                Source: CoinGecko as of Oct. 27 

Is the dollar king?

It has been a volatile year for the global currency market, with the US dollar rising to a 20-year high against its major rivals.

Last month, the US dollar index rose to as high as 114.8, its highest level since 2002, before falling to around 110.4 on Thursday.

The Japanese yen weakened last week against the dollar to 151.95 yen, its lowest level against the dollar since July 1990, before retreating to around 146.25 yen on Thursday, according to Dow Jones market data.

Earlier this month, the Chinese yuan fell to a 14-year low against the dollar, before retreating to around 7.23 yuan on Thursday.

The British pound hit a record low of $1.03 last month before recovering some losses to trade at around $1.16 on Thursday, while the euro has lost over 12% against the dollar so far this year.

A strong dollar has also hurt cryptocurrencies, with most bitcoin trades happening against the dollar, as I’ve written here. “At the end of the day, you know, value fluctuations are always led by the dollar,” according to Eric Chen, CEO and co-founder of Injective Labs.

However, some industry participants argued that in the long term, the high volatility of the forex market could benefit crypto.

“Looking at the really wild moves of traditional fiat currencies over the past year, I think that speaks to the long-term value of Bitcoin,” said Matt Hougan, chief investment officer at Bitwise Asset Management. “When the form of wildness of the foreign exchange (foreign exchange) market accelerates, it is a long-term catalyst that makes Bitcoin more attractive as a kind of safety valve for investors in case things really get out of control, which does not look likely, but possible at this point, Hougan noted.

“Anytime there’s some kind of volatility in currencies, especially in developing countries where people’s livelihoods depend on it, I think the most important part to consider is that it confirms the value of Bitcoin as this objective, managerless and ownerless asset class,” Chen noted. “That said, in the short term, people are just buying the dollar,” according to Chen.

When a currency becomes too volatile, people may turn to not only bitcoin but also stablecoins, or cryptocurrencies whose value is tied to other fiat currencies, such as the US dollar, as a store of value, noted Mark Connors, head of research at 3iQ. “I think it’s constructive for the whole ecosystem,” Connors said.

Low volatility

Bitcoin prices have a history of extreme swings, but the crypto’s rolling 20-day volatility has been lower than that of the S&P 500 index and the Nasdaq Composite since Oct. 17, according to Dow Jones Market data. Before that, the last time bitcoin’s volatility went lower than both stock indexes was in November 2018. Since bitcoin hit a 2022 low of around $17,601 in June, the crypto has traded above that level and below $25,300.

The primary reason for the capped market is that “you have forces working against each other in the crypto market,” according to Bitwise’s Hougan.

The macroeconomic outlook has been bleak, with persistent inflation in the US and slowing growth in the global economy, while the crypto space has seen increasing institutional adoption, Hougan noted.

“You have a negative move for macro and a positive move from the crypto industry, and they cancel each other out,” Hougan said.

“I think people are just on hold to see, OK, is this near the bottom or is it going to take another dive?” said Niclas Sandstrom, CEO of Hilbert Capital.

Hougan said he expects bitcoin’s price to continue to trade in consolidation for the rest of this year, but “as we turn to 2023 and the macro environment normalizes, that’s going to create the foundation for the crypto spring that a lot of people are waiting for,” according to Hougan.

Crypto companies, funds

Shares of Coinbase Global Inc. ( COIN ) fell 1.4% on Thursday to around $72.72, while they were up 14.4% during the last five trading sessions. Michael Saylor’s MicroStrategyInc.( MSTR ) shares fell 0.4% on Thursday to $271.74, while they were up 23% in the past five days.

Mining company Riot Blockchain Inc. ( RIOT ) shares dipped 1.1% to $6.98 on Thursday, while they were up 25% in the past five days. Shares of Marathon Digital Holdings Inc. (MARA) rose 0.1% to $13.80, and are up 26.5% in the past five days. Another miner, Ebang International Holdings Inc. ( EBON ) lost 1.8% to $0.30 on Thursday, adding to a 4.5% loss over the past five days.

Overstock.com Inc. (OSTK) shares fell 8% to $23.58. Shares traded 0.5% lower during the five-up period.

Shares of Block Inc. ( SQ ), formerly known as Square, rose 1.7% to $60.5 and rose 9.6% for the week. Tesla Inc. ( TSLA ) shares rose 0.1% to 204.78%, up 8.5% in the past five days.

PayPal Holdings Inc. (PYPL) was down 0.7% at $88.01, up 3.8% in five sessions. Nvidia Corp. (NVDA) shares rose 3% to $132.71, up 8.8% in the past week.

Advanced Micro Devices Inc. ( AMD ) shares were down 0.8% at $59.24 on Thursday, up 2.5% from five trading days ago.

Among crypto funds, the ProShares Bitcoin Strategy ETF(BITO) fell 0.6% to $12.75 on Thursday, while the Short Bitcoin Strategy ETF(BITI) rose 0.6% to $35.68. The Valkyrie Bitcoin Strategy ETF(BTF) was down 0.8% at $7.95, while the VanEck Bitcoin Strategy ETF(XBTF) was down 0.5% at $20.23.

Grayscale Bitcoin Trust (GBTC) fell 3% to $12.15.

– Frances Yue

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(END) Dow Jones Newswires

10-27-22 1524ET

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