Bitcoin’s sharp drop of $ 50,000 linked to stronger US dollar, shows correlation with gold

Bitcoin (BTC) and spot gold (XAU) hovered below their key psychological levels on September 8, as a stronger US dollar (USD) weighed on investor appetite for blanket.

The BTC / USD exchange rate fell 5.27% to its intraday low of $ 44,423, but recovered some of those losses after recovering the $ 45,000-46,000 range as support. The pair’s rally also came in a continuation of its ongoing rebound of $ 42,830, a level it reached on Tuesday after falling more than 18% during the session.

Bitcoin’s massive selloff coincided with a surprisingly similar but overshadowed decline in the rival gold market. In detail, the precious metal suffered its worst daily drop in a month on September 7 as XAU / USD spot rates fell below $ 1,800 after an intraday move of minus 1.37%.

The big red hourly candle on the gold and bitcoin charts appeared between 10:00 a.m. and 11:00 a.m. UTC. However, the precious metal consolidated sideways after the sharp decline unlike Bitcoin which continued its downtrend.

In detail, the cryptocurrency has collapsed under the weight of bullish bets with excessive leverage. ByBt data showed that approximately $ 3.68 billion long in the Bitcoin options market was liquidated in the past 24 hours, making it the largest liquidation since June.

Automated liquidations caused further massive sales in the Bitcoin market as traders were forced to sell their holdings in BTC to cover their margin calls.

Is the US dollar responsible for the big drop?

Of note, the sudden drop in Bitcoin and gold prices coincided with a sharp rise in the US Dollar Index (DXY).

The index, which measures the strength of the dollar against a basket of major national currencies, rose 0.41% to 92.53 on Tuesday and continued to climb during the current session to hit its intraday high. at 92.73.

DXY moved away from its one-month low, benefiting from rising US Treasury yields ahead of the sale of government debt this week, including $ 58 billion in three-year bonds, $ 38 billion in bonds 10-year and $ 24 billion in 30-year bonds. obligations.

The yield on the benchmark 10-year US Treasury bill, which was around 1.32% after Friday’s weak non-farm payrolls report, rose to 1.377% on Tuesday. At time of printing, it stands at 1.351%.

Mixed outlook until Fed meeting

Rising yields generally compete for safe haven flows against Bitcoin and gold. But despite the latest hike, they remain below July’s core inflation of 5.4%, making no-yield safe havens more attractive bets against rising consumer prices.

But with the Federal Reserve’s intention to start slashing its $ 120 billion per month asset purchase facility by the end of this year, some analysts believe bond yields will continue to recover. In turn, they would provide the dollar with a bullish safety net.

Shaun Osborne, chief forex strategist at Scotiabank in Toronto, told UKTN:

“We think the Federal Reserve is still likely to move towards reduction by the end of this year, the US economy is expected to perform relatively strongly, so we think of minor dollar decline, minor dollar weakness is probably a buying opportunity. “

Related: Bitcoin Price To Hit $ 100,000 In 2021 Or Early 2022: Standard Chartered

In contrast, the rising delta variant of Covid-19 threatens to dampen prospects for recovery. In turn, this would force the Fed to maintain its expensive bond buying program, thus keeping a lid on yields and the dollar.

As a result, the outlook for Bitcoin and gold looks mixed. The Federal Open Market Committee meeting later this month is expected to shed light on the timing of the reduction.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of UKTN.com. Every investment and trading move comes with risk, you should do your own research before making a decision.