Bitcoin has seen one of its biggest gain within a day, up from around $7,700 to a brief $9,500 to now trade at $8,900 at the time of writing.
Other cryptos have followed it higher, but bitcoin has seen the biggest gain with its crypto market share rising above 65%.
That suggests there has been some bitcoin specific event or something has happened in the fiat world where bitcoin is seen as the main, if not the only, alternative to fiat among cryptos.
What has happened is the dollar has weakened, down and down as can be seen above as all that money printing makes its way through the market.
It’s not at an historic low, however. That would be in 2008 at 70, and then in May 2011 at 72 or more recently in December 2017 at 88 with all time high being when it opened in 1986 at 130.
Coincidentally December 2017 is when bitcoin reached all time high, rising for much of that year while the dollar index kept falling throughout 2017 and early 2018, suggesting a potential relationship.
The euro has also weakened and quite a bit with it seemingly having only one direction in long time frames as we’ve selected above.
Interestingly the euro was strengthening in 2017 while it fell in 2018 in a reversal of the dollar.
That could suggest there is no correlation between the dollar strength and bitcoin’s price, but the BTC/USD trading pair is by far the biggest and the one traders most follow.
So if bitcoin rises against the dollar, arbitrage bots bring up bitcoin’s price in euros, so explaining why bitcoin could be affected by the dollar but not the euro which does have some crypto market of euro trading pairs, but far less than the dollar.
The question then is why did the dollar weaken in 2017 and which is causing which. As in did bitcoin rise and that weakened the dollar, or did the dollar weaken and that led to a bitcoin rise.
The latter question is easier to answer because it is probably quite unlikely a $200 billion market cap, or even half a trillion as it reached in 2017, could so significantly affect the world reserve currency.
To speculate why it weakened is more difficult but it may be a growing economy and even a booming economy by western standards led to an increase in the velocity of money as companies and individuals that were sitting on cash started going on a spending spree.
That practically led to an increase in the supply of money in the market, and thus a fall in its value, with FED stepping in to raise interest rates some 8 times in two years, leading to a crash in bitcoin and a stagnation in stock markets until Trump had enough and began shouting at Powell to stop crashing things.
Then in March we had a big crash with money printers now on the brink of collapse, leadening to a weakening dollar and an even more weakening euro, while yuan is falling against the dollar even as the latter is falling.
Hence why bitcoin is rising. There’s also the speculative element about the halvening, but that hasn’t yet kicked in and we don’t buy this pricing in theory.
Instead what we’d suggest is real demand for bitcoin has returned as international trade now starts picking up with economies beginning to open.
Bitcoin’s obvious advantage in international trade, especially for capital controlled countries, is probably returning some of that demand which feeds into price and due to its international nature accounts for the relative fall of the dollar.
Meaning global trade could potentially be a key indicator of bitcoin’s performance, but only one among many others – like the fiat strength – and most informatively probably when price is near hash cost.
The more price and hash cost detach, the less the usefulness of any indicator, but that detachment usually happens only for one or two months up and then a month or so down.
For the rest of the time it performs within ground economics, as opposed to the moon ones, whereby utility drives demand which drives price minus supply.
The utility being a store of value, a means of exchange in trade and to a lesser extent also a unit of account, in addition to being a cool new thing which is a utility too or for eth opening up new areas in innovation in defi and the like, making all this now a real and proper monetary asset that responds to macro economics and perhaps even affects it to some extent.