Bitcoin has kind of gone up and kind of gone down again, but on monthly basis it has opened a new small red candle for the fourth time in a row as pictured above.
That follows six green candles starting in October 2020 from $10,000 to $64,000 with it now trading at $34,000.
The dollar instead was weakening for much of summer last year, but it has gained this summer, nearing a local high with it potentially eyeing 93.
It’s not clear however whether there is much correlation because from October 2020 to now the dollar has gone from 94 to 89 to 92.6.
In theory you might expect a correlation as a strengthening dollar should put a dent on hard assets because you can buy more for your money, but its strength is comparative to the performance of the euro or CNY.
If the euro devalues but the dollar devalues at a slower pace, then the dollar is strengthening relatively speaking, but in absolute terms it is obviously weakening.
Thus it doesn’t necessarily reflect on bitcoin’s price because during the mentioned period the dollar was sidewaying while bitcoin went up significantly.
However from June 2020 to January 21, the dollar fell more than 10% from 100 to 89. So there might be a lagging correlation between its performance and bitcoin.
One has to wonder therefore whether there’s something more fundamental that is causing this potential correlation because the three months lag pops up in other bitcoin price related matters.
If there is, it may be the level of usage of bitcoin for global trade, with stats here non existent but it is used.
Maker’s dai so being one example. Nearly 60% of it is now backed by USDc, which means you can borrow at least 1x at zero risk – except code risks – and since you earn interest on USDc, that can cancel out debt interest on dai with the extra benefit being the dai borrowed amount is tax free.
What kids do with these new capabilities we don’t know, but many of them are Americans and USDc is obviously the dollar, some $25 billion of it and nearing $100 billion together with tether.
That must be having some effect on the dollar, especially where borrowing is concerned and thus money creation because this is outside of the banking system, but dollar money is nonetheless being created just the same.
Demand for this crypto money or borrowing should thus reflect to some extent on the dollar, and since much of it is crypto specific, it should reflect on bitcoin’s price.
June and July 2020 to September was also the peak of the defi summer. So we can build a hypothesis to be disproven or otherwise that suggests we are active participants in the dollar strength index, rather than just passively affected by it.
Or more clearly, if there is a correlation then cryptos themselves might be a cause due to an increase or decrease in the demand for crypto based global trading that includes raw goods as well as services like borrowing and lending.
Building on that, this hypothesis could suggest the increase in defi lending had a snowball effect that led to the increase in bitcoin’s price, which in turn attracted speculative investors who were playing the more simple game of buy low and sell high due to being ignorant of what really drove demand in the first place, with their emotional speculations artificially increasing the price after some point and then artificially decreasing it.
That would require a rejection of the suggestion that bitcoin was a refuge from the money printing and rose only because of the anticipation of dollar devaluation, but their refuge was gold until defi summer.
Gold was on a bull run, taking off until August with September stagnation while defi was booming. At that time these pages were preoccupied with Uni token airdrops and the whole defi party without care about bitcoin’s or eth’s price because they weren’t moving much.
So it’s only in October when whispers start of bitcoin being a better hedge because it is responding better to the dollar mass printing with it rising while gold was falling, with those whispers then becoming the mantra in December.
But looking at the data now in calmer times, innovation in the form of defi came first, which created new demand, and that eventually ended in a speculative bitcoin price narration.
That artificialness is now going through the process of finding the base demand created by these new opportunities, something that then may be the cause of the price action that might follow.