Bitcoin Price Rally Hits a Wall at $90K Resistance While FX Traders Back the Dollar Bull Run

As a seasoned researcher with a decade of experience in the financial markets, I’ve seen countless bull runs and bear markets, and the current Bitcoin (BTC) scenario is no exception. The recent pause at the $90,000 resistance level is not surprising, given the staggering surge we witnessed in just a week.

Bitcoin (BTC) is experiencing a pause in its bullish momentum at the $90,000 resistance point, which CoinDesk highlighted last week. Meanwhile, foreign-exchange traders are keeping an eye on the surge in the dollar index (DXY), increasing the likelihood of financial constriction that typically impacts risky assets.

Starting on Tuesday morning, bitcoin’s anticipated surge encountered resistance at the $90,000 mark, causing its value to drop momentarily to around $85,000 according to CoinDesk records.

As an analyst, I find it perfectly reasonable that such a pause would follow a significant $20,000 price surge in just one week, surpassing all previous lifetime highs. Historically, these pauses often serve as a period of rejuvenation for the bullish sentiment, propelling us towards even greater heights. Data from QCP Capital suggests that traders in the options market are preparing for a potential breakout, targeting prices between $110,000 and $120,000.

Betting on a dollar rally

As a researcher, I find it intriguing that the pause in the rally seems to align with rumors of traders wagering on an ongoing increase in the dollar index, a metric measuring the U.S. currency’s strength relative to other significant global currencies. It makes me ponder whether this could be more than just a coincidence.

The level of volatility in the market is significantly increasing, as it appears that investors and corporate treasurers are actively adjusting their positions or hedging in anticipation of a strengthening U.S. dollar, according to ING’s statement on Tuesday. Our advice would be not to resist this developing trend.

Since Donald Trump’s victory in the US election a week ago, both Bitcoin (BTC) and the U.S. dollar (USD), often referred to as “Trump trades,” have experienced significant increases. Remarkably, the DXY index has climbed by 2.7% to reach 106.78, marking a six-month high, as reported by TradingView.

A prolonged surge in the U.S. dollar might re-establish the traditional inverse relationship between it and Bitcoin, potentially causing a deceleration or even a temporary stop in Bitcoin’s upward trajectory.

This is due to the fact that the U.S. dollar serves as a major reserve currency worldwide, playing a significant part in global commerce, international loans, and borrowing that doesn’t involve banks. As the dollar increases in value, investors with debt denominated in dollars tend to reduce their exposure to riskier assets like stocks and cryptocurrencies by adjusting their investments accordingly.

Hardening bond yields

The interest rates on U.S. Treasury bonds are becoming more firm, offering extra strength to the U.S. dollar. On Tuesday, the yield for a two-year bond climbed up to 4.36%, which is its highest since July 31. Additionally, the yield for a 10-year bond moved close to the high of 4.46% it reached a week ago.

It seems that the current market behavior might be influenced by worries about President-elect Donald Trump’s proposed policies, particularly mass deportations, potentially leading to increased inflation. This could make it challenging for the Federal Reserve to lower interest rates during the next year.

“Immigrants have played a significant role in making central banks (not just the Fed) feel less concerned about price fluctuations. This is because immigrants helped address labor shortages, particularly post-COVID, not only in the U.S., but elsewhere as well. If millions were to return to their countries of origin, this would reverse the current trend and potentially recreate the situation we experienced two years ago.