Bitcoin price struggles to find footing above $27,000, but JLabsJanitor says BTC whales are counter-trading US dollar $DYX strength.
As the summer season arrives, an unexpected heatwave is gripping financial markets This heat is coming in the form of the US Dollar which has been on a remarkable uptrend since late April, reaching levels unseen since early March’s banking crisis when the dollar wrecking ball wreaked havoc on asset prices.
This surge in the dollar has raised concerns among market participants due to its high inverse relationship with Bitcoin , a topic many macro and crypto analysts haveThe implications of this inverse correlation means that when the dollar rises, BTC falls and vice versa. The chart below showing the year-to-date performances of DXY and BTC underscores this relationship a step further. Notice how, Bitcoin’s 2023’s performance has been propelled by a downward dollar. Not coincidentally, DXY reached its year-to-date low near 100.80 on April 13, nearly the exact date BTC reached its year-to-date high of just over $31,000. Since then, however, both have been trending in opposite directions.Feelings of unease over what sort of summer could be in store for markets should the dollar’s uptrend continue are certainly justified at present. After all, the last time DXY broke above these levels BTC was trading below the $20,000 mark. On the surface, this would imply that BTC still has quite a deep correction ahead before any hopes of new year-to-date highs emerge. Taking a look deeper however, it's clear that some divergent signals beginning to emerge which suggest this dollar rally could be nearing an end. Let’s take a look at them to see what’s been driving DXY’s recent strength, and zoom in on a notable segment of the market who has remained un-phased by Uncle Sam’s recent resurgence.Back in March, similar to now, plummeting federal funds futures were the primary driver of DXY’s strength. For readers who might not be macroeconomic nerds, the federal funds futures represent the terminal rate, or the market’s expectation of when the Federal Reserve's hiking cycle will come to an end. When federal funds futures fall, the terminal rate rises and consequently the dollar rises as well. The opposite is also true, which is nother inverse correlation. To track this leading indicator, traders follow the federal funds futures ticker . The chart can be a bit intricate, with 100 representing zero interest rate expectations, and each 0.10 increment below indicating a 10 basis point rate hike. Currently, the chart reads 94.83, implying a terminal rate of 5.27%. This suggests that the market still anticipates the Fed to hike rates by at least 27 basis points beyond its current rate of 5%.This is the lowest level federal funds futures had reached since early March, just before the banking crisis unfolded. Looking at the chart again below with BTC laid overtop shows that the mid-March reversal in terminal rate expectations were a huge driver of DXY’s drop and consequentlyIf the federal funds futures were again to fall back below the 94.50 level, as they did in March, it would become very likely that the market would fall back under heavy sell pressure due to this correlation. Notably, these federal funds futures made a strong surge on the afternoon of Wednesday May 31 when they rose over 10 basis points from the lows. Should this trend continue and the ZQN2023 contract rise back above 95, it would signal the market's belief that the Fed's hiking cycle has concluded, potentially paving the way for rate cuts. Such easing of monetary policy would more than likely be quite bullish for BTC, and bearish for DXY. This is especially true if the dollar index falls back down to new 2023 lows from here, and breaks below its long held support level near 100. Such price action would open up the gates for BTC to make a refreshed run above $30,000. And with that thought in mind, there is one notable cohort of crypto market participants who appear to be front running such a reversal, Bitcoin whales.
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