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Here's Why Bitcoin Investors Should Watch The Value of The US Dollar

06 April 2023 14:55, UTC

2023 has already been an interesting year for Bitcoin. The crypto asset has experienced a huge bull run and has traded at over $28,000 on a number of occasions. The sudden price surge sparked a wave of new investors who are hoping to catch on to the bullish trend and take advantage of long-term appreciation.

However, Bitcoin is susceptible to volatility and investors should keep an eye on the market for signs of a bearish trend. In particular, Bitcoin holders should watch the US dollar. In this article, we take a look at why the value of the US dollar is important and how investors can keep track of it.

How does the US dollar affect Bitcoin?

The US dollar is one of the most widely used currencies and is used as a benchmark for many crypto assets, including Bitcoin. BTC is typically priced and traded in dollars and due to this, the value of the US dollar can impact the price of Bitcoin.

The effect that the US dollar may have on the crypto depends on the performance of the USD. When the US dollar is strong, it will take more dollars to buy the same amount of Bitcoin which could make Bitcoin less appealing to investors. However, if the performance of the dollar turns weak, it would take fewer dollars to purchase the same amount of Bitcoin which could make BTC more attractive.

Furthermore, a strong dollar would signal a strong economy which could cause investors to step away from decentralised finance and invest into traditional financial instruments instead. This would therefore cause the value of Bitcoin to fall. However, a weak US dollar could drive investors towards Bitcoin as a potential hedge against inflation.

Past performance shows that investors turn to alternative assets such as Bitcoin when the economy is struggling. This can be seen by looking at the performance of the US dollar.

How to track the value of the US dollar

The value of the US dollar rises and falls every day. These small fluctuations will not make a noticeable difference on the value of Bitcoin. Instead, investors should watch out for large price changes that are typically triggered by big economic events. One of the best ways to track the performance of the US dollar is to use DXY. The DXY is an index that represents the performance of the US dollar in comparison to six other global currencies. The index is considered to be one of the most accurate ways to grasp the overall performance of the US dollar.

The DXY price chart shows whether the dollar is falling or rising in comparison to the currencies that it is tracked against. If the price chart shows bullish momentum, this means that the dollar is performing well. If the chart turns bearish, it could be an indication that the dollar is losing value.

Use a variety of resources

Overall, Bitcoin investors should keep an eye on the value of the US dollar so that they can make informed decisions about the market. It is important to note that the value of the US dollar is not the only factor that could affect the price of BTC - investors should use a range of resources and indicators when conducting market research.