The starting point for the Bitcoin market’s recent declines is the prospect of faster-than-expected economic growth in the United States, thanks to the extreme fiscal expansion and a recent rebound in job growth to pre-pandemic levels, which has boosted the bond yields and, in turn, accelerated demand for the US dollar in foreign markets.
But then, Bitcoin stays on its long-term bullish course, having surged by more than 1,500 percent at one point in time from its last year’s bottom on $3,858. The benchmark cryptocurrency was trading at $53,983 on Friday, still up 1,300 percent despite its recent decline.
More investors want to hold Bitcoin because it promises to behave as a hedge against monetary debasement and inflation. But the US dollar’s recent upswing has sapped the demand for an alternative safe-haven asset.
Data presented by Glassnode, a blockchain analytics service, showed that many high-profile bitcoin holders had realized their profits to seek cash. That represents a rotational strategy undertaken by investors, involving the capital reallocation from overvalued assets to undervalued ones.
What will happen to the US dollar?
Natixis, a France-based corporate and investment bank, thinks the US dollar would continue its downtrend after closing the previous year in losses.
The financial institution argued that rising US bond yields have so far underpinned the dollar rebound. But these long-term interest rates will need to stabilize, which, in turn, would sap demand for dollars in international markets.
“There will be an excess supply of dollars to be held by non-residents, leading to the prospect of a depreciation of the dollar once the yield spread between the United States and the rest of the world stabilizes,” noted Natixis.
“Once the dollar’s interest rate has stabilized, the only way to increase non-resident demand for dollars expressed in dollars, when it is stable expressed in the rest of the world’s currencies, is a depreciation of the dollar,” he added.
Bitcoin to $100,000?
The statements appear as bullish analysts expect inflationary woes to boost Bitcoin demand on Wall Street. Bloomberg’s Mike McGlone sees the cryptocurrency assuming the “digital gold” role to see its prices go over $100,000.
“The process of Bitcoin replacing gold in portfolios is accelerating,” wrote the senior commodity strategist wrote.
Meanwhile, PlanB’s stock to flow model, which predicts bitcoin’s future pricing based on its growing demand against limited supply, also see the BTC/USD rate between $100,000-288,000 by the end of 2021.