Beware Bitcoin Bulls (For the US Dollar Might Hurt Y’all More in 2022)

Key Takeaways:

  • Hedge funds expect dollar dominance to persist.
  • While DXY strengthens, the stock market crumbles, taking Bitcoin down for the ride.
  • Despite a glitch in the correlation, Bitcoin bulls can expect more losses ahead.
Beware Bitcoin Bulls For The US Dollar Might Hurt y’all More in 2022
Beware Bitcoin Bulls For The US Dollar Might Hurt y’all More in 2022

YEREVAN (CoinChapter.com) – Bitcoin (BTC) struggled below $19,000 on Oct 13 after dropping nearly 6% in the previous week. Despite the hopes for the Bitcoin bottom, the bulls should expect more pain ahead for the flagship crypto, based on hedge funds betting on another horse in the race.

Hedge Funds Bet On The Dollar

According to a recent Financial Times report, large hedge funds, such as Brevan Howard, run wagers on the greenback, advancing against the global currency basket (Canadian dollar, Japanese Yen, Euro, Swiss Frank, etc.).

The index reflecting dollar strength (DXY) jumped nearly 20% year-to-date, thanks to the Federal Reserve’s aggressive attempts to curb the growing inflation.

Broad dollar index (DXY) grew 20% year-to-date.
Broad dollar index (DXY) grew 20% year-to-date. Source: TradingView.com

Despite what could be the greenback’s biggest annual gain on record, hedge funds expect more to come.

The bullish outlook is fuelled by the rising interest rates and darkening economic prospects amid the ongoing war. In detail, the Fed has implemented three separate 0.75 bps interest rate hikes in the previous three meetings and asserted its determination to continue the quantitative tightening policies.

A senior executive at one major US hedge fund said, “there are further legs in the strong dollar trade.” Kier Boley, a chief investment officer of alternative investment solutions at UBP, agreed with the bullish dollar outlook.

[The dollar strength reflects] a combination of wider views on global central bank tightening and trades on specific central bank policy and political issues.

commented the expert.

Bitcoin (BTC) Has More to Bleed

Meanwhile, due to Bitcoin’s correlation with risk-on assets, such as the stock market, the flagship crypto eyes more losses. In short, while the dollar jumped 20%, the stock market index S&P 500 (SPX) dropped 25% in an erratic inverse correlation.

broad dollar in an inverse correlation with stocks.
Broad dollar in an inverse correlation with stocks. Source: TradingView.com

At the same time, Bitcoin’s correlation with stocks remains fairly strong due to the abundance of mainstream fund inflow affecting the crypto market.

The said tandem was persistent through the previous quarters.

As CoinChapter reported earlier, the September performance reflected a slight setback in correlation. According to Arthur Hayes, the founder of BitMex crypto exchange, Bitcoin’s correlation with the S&P500 stock market index fell to a 10-day low on Sep 30.

The correlation between the stocks and Bitcoin got weaker. Source: Arthur Hayes on Twitter.com
The correlation between the stocks and Bitcoin got weaker. Source: Arthur Hayes on Twitter.com

However, as the correlation persists, Bitcoin and, by extension, the whole crypto market remain dependent on the stock market, the dollar strength, and the broader economy.

Also read: Bitcoin (BTC) fails to stay above $20K – can stablecoin inflow help?

Charlie Morris, chief investment officer at ByteTree Asset Management, also commented on the matter, citing the importance of the Fed’s upcoming actions and, subsequently, the greenback’s value.

The dollar hasn’t been this pricey since 1985, and at some point the Fed will cool off. When that happens, both bitcoin and gold will respond well. Just as a strong dollar caused them pain, a weak dollar will bring relief.

commented the expert.
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