Crypto market drops 12% as the US dollar gains strength, what’s next?

Key Takeaways

• The cryptocurrency market shed gains north of 10% amid a massive selloff rout.
• On the other hand, the US dollar resumed its weekly uptrend by rallying up further.
• The greenback expects to strengthen further as digital asset markets look for bottoming signals.

JAIPUR (CoinChapter.com) – Crypto markets witnessed a repeat of bloodshed from September, as traders sold $386 billion worth of digital assets on Tuesday. The selloff on Monday led to the cryptocurrency market trimming 12% gains in the last 24 hours. Overall, crypto assets have incurred losses to the tune of $486 billion since attaining all-time high valuations north of $3 trillion.

On the other hand, the US dollar resumed its weekly uptrend by registering 0.7% intraday gains. As a result, the US Dollar Index (DXY), which measures the greenback’s relevance against a basket of five other significant fiat currencies, rose to 95.63. DXY’s weekly upside trajectory took off from the low at 93.88 on November 9. Since then, the USD index has risen 1.8%.

Related: Bitcoin dips on death cross alert and dollar rally; is it a buying opportunity?

Unusual Rally

Surprisingly, traditionally considered inflation hedge gold also rose in tandem with the greenback. As a result, the yellow metal’s dollar tracking move was dubbed unusual by market observers.

Inflation concerns sent the US dollar and gold in the same direction, which is highly unusual. pic.twitter.com/Ahmf0u6TYe

— (((The Daily Shot))) (@SoberLook) November 16, 2021

Despite the gains, the USD continued to attract flak from analysts and crypto advocates.

“These scam coins are getting crazy. Here is the craziest one:

27 Trillion supply

No supply cap

1 node

25% of supply minted in the last 6 months

1% of holders own 30%

Oh wait, that’s the US dollar“

said Forbes Technology Council member Dr. Eli David

“Imagine a crypto where the supply increased 4x without input from the community. It wouldn’t pass the shitcoin giggle test. Now think about the fact that I’m actually describing the US dollar.”

asserted Gemini crypto exchange founder, Cameron winklevoss

Related: Bitcoin Supporter Stan Druckenmiller Makes Serious Warnings About US Dollar

But The US Dollar Is Just Getting Started

Retail sales in the United States are said to benefit the US dollar further in the near term. That’s because the fiat asset also holds a haven status in the minds of consumers. Forex analyst Yohay Elam outlined three separate scenarios that could dictate the greenback’s upcoming trend.

Meh October Sales Report

If numbers from the upcoming October Sales Report come in insipid, i.e., sales growth of up to 0.4%, it would mean that the country is in slowdown mode. Of course, it wouldn’t be disastrous per se, but Yohay points out that traders and market participants would expect the Federal Reserve to go easy with the tapering and subsequent benchmark interest rate hikes.

That translates to a bearish scenario for the greenback.

Wow October Sales Report

Mr. Elam posits a strong near-term outlook for the US dollar if October retail sales reflect an uptrend. Economists and analysts have already predicted a cheerful retail sales report for the last month. For example, in a poll conducted by Dow Jones, they opined that retail sales would have risen 1,5% in October, a notable increment from September’s 0.7% figure.

The Dow Jones poll showed a majority consensus rooting for a 1% sales growth figure in the upcoming publication.

“There is an expectation of a strong number. That’s the narrative of the last two weeks, that this is going to be a stronger-than-expected retail sales.”

Gargi Chaudhuri, head of iShares investment strategy Americas at BlackRock told CNBC

Yohay indicates a potential scenario where investors expect the tapering and interest rate hikes to happen sooner. The US dollar would bump up in such a scenario.

Sad October Sales Report

A lower retail sales growth figure wouldn’t cause a setback for the greenback. Mr. Elam states that’s because traders and consumers would flock to the cash asset due to its global haven reputation.

What Does It Mean For Crypto Markets Though?

Crypto markets retested the 50-day moving average (MA) support, but the trajectory is positive overall. The selloff did trigger a correction, but digital assets have achieved an aggregated oversold status in the process. Relative strength index (RSI) dipping to 45 corroborates the same.

US dollar’s rise failed to shake out gold and stock market bulls, which implies that the crypto asset class’s risk-on and inflation hedge aspects will remain intact for the foreseeable future. Moreover, Crypto bulls have successfully maintained a strong stance against a rallying greenback in the past.

Related: Bitcoin bulls unnerved against stronger dollar outlook, thanks to a classic technical pattern

With institutional investors from almost all industry verticals entering the digital asset space in droves, bullish sentiment around crypto is bound to hold on.

Related: German institutional investors can now invest in bitcoin and crypto markets

The Fed’s tapering moves will not drastically reduce the over-bloated dollar supply from the US dollar economic system, and crypto markets wouldn’t crash. Although there could be a temporary setback as investors would rush to reroute their holdings into USD, overall, the effect wouldn’t be much pronounced.

Also, as per the financial journalists at Bloomberg, a rise in the federal funds rate has a lower chance of materializing until 2023.

That means the dollar’s opportunities to shoot up in value wouldn’t show up until then. And even if an interest rate uptick does happen earlier, it wouldn’t be substantial. But the dollar would undergo a value correction which indicates that a crypto market crash is nowhere close to fruition.