The Dollar Bitcoin Burst

Lark Davis

Introduction to the US Dollar and Bitcoin

The US dollar is considered the ultimate Ponzi scheme, with its strength being the weakness of Bitcoin. There is a direct inverse correlation between the two, with a strong dollar being bad news for Bitcoin and crypto.

The US Dollar Index (DXY)

The DXY is a chart that shows the strength of the US dollar relative to a basket of six foreign currencies. It is a barometer that indicates whether the US dollar is getting stronger or weaker.

Inverse Correlation between DXY and Bitcoin

When the DXY rises, it's typically bad news for Bitcoin, crypto, and other risk assets. Conversely, a weak dollar is good for risk assets and Bitcoin.

Causes of DXY Increase

The DXY increases due to:

  • Investors preferring safer assets during times of uncertainty
  • The US dollar being considered the safest asset in the world
  • America's dominant role in global markets

US Dollar Dominance

  • The US dollar makes up approximately 59% of global foreign reserve currencies
  • The euro is the second runner-up, making up only 20%
  • Around 64% of the world debt is denominated in US dollars

Impact of US Economy on DXY

A positive outlook surrounding the US economy strengthens the DXY. Despite recession concerns, America's economy is booming, with low unemployment and strong GDP growth.

Trump's Policies and DXY

Trump's policies, including potential tax cuts and stricter immigration plans, may be inflationary, which could strengthen the DXY. However, Trump's goal is to have a weaker dollar, which would be good for risk assets.

Historical Context

In 2017, the DXY experienced a strong downward trend, coinciding with a crypto bull run. If history repeats, a weaker dollar could lead to a bull market in 2025.

Potential Outcomes

  • If the DXY continues to show strength, it could be disastrous for Bitcoin and crypto.
  • If Trump's policies lead to a weaker dollar, it could be beneficial for risk assets and Bitcoin.
  • Even if the DXY strengthens, a crypto-friendly White House and trillion-dollar asset managers could still drive Bitcoin's growth.

Conclusion

Understanding the relationship between the DXY and Bitcoin is critical for navigating the cryptocurrency market. While there are potential risks, the fundamentally bullish factors and a crypto-friendly White House could drive Bitcoin's growth, with a potential target of $1 million after 2030.