Bitcoin investors: beware of the falling dollar

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Last Updated on 20 January 2023 by CryptoTips.eu

Although the first month of the new year is turning out as a very positive one for Bitcoin (so far), for Ether and all known Altcoins, we should remain vigilant an increasingly dangerous phenomenon, namely the rapidly falling dollar.

As Bitcoin is priced in dollar terms, the largest digital currency is rising in January partly because the dollar is falling.

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As we reported earlier this week, there were three main reasons why Bitcoin (and Ether) are having a good month of January 2023 (so far). This was mainly bottoming, declining inflation and the weakening of the dollar index.

However, the latter is now making the front pages of just about all business newspapers (which means that all those billionaires in Davos see it too) as the American dollar has now reached its lowest level in the past seven months, which means it’s dropping a tad too fast.

During 2022, that dollar only went up because the Federal Reserve was the quickest of all central banks to raise interest rates. Because of this, and for the first time in twenty years, the Euro briefly fell below the value of the US dollar in 2022. In mid-January it is back at 1.08 against the Euro of course and that of course makes a huge difference.

All that positivism and that falling dollar is because investors think that the Federal Reserve, and therefore director Jay Powell, will soon be increasing in smaller quantities for the first time.

Let’s explain: when interest rates had to be higher last year (to bring inflation down), the Federal Reserve sounded the alarm and raised interest rates by 0.75 percent in one go. After that it each time raised by 50 basis points or 0.50 percent.

With the inflation peak now (hopefully) behind us, Wall Street expects the Federal Reserve to raise by 25 basis points, or 0.25% at a time. In a few months time, they should then stop altogether and bring interest rates back down. That is the expectation and explains the positive flow of the markets.

The next Fed meeting is coming up on February 1. So next week, if investors get the impression that Powell will still hold on to 50 basis points, we expect the dollar to move back up a bit. And as Bitcoin is quoted in dollars, the biggest digital coin could thus fall. If the Fed sounds very positive about the dollar and wants to see their currency fall further, Bitcoin could go a lot higher.

So in any case, watch the Fed to know what will happen to Bitcoin.

kaprikM / Depositphotos.com

Jeroen Kok

Jeroen is one of the lead copywriters on Cryptotips.eu and discusses all recent events in the crypto market. This includes news updates, but also price analyzes and more. He developed his passion for cryptocurrency during the bull run in 2017. He has learned a lot since then. The combination of cryptocurrency and creative writing is perfect for Jeroen and an excellent way to share his knowledge with a wide audience. Find me on LinkedIn / [email protected]
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