When bitcoin reached its first historical high at almost US$20,000 in December 2017, many non-believers started to ogle at the market and wondered if that “virtual thing” was real.
After it achieved a ‘double top’ in January 2018, many investors began to time their entry and planned to buy on a downward retracement. Ironically, the downtrend lasted for about 12 months and reached below US$4,300 in January 2019.
Since then, we did a backtracking on the bitcoin trend and tried to find a correlational instrument to this “virtual currency”.
Theoretically, we found that the US dollar index (USDX) plunged from 103 to 88 level during the same time that bitcoin surged to its first high in December 2017 to January 2018.
Looking further back, the identical falling trend in the dollar was seen in the 1H09 and 2H10 but the bitcoin was still in its infant stage with little market capitalisation. It might be meaningless to make a correlation between them during that period.
Looking at the current situation, the bitcoin has initiated a new bullish trend and surpassed US$16,000 recently, a 34-month high. The USDX was trading at 93 region which is quite similar to the scenario in early 2019, but we agree there might be more variables in this equation.
However, what we gathered is the potential for further devaluation of the dollar after the US presidential election settles down in January, which could quickly be followed by a new round of stimulus. In such a situation, there might be a rise in the bitcoin in the near future.
Over the past decades, when the dollar fell, the inverse hedged against global investors’ fund into the crude and precious metal markets.
Recently, we have witnessed the gradual decline in demand for the crude market due to the rise of green energy and electric vehicles. Hence, what will be the alternative instrument used to counterbalance the falling dollar besides gold?
But we agree that the counter currencies that are used to hedge against the dollar include the euro, pound, Swiss kroners, Canadian dollar, Aussie Dollar, Japanese yen and Chinese yuan. Nevertheless the USGovernment will not stake on one, few or all these currencies for a safety net. Since the 1970s, the US Federal Reserve has been grabbing control and reserve in the dollar, gold and crude.
No matter how the global economy fairs, the US Government will benefit from one strong rise among these three instruments. The new rise recognition of the bitcoin might simply mean that it has to be largely held in custodian and controlled heavily by the US Government.
Dar Wong is a financial professional in Singapore for more than 30 years experiences. The expression is solely his own. He can be reached at [email protected].