The continued strength of the US dollar could put downward pressure on crypto prices which have already suffered along with other risky assets, as bitcoin has lost more than half of its value since the start of the year. .
In recent months, the dollar DXY,
rallied to historic levels against its main rivals.
The British pound GBPUSD,
Friday crashed to its lowest level against the US dollar since 1985, trading at $1.14. In July, the Euro EURUSD,
fell below parity against the dollar for the first time in nearly 20 years, before bouncing back towards parity. Earlier this month, the Japanese yen USDJPY,
fell to the lowest level against the US dollar since 1998, while the greenback rose above 7 yuan CNYUSD,
to the dollar for the first time in more than two years.
The dollar benefited from the Federal Reserve raising interest rates at a faster rate than other major countries, analysts said.
“It gives international investors a lot of confidence that the United States will be the place to be because it won’t let inflation get out of control,” said Mike Vogelzang, chief investment officer at Captrust.
Meanwhile, the United States “is unlikely to have as deep a recession as Germany, England or the United Kingdom,” Vogelzang noted.
The outperformance of the dollar is detrimental to cryptocurrencies, with the majority of bitcoin trading being against the USD, or USD-backed stablecoins USDTUSD,
The largest cryptocurrency BTCUSD,
is down 17.6% over the past week and down more than 57% year-to-date, according to data from CoinDesk.
Worse for crypto, the rally in the dollar is likely to continue, noted Martha Reyes, head of research at crypto exchange Bequant. “The only way the dollar can go up is always up,” Reyes said, citing Europe’s energy crisis, Japan’s negative rate policy and China’s zero Covid policy.
Lily: Why an epic US dollar rally could be a ‘wrecking ball’ for financial markets
That said, it looks like dollar strength is stretching, according to Todd Morgan, chairman and partner at Bel Air Investment Advisors.
“I think the surprise with the dollar will come and next year it will start falling again to a more normalized level,” Morgan said in an interview. “But it’s also quite difficult to call it a dollar move because it’s about interest rates.”
Listen to Mike Novogratz at the Best New Ideas in Money Festival September 21 and 22 in New York. Galaxy Digital CEO has ideas for navigating the crypto winter.