In post shared via .

How the dollar’s wrecking ball affects the cryptocurrency market

According to Bittel, the dollar’s “wrecking ball” has gained impressive momentum over the past few months, putting significant pressure on global liquidity and muting economic surprises in the United States. While the cryptocurrency market is no stranger to macroeconomic turbulence, Bittel’s perspective suggests that relief may be on the horizon. “The dollar wrecking ball is in full swing here,” Bittel wrote, referring to the dollar’s piercing rise over the past 15 weeks.

He maintains that the surge has “significantly tightened financial conditions,” creating a ripple effect that is starting to register in U.S. economic data. In his words: “This sharp move is already taking its toll in the form of economic surprises in the U.S. – something I outlined as a base case in the GMI and MIT reports in the fourth quarter of last year.”

Bittel notes that economic surprises have subsided since the November peak and believes this is exactly the kind of delayed response that would be expected following such a piercing tightening in financial conditions. Most importantly for market participants, including cryptocurrency investors, this development could change the Federal Reserve’s policy trajectory sooner than some predict.

“Here’s the significant part: This setup is exactly what I believe will pave the way for the Fed to step in and begin further easing rates soon – despite the dominant narrative of zero cuts in 2025 and the forward curve pricing in just 28 rates right now. basis points throughout the year,” says Bittel.

While the mainstream consensus expects minimal rate cuts this year, Bittel highlights early signs that conditions for policy easing are already taking shape. He says the Fed may be forced to step in when weaker U.S. economic data becomes too noticeable to ignore.

“Now that the lag effect is kicking in, weaker economic surprises are emerging, and as they continue to deteriorate, the Fed will have no choice but to respond. When this happens, the strength of the dollar will likely finally reduce and the pressure from rising yields will begin to fade,” explains Bittel.

From a cryptographic point of view, the potential move away from tightening monetary policy could prove significant. Historically, risky assets – including Bitcoin and other cryptocurrencies – have responded positively to accommodative monetary policy and an environment in which liquidity flows more freely. If the dollar’s dominance does wax and wane, it could ease the liquidity squeeze that has weighed on cryptocurrency prices in recent months.

Bittel also drew attention to the psychological dimension of these macro-events. As he put it: “This will assist ease the growing liquidity crunch, giving risky assets the breathing room they need to rally again. Bad news = good news…

Interestingly, the DXY index may adopt a course similar to that of Donald Trump during the first term of office of the US president. In 2017, calling the dollar “too strong,” his policies caused DXY to plummet, triggering a fantastic rally in the Bitcoin and cryptocurrency markets, Bittel stated discussed in the previous analysis.

At the time of publication, the BTC price was $96,228.

Featured image created with DALL.E, chart from TradingView.com