Bitcoin has been riding a bullish wave, approaching the much-anticipated $100,000 milestone. However, André Dragosch, European Head of Research at Bitwise, warns that the strengthening U.S. dollar might challenge bitcoin’s further growth.
“Historically, bitcoin’s performance tends to weaken during periods of dollar strength. A stronger dollar often signals tighter global liquidity, which could act as a headwind for bitcoin in the near term,” said Dragosch in an interview with The Block. He noted that Bitwise’s quantitative models currently show the U.S. dollar as the dominant macro factor influencing bitcoin’s performance, surpassing monetary policy and global growth expectations.
The U.S. Dollar Index (DXY) recently climbed to 105.93, up significantly from 103.42 on U.S. election day. This appreciation reflects market expectations that the Federal Reserve will keep interest rates elevated, with CME FedWatch data showing a 66% probability of a modest rate cut and a 34% chance of no change at the upcoming Federal Open Market Committee (FOMC) meeting in December.
Global dynamics further complicate bitcoin’s outlook. Anticipation of an interest rate hike by the Bank of Japan (BoJ) has strengthened the yen, potentially signaling another unwinding of the yen carry trade—a strategy where investors borrow yen at low rates to invest in higher-yielding assets. Such unwinding previously triggered sell-offs in bitcoin and other risk assets.
Tokyo’s consumer prices rose in November, breaking a three-month streak of declines, and BoJ Governor Kazuo Ueda has hinted at policy adjustments to tackle Japan’s evolving, wage-driven inflation. These developments suggest the BoJ might raise interest rates in its next meeting, a move that could disrupt global financial flows and further pressure bitcoin.
Despite bitcoin’s impressive rally, Dragosch cautions that macroeconomic factors, particularly dollar strength and global liquidity tightening, could limit its upside. With a complex interplay of central bank policies and investor sentiment shaping the market, bitcoin’s march toward $100,000 faces significant hurdles.