Reasons Behind The Bitcoin Price Rally – Is It Sustainable?
26 October 2022 - 7:02PM
NEWSBTC
Following the Bitcoin price’s extreme loss of volatility over the
past few weeks, yesterday’s rally feels like new hopium and a
massive move to the upside. For the first time in three weeks, the
price has surpassed $20,000 with the move coming as a surprise to
many. Most recently, inflation fears and macroeconomic
uncertainties have dominated the crypto market. Fundamental changes
in this regard did not occur yesterday. So what was the reason for
yesterday’s upswing in the Bitcoin market? Related Reading: Bitcoin
Volatility Shrinks To All-Time Lows – What To Expect What is
apparent is that the stock market also rose yesterday, as Microsoft
and Google, among others, announced earnings. However, whether this
was enough to revive Bitcoin’s volatility is questionable. A
better explanation might be the Dollar Index (DXY). When the DXY
began to loose its ground between 8 and 10 a.m. EDT, Bitcoin’s
price surged shortly thereafter. The DXY dropped from 112.072 to
110.846 points within those two hours. During the same time, the
Bitcoin price showed initial strength, which then extended into a
further rally. This phenomenon is not new. For much of 2022,
Bitcoin and the dollar index were strongly correlated in an inverse
relationship, i.e., while the DXY was rising, BTC was falling.
While the correlation has declined again in recent weeks,
yesterday’s move may suggest a resumption of the correlation.
Whether BTC can post more gains could thus depend on the weakness
of the DXY. In this regard, the Federal Reserve (FED) is likely to
be the focus of investors once again. The markets will next be
eyeing tomorrow’s Gross Domestic Product (GDP) report in the United
States to gauge the FED’s future policy. Currently, the U.S.
economy is expected to have grown by 2.4% in Q3, which would mean
that interest rate hikes are not having too much of a negative
impact on the economy at this time. This, in turn, could reinforce
the FED to pursue more higher interest rate hikes. As the central
bank recently reiterated, it will keep raising rates until
something breaks. A weakening economy could be just the first
indicator that the Fed will soon have to abandon its aggressive
plan to raise interest rates. The next FOMC meeting on November 02
could provide further insight into this. More Insights On The
Bitcoin Price Rally Arthur Hayes, co-founder of BitMex and widely
respected voice in the crypto space, found another explanation why
the DXY tumbled and BTC pumped. As Hayes discussed, the U.S.
Treasury is thinking about providing the market with more
short-term treasury bills to mitigate a shortage. Money Market
Funds like short term T-bills, but there ain’t enough so they park
their money in the Fed’s reverse repo facility. […] Money in RRPs
is dead money that cannot be leveraged by the banking system. Money
in T-bills is ALIVE and can be leveraged to pamp risky financial
assets. There is $2.2 trillion sitting in RRP, if that number goes
down BOOM BABY BOOM! Let’s Fucking Go, Lambo’s for errbody! Related
Reading: Bitcoin Price Rally Could Gather Pace Above $20.5K: Why
Bulls Are In Control According to Hayes, RRP balances have fallen
slightly over the past month. Still, the market expects this
buyback action to push RRP balances down even further. However, the
buy backs and re-issues of new on-the-run treasury bills have not
yet taken place. If this does not happen, there could be a dramatic
reversal of yesterday’s trend.
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