Bitcoin Eyes $20K-Breakout as Morgan Stanley Predicts Dollar Crash
The two BTC/USD and DXY has shown an inverse correlation this year, particularly after the mid-March global market rout. In the month, the Bitcoin price crashed by nearly 60 percent in just two days. On the other hand, the dollar showed jumped by 8 percent around the same period.
Bitcoin holds key support levels around $19,000 despite the latest sell-off. Source: BTCUSD on TradingView.com
Nonetheless, a large scale intervention by the Federal Reserve and the US government facilitated money requirement. They collectively committed to injecting about $3 trillion worth of liquidity through unlimited bond purchasing and by deciding to expand their financial deficit. As a result, the dollar fell, and Bitcoin — thanks to its safe-haven story — rallied higher.
The greenback’s sell-off hastened this week because its value against foreign currencies fell by another 0.21 percent in overnight trading. The US Dollar Index (DXY) reached 90.22 on Thursday, its lowest level since April 2018, which prompted Morgan Stanley to forecast further declines for the trade-weighted instrument.
Published at Thu, 03 Dec 2020 08:15:19 +0000
The dynamics haven’t changed for the year 2021. The US economy is undergoing a rapid increase in its COVID-19 infection rates. Meanwhile, a bipartisan bill proposes to inject about $908 billion to the US economy, furthering widening the deficit.
In its latest minutes, the Federal Reserve has confirmed that it would keep the bond-buying pace intact amid a lower interest rate environment. Meanwhile, investors have increased their stakes that the lender would now start buying longer-dated US Treasury notes because the yields on the short-term ones are already near zero.
Mark Wilson, the chief investment officer and chief US equity strategist for Morgan Stanley, told Bloomberg that he sees the US dollar crashing by another 10 percent within the next twelve months. The analyst noted that the Federal Reserve and the US government was”the most aggressive with structural deficits” amid the coronavirus pandemic.
The statements appeared as Bitcoin continued to tower close to its recently established all-time high of $19,915. The BTC/USD exchange rate was up 5.61 percent on a weekly timeframe, a complete opposite of the way the US dollar index performed.
They transferred opposite because investors searched money safety from an uncertain economic outlook led from the fast-spreading COVID-19 pandemic. As authorities announced lockdowns, the stock market crashed. That led people to unload their lucrative positions elsewhere to increase dollars.
That explains why the cryptocurrency could breakout above $20,000 in the forthcoming quarterly sessions.
“A weaker dollar is great for the world,” he added. “A stronger one is more of a constriction on international growth […] It’s ultimately a positive story for reflation.”
A gloomy outlook for the US dollar is leaving Bitcoin with a potential to continue its bull run towards $20,000.
The bank’s lead portfolio manager in Asia rates and forex, Julio Calegari, said that China’s post-pandemic growth decreased the greenback’s investment appeal.