Data challenges DXY’s correlation to Bitcoin price surge and corrections thesis

At the éventualité, there seems to be a general assumption that when the value of the US dollar increases against other premier courant currencies, according to the DXY bordereau, the effet on Bitcoin (BTC) is negative.

Traders and influencers have issued alerts embout this reversal correlation, and how the eventual reversal of the movement is likely to push the price of Bitcoin higher.

A CryptoBullGems analyst recently reviewed what the overbought DXY looks like after the Relative Strength Série (RSI) crossed 78 and could be the start of a expiation for the Dollar Série.

Moreover, the technical analyst @1coin2sydes presents a bearish ambiguë top troupe on the DXY chart, while Bitcoin is simultaneously forming a ambiguë bottom, which is a bullish sign.

Correlation changes over time, despite the general reverse trend

The periods of reversal movements between Bitcoin and DXY did not exceed 36 days. The correlation scale ranges from negative 1, which means that the selected markets move in opposé commandements, to vraie 1, which reflects a perfect and consistent movement. The variance or no relationship between the two origins will be represented by 0.

DXY Dollar Série 20-day correlation against Bitcoin. Racine: TradingView

The scale has been below minus 0.6 since August 19, indicating that both DXY and Bitcoin have generally followed a reversal trend. In fact, the longest ever antithétique correlation was from April 14 to May 20.

Saying that Bitcoin has an antithétique correlation with the DXY would be statistically incoherent parce que it has had a negative 0.6 or lower on less than 30% of the days since 2021.

The dollar strengthened after the FOMC forum minutes

On August 17, officials at the United States Federal Reserve indicated that additional interest offense hikes were needed for augmentation to abate significantly, according to the minutes of the July 27 forum.

DXY Dollar Série (mandarine, right) vs. Bitcoin (blue). Racine: TradingView

The transfert caused the US dollar to rise against premier courant currencies, as the market torrent the Federal Reserve a consultation of avis. Meanwhile, the bitcoin price fell by 11% in two days to $20,800, reinforcing the antithétique correlation theory.

However, correlation does not imply causation, which means that it is imaginaire to conclude that the vraie geste of DXY negatively affected the price of Bitcoin after the release of the minutes of the Federal Reserve forum.

Correlation should not be used to predict short-term movements

Although pundits and influencers often use 20-day correlation data to explain daily price movements, one must analyze an extended time frame to understand the potential effects of the DXY indicator on the bitcoin price.

DXY Dollar Série (mandarine, right) vs. Bitcoin (blue), 2021. Racine: TradingView

For example, 2021 provided some vraie correlation between the DXY dollar bordereau and Bitcoin. Some movements may have been anticipated by either side, but there were no grandiose periods of reverse correlation.

More importantly, crypto-only events may have distorted the scale, such as the launch of the first fund to trade on the US Bitcoin exchange on October 19, 2021. Other examples include Tesla’s announcement of a $1.5 billion investment in Bitcoin on February 8, 2021. .

Moreover, analysts porté to the Chinese crackdown on mining in May 2021 as the reason behind the market’s dip below $40,000. These events could not have been predicted by DXY, so any sustained correlation may have little effet during those periods.

Thus, those who wait for a turn in the DXY bordereau before betting on the rise of Bitcoin have no statistical charpente. When vraie (or negative) developments occur specific to the cryptocurrency industry, the historical correlation loses its significance.

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