Crypto markets slumped for a second day as the US dollar Index (DXY) chased new highs amid rising treasury yields and investors’ concerns over the Federal Reserve’s monetary policy plan.
Although the DXY started the week with a 0.92% decline, which was followed by an abrupt rally to $102,000 by Bitcoin (BTC), the index reversed course, reaching 109.37, hitting levels not seen since November 2022.
Markets also reacted negatively to a surge in US Treasury yields, where the 10-yr note topped 4.7%, and the yield on the 30-year note rose to 4.93%. While the catalysts for the increases are multiple and complex, they essentially reflect market participants’ concern that inflation will remain elevated as President-elect Donald Trump’s economic policies are likely to expand deficits.
Simply put, the market is beginning to price in the potential for an increase in longer-dated US debt, and the incoming Trump administration’s policies are expected to send inflation higher, even if they boost growth.
Related: ‘Trump dump’ risks pulling Bitcoin price down to $88K
Par for the course, Bitcoin price reacted negatively to DXY strength, and analysts fear that yield curve controls will become a common talking point again.
DXY vs BTC 3-day chart. Source: TradingView
BTC slipped to an intra-day low of $92,500 and analysts warned that prices could continue to fall in the short term if the $90,000 support fails to hold.
Biyond co-founder Burkan Beyli told Cointelegraph,
“If Bitcoin falls under $94K, then the next target is $81K within the next five weeks. For the downside case to play out, Bitcoin needs to close next week below $95,180. Next week, we have CPI, so bears might show their hand. Overall, I’m bearish on crypto in the short-term (4 to 5 weeks), then very bullish as I expect DXY to correct after Trump takes office.”
Real Vision chief crypto analyst Jamie Coutts appears to agree with Beyli’s perspective, writing off DXY’s recent strength as less relevant than the anticipated liquidity expansion and pro-crypto stance of the incoming Trump administration.
With the strong dollar becoming a real problem, I expected Bitcoin to be in the $80,000 range by now. This speaks to the strength of the underlying bid and the market’s expectations that the Fed will have to act; otherwise, things will start breaking.
Regardless of the… pic.twitter.com/uVYYbpRv2o
— Jamie Coutts CMT (@Jamie1Coutts) January 7, 2025
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
