Macro conditions remain choppy, and as a result, Bitcoin and most other cryptos find it challenging to make a sustainable run. But even in such an environment, the dollar is thriving.
Despite economic pessimism in the eurozone, Fed Reserve remains aggressive, and the invert yield curve, USD bulls have been able to maintain the value of the dollar. In fact, after crossing the 107 threshold earlier this week, the US Dollar Index began trading at a two-decade high.
The pastor’s egg?
A strengthening US dollar means it can buy more foreign currency than before. In short, the purchasing power of the USD is increasing at this stage. So, with the opportunity to buy more with the same limited amount, investors are usually triggered to allocate their money to different instruments to get extra returns.
So, what are investors up to at this stage?
To answer that question, let’s take a look at money supply dynamics. The rising DXY obliquely implies that the M1 is marching on the same path. Simply put, M1 includes liquid cash and currency in circulation. next, demand deposits and Traveler’s checks also fall under this category.
The M2, on the other hand, follows a different marked path. M2 money basically takes into account all elements of M1, along with savings deposits, money market funds, certificates of deposit and other time deposits.
The decline in M2 is a reasonable indication that people are not spending their money on deposits and other money market instruments. The same could end up being a blessing in disguise for Bitcoin.
The increase in cash, on the other hand, means more money in the hands of investors. Just because they don’t spend money on traditional instruments doesn’t mean they’ll keep it quiet. Chances are they are already pushing funds into crypto.
Making a case for Bitcoin
The aforementioned speculation was supported by the macro decline in the stablecoin supply ratio. The SSR measures the ratio of Bitcoin’s market cap to the cumulative market cap of all stablecoins. Low values usually indicate a high supply of stablecoin. The same essentially indicates that there is dry powder on the sidelines for investors to turn to Bitcoin.
So if the decline continues, buying pressure could increase. In hindsight, this could lead to a price hike for Bitcoin in the future and trigger its recovery.
However, the path ahead would not be clear to Bitcoin. With growing concerns about inflation and employment numbers still looking unhealthy, investors can play the slow game to strike a balance.