Dollar Weakness Also a Factor in Bitcoin Advance

One of the most important factor in the recent, meteoric rise of Bitcoin prices, has been an enormous upsurge of interest in cryptocurrency within the general public, itself in turn driven by an increasing media hype. However another factor has been quietly helping Bitcoin’s advance within recent days and weeks – US dollar weakness.

The fiat currency that is most frequently used as benchmark, against which the value of Bitcoin is measured, is the same currency which is used as the benchmark measurement for oil and other commodities – the US dollar. That is off-course why the most common forex twinning of Bitcoin, is with the US dollar – BTC/USD. It is therefore logical that the value of Bitcoin in terms of US dollars, would go up if there is a fundamental increase in Bitcoin’s value – created by a sharp increase in demand for example.

 

But it is just as logical to conclude, that if nothing happens to fundamentally increase the value of Bitcoin and at the same time – the value of the US dollar would fundamentally decrease – then the value of the Bitcoin would still appear to increase in relation to the greenback, creating a sort of ‘phantom rally.’

It is precisely this phenomenon that Bitcoin enthusiasts and potential traders would be wise to keep in mind. The dollar has in fact been weakened lately by a number of factors and its recovery would act as damping factor on Bitcoin’s advance. On the other hand, a lack of a recovery would act as a boosting factor for Bitcoin. And there are some factors that have the potential to turn into an impediment for the greenback.

The current US administration has failed to produce any substantial legislative accomplishments within eleven months of being in power. The markets have so far been frustrated by this inaction. Any further potential delay on the part of the US Congress in the implementation of tax reform, or the possibility of said reforms being watered down, would tend to work against U.S. currency.

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“I think potential dollar weakness is connected with uncertainty surrounding the path towards tax reform,” said Vassili Serebriakov, currency markets strategist at Credit Agricole’s New York branch. “The (likely) December interest rate hike is already fully priced in, so it’s unlikely to give any further boost to the dollar. There is a lot of uncertainty about next year, especially regarding the composition of the FOMC,” added Mr. Serebriakov, referring to the Fed’s policy-making body — the Federal Open Market Committee. Any further dollar weakness would only serve to give Bitcoin a further boost.