Bitcoin and DXY compete for global financial dominance

by James · May 11, 2023

İstanbul, Turkey – February 20, 2018: Close-up of bitcoin commemorative coins and gold nuggets on an American dollar paper. Bitcoin is a cryptocurrency and a worldwide payment system.

Bitcoin (BTC) and the US Dollar Index (DXY) have been battling for supremacy in the financial world, with both assets fighting for dominance in a zero-sum game. The recent volatility seen in the markets is a testament to the intensity of this battle. It is becoming increasingly clear that the outcome of this settlement will have significant implications for both assets and the financial world.

How Bitcoin Plans to Take on the Dollar

According to JJ the Janitor, an analyst at Jarvis Labs, any drop in the dollar’s value is good for Bitcoin, and vice versa. This means that the two assets are competing for the same market share, and whoever comes out on top will dictate the direction of the market for the rest of 2023.

BTC and DXY Chart Comparison. Source: Janitor JJ.

As JJ the Janitor notes, DXY has been holding above the crucial 100.80 support line since April 15th. This has created tension in the market, as BTC and DXY have consolidated in tightly compressed areas. However, sooner or later this month-long structure will break and both assets will enter price discovery – one to the upside, the other to the downside.

One notable thing about DXY, according to JJ the Janitor, is that since it peaked during the March banking crisis, it has been unable to sustain any technical momentum. As a result, it has now recorded six lower highs since March’s high of 105.90, strong confirmation that it is indeed stuck in a downtrend.

For JJ, if the dollar’s annual low fails to hold on to the retest, and if that failure causes the DXY to crash below 100 without relief, it would create an ideal setup for Bitcoin to make a series of higher highs this summer. This would be good news for BTC investors, who have been eagerly anticipating a market breakout.

Furthermore, the market structure of DXY is starting to resemble a pattern that Bitcoin showed in the spring of 2022, according to JJ the Janitor. Also, JJ compared the current market structure of DXY to a chart pattern that BTC displayed last spring, which ultimately led to a market collapse.

BTC Facing Risk Of Collapse Similar To Last Year’s Death Spiral?

As JJ notes, just after the death spiral of LUNA and UST last year, Bitcoin seemed to hold up surprisingly well while altcoins collapsed. However, this resilience was short-lived, as BTC eventually succumbed to a “head and shoulders” chart pattern and collapsed after the death spiral of LUNA led to the demise of CeFi exchanges such as Celsius and BlockFi.

DXY head and shoulders pattern. Source: Janitor JJ.

As shown above, DXY is showing a similar head and shoulders pattern under resistance, which could signal a potentially catastrophic outcome for the asset. This pattern is a bearish technical indicator that suggests a potential reversal of the current trend.

However, there is a scenario where the dollar could regain strength and destroy Bitcoin’s hopes for new highs this summer. JJ the Janitor, suggests that if the DXY were to move above the May high of 102.53 and then regain its 50-day and 100-day moving averages, it would be a clear signal for the market to go “risk-off.” This would be a sign of strength for the dollar and could see Bitcoin crash into a retest of its 200-day moving average.

At the time of writing, the price of Bitcoin is hovering around $27,100, just below its 50-day moving average, indicating a noticeable decline of over 3.5% in the last 24 hours. The cryptocurrency’s market volatility has increased the liquidation of both short and long positions, with Coinglass data indicating a peak of $174 million in the last 24 hours.