Why It Matters: Cryptocurrencies continue to maintain their inverse relationship with the greenback.
On Tuesday, the dollar index, which measures the strength of the U.S. unit against a basket of six currencies, rose 1.3% after hitting the highest level since Dec. 2002, despite fears of a looming recession, reported Reuters.
“The demand for the safety of dollar-based assets is up as expectations for economic activity are significantly lower,” said Shawn Cruz, the head trading strategist at TD Ameritrade in Chicago, according to Reuters.
GlobalBlock analyst Marcus Sotiriou said in a note that “Dollar strength causes Bitcoin weakness.” A further negative for cryptocurrencies has been the withdrawal of liquidity, according to Sotiriou.
“Bitcoin remains below the 2017 all-time-high which is concerning for bulls. The [Terra Classic (LUNC) ] and [TerraClassicUSD (USTC)] crash has led to a tragic contagion amongst other crypto firms, as we have seen liquidity withdrawn from the crypto market at an extraordinary rate.”
Cryptocurrency trader Justin Bennett said that the dollar index closed above a significant multi-year level in June and on Tuesday touched new 20-year highs.
Many won’t like this but…
The $DXY closed above a significant multi-year level in June, and today we’re seeing new 20-year highs from the dollar index.