Bitcoin vs. DXY

Hey everyone and thanks for jumping back Into the cryptiverse today we're going To talk about Bitcoin versus the US Dollar currency index or dxy if you guys Like the content make sure you subscribe To the channel give the video a thumbs Up and also check out into the crypto Versus premium at into the now as we've discussed This year at length Bitcoin is just Simply in a bear market and one of the Reasons for that of course you could Argue is the tightening of monetary Policy by the Federal Reserve by Draining liquidity from our system They're making it very difficult for Risk assets to see sustained rallies and While we have seen some rallies All of them have simply turned into Nothing more than a lower high okay so Again as the FED drains liquidity from The system You generally will see these risk assets Continue to slowly bleed I've put out This you know sort of metaphor before Imagine we're all standing around a Swimming pool and the Federal Reserve is Draining the water from the bottom of The pool right they've pulled the plug Out and the water is slowly going down Well as the water goes down the Liquidity right at in terms of going Back to the financial conditions right Liquidity gets drained out of our system

But we also know that Bitcoin thrives on Excess liquidity so when that liquidity Is removed it tends to not be good for Risk assets like Bitcoin and equities However because there's a lot of people Standing around the swimming pool Investors like maybe you and me Occasionally these investors will throw Their money into the swimming solder They'll throw some liquidity in and if Enough investors throw in their water Their cup of water or their you know Their money at the same time you can get A counter Trend rally right you can get A bear Market rally that will take us Back up for a while so in the short term The water can temporarily rise But the fed's still draining the pool Right so the water level may go up in The short term but the liquidity is Still being drained nevertheless so the General expectation is that while you Could see countertown rallies doesn't Really change the general direction of Of where the where the liquidity is Heading so when you think about that it Really does help explain you know these Counter Trend rallies of course there's The there's always going to be the the Buy the dip crowd right and when there's Enough of these people at the same time We can get one of these bear Market Rallies but one of the things you know We've also discussed at length is the US

Dollar currency index and because of This rate hiking cycle by the Federal Reserve This has contributed contributed to this Parabolic rally by the US dollar Currency index okay Now we've followed the US dollar Currency index for a long time if you Remember in fact I have some videos from Early 2021 where we warned about the Risk here of the dollar finding a bottom The same place that it found one in 2018 And this is why I remained very Skeptical uh on you know these 100K Bitcoin price predictions in 2021 Because you know I the dollar was Finally starting to show some show some Strength and I was slowly starting to Turn back around now what's interesting Is we can sort of map out some of these Important levels over the last several Years and what I really want to hold in On is is the the fact that the dollar Has pulled back significantly but Bitcoin's price Still Remains fairly low Okay so we're going to talk about that Um one of the things that you'll notice And if you if you actually go look at The US dollar currency index I actually Have a chart of it but let me let me go Find that really quick so if if we go Look at the US dollar currency index so This is Bitcoin versus dxy this is the Dollar color coded by this risk metric I

Have for Bitcoin you can see that as the Dollar goes up Bitcoin risk tends to go Down so it goes from red to blue right So red is high risk for Bitcoin blue is Lower risk for Bitcoin right high risk Low risk high risk low risk et cetera et Cetera et cetera so you normally see That however on this move down so far we Haven't really seen Bitcoin go on any Rallies right in fact the opposite Occurred and and Bitcoin ended up going Down quite a bit after the Meltdown that FTX had so first of all you should Realize that no matter what happens in Other markets there's always going to be This sort of like idiosyncratic risk of Any individual asset class that there's Always going to be a risk on no matter What and just because something happens That would normally signal that market To move you you do have the Idiosyncratic risk of that asset class That could still lead it to behave in Ways that it wouldn't normally behave But for me you know as I've said as long As the Federal Reserve is going through This rate hiking cycle and as long as We're still seeing a recession sort of Looming on the horizon then the general Expectation is that risk assets will Continue to remain under quite a bit of Pressure but one of the things though I Think that we can look at with the US Dollar currency index and and seeing

This this massive pullback by it in the Short term is to look at how important Some of these levels are in the context Of History okay so the first thing you Can actually look at is this level right Here and and this was where we peaked at In March of 2020. so that is an area That I at least somewhat find somewhat Interesting because if we do go down to That level I would expect the US dollar To find some level of support at that Area furthermore if you continue this Out you can see that there also tends to Be a local top back in 2017 at around This same area so I would imagine that This sort of range right here the 103.8 All the way down to the you know 103 1031 or so I would imagine that this Range should offer some level of support If we were to reach it right of course This is a big if but if we were to reach It now You might wonder though what does History tell us about some of these Levels but before we do that what we Need to do is we need to go over here And look at inflation and find periods Where we also had high inflation you may Notice that we also had a surge of Inflation in the 70s and in the 80s Early 80s you also notice that we had Recessions During those periods of high inflation Because the Federal Reserve was Raising

Interest rates okay now this here this Peak on inflation here was in the early 80s let's go see what the US dollar Currency index was doing back then in The early 80s and what I want to do is Take this top here And go all the way across and actually You know what we might do instead of Doing that Why don't we take a Parallel Channel And then just go all the way across okay And we're going to take it basically From this sort of high here And this high right here and we're going To extend it okay I'm just going to Extend it All the way back To The 1980s Okay So that's what we're going to do And just to get this as accurate as Possible let me go ahead and remove the Green one and If we pull it down to this peak right Here so this peak peaked at around 102.979 so just below that 103 level Okay and we could draw maybe a separate Box in here to show this top as well That you know came in in 2017 and will Also simply extend that across all the Way To the 1980s okay

So that's what we're gonna do Send it all the way across Now What you may notice And I guess this parallel channel is not Exactly uh horizontal uh perhaps now it Is yeah I just had to make it horizontal So what you may notice With this trend Is that something very similar happened In the 80s We had a peak here at around 114 to 115 Right And if we get the exact number It was 114.778 was the highest it went you go Back to the 80s the early 80s we also Had a very similar type of move where The peak was 114.880 What you'll also notice and again this Was you know this was coming out of a Period of high inflation hopefully like We are right now Which you may notice is that after the Dollar peaked here We had a massive pullback and that Pullback started in August of 1981 and It lasted until November of 1981. so to get an exact Range on that number of weeks you can See that it lasted about 16 weeks a 16-week pullback by the US dollar Currency index starting in August of 1981.

However After that It surged back up to put in a new high About 18 weeks later it then came back Down and then blasted off all the way up To the 160s now I'm not of the general Expectation that the dollar is about to Go to the 160s and furthermore if you Look at this path by the US dollar Currency index from this level here in November of 1981 it did not hit this Peak until March of 1985. so you're Talking about you know over three years This is not something that would would Happen in any short time frame if it's Going to happen at all and I sincerely Doubt that the dollar is is you know at Least going to be making it up into this Range in the next year or anything like That But what you may notice is that you had This period right here in the 80s right In the 1980s and if you look at the 1980s again We had high inflation Right And we also know The Fed Was going through a rate hiking cycle Right so the 1980s you can see the Fed Was Raising interest rates all the way Through December of 1980 is when you can See they they finally started to slow it Down right December of 1980. go back to

The dollar The dollar Bottomed hit this local bottom in December of 1981 and what's interesting Is that after it bottomed right after it Bottomed A year after the FED stopped raising Rates it still went up So it doesn't only go up of course when The FED is raising rates because it went Up in 1982 and 1983 and 1984 and 1985. So then why was it continuing to go up Right why was it continuing to go up Well you also have to think about Recessions right when you get a Recession you're also generally going to Have people flocking to risk off right And wanting to to go to the relative Safety of the US dollar just because They are are not as not as um Aggressive with accumulating risk assets During that time so when you look at it Like this you can see it took about 18 Weeks for it to get to that low at Around just below 103. and then if you Scroll over to today what you'll notice Remember that pullback back then started In August of 1980 of 1981. this one here Started in September of 2022. If it were to take 16 weeks to get to This sort of same low that it went to Back then which is right below 103 it Would get there by the middle of January Okay so the middle of January if it were

To repeat the same type of of move that It did back then however if it were to Continue along that fashion it would Then come back up to new highs Sometime in the middle of next year So you know I know a lot of people are Looking at the US dollar and thinking That it's just completely done and and That it's just going to go back down but History would at least caution us Against that stance I'm not saying it's Going to play out the exact same way as It did over here honestly there's a good Chance that it won't there's also a Chance it could play out like something Like this where we do go back up And maybe we put in a slightly higher High but let me come back down and then We go back up and then put in a lower High and then we sort of finally roll Back over and then go down so there's Also that chance of happening too but What it shows is whether you look at What happened over here during Crash or if you look at what happened Over here during the period of high Inflation where volcker sent us into two You know two very short short recessions Uh back to back recessions sort of get Inflation back down we still had surges In the US dollar currency index even After inflation was heading back down Right the dollar was going up through 1985 but remember inflation which is

This Orange Line let me hide the um the Interest rate inflation peaked in 1980 And by 1985 inflation was well back Under relative control right only a few Percent or so but the dollar continued To go up even though inflation was Coming back down and I mean of course There's a lot of nuances to this as well It's not always just about Um About inflation and and whatnot but when You look at this chart it would strongly Caution you I think to assume that the Dollar is done Why if you look at the spread on the Treasury yield curve you will notice That we are looking at a fairly deep Inversion History shows us that once we get these Inversions similar to what we're seeing Today we go into a recession afterwards Because the Federal Reserve they raise Interest rates High Enough To put pressure on a lot of businesses These businesses have to lay off their Their workers the unemployment rate goes Up and we go into a recession One of the good things about recession Recessions are that it has a way of Bringing unemployed or it has a way of Bringing the inflation level down Okay So If you were to look at just simply the Inflation level again which is the

Orange Line you'll notice that in these Recessions that we get these gray shaded Regions they're able to help bring Inflation back down which is what the Federal Reserve is trying to achieve of Course the negative aspect of recessions Are that a lot of people lose their job Which is not you know it's not something I think that any of us really want to See but it's just something that happens And it's part of the business cycle so When you go look at the US dollar Currency index and if you're scratching Your head as to why is bitcoin's Valuation still well you know well below 20K we're still sitting at seventeen Thousand dollars You look at this you say Well normally When the dollar goes down Bitcoin is Going up right I mean this was the 2017 Bull market By Bitcoin because the dollar was that You saw the dollar going down this was The 2020 bull market by Bitcoin when the Dollar was going down the dollar is Going down right now but we're not Getting we're not getting a bull market In Bitcoin and I wouldn't expect us to Right now So before you know before you sound the Victory bells on the US dollar currency Index this rally being completely over Just remember that if you had assumed That similar pullbacks in history also

Immediately resulted in the dollars Rally being over with you would have Been sorely disappointed because both During a period of high inflation in the 1980s and also during crash that We did have a pretty pretty deep Recession you'll notice that the dollar Was not done just after it had that First initial Spike up it it came back Down for a while and then it shot back Up okay so I think this is an important Consideration to to keep in mind and if It were to play out in a very similar Fashion then you would I would expect Sometime early next year uh if it hasn't Already to see the dollar at least start To go back up and and then figure out You know what it's going to do from There it's not all doom and gloom I I Know a lot of you know you might think About this and think like oh well this This absolutely sucks right but one Thing to consider just to uh maybe see Some type of light here at the end of The tunnel If you compare the the S P 500 if you Put the S P 500 on this chart and you go Over to a logarithmic scale you'll Notice that during this phase over here Right during the early 1980s the stock Market was going down and down and down And down and down and it bottomed Here So it bottomed after the dollar broke

Out of this range right You might think wow So you're telling me that the dollar Rallied And the stock market rally Yes But it wasn't until the dollar came back Up and then broke out so one thing to Keep in mind is that just because the Dollar has acted in a very specific way Over the last decade with regards to Risk assets does not mean it's going to Always act like that if the dollar were To Surge back up in early 2023 I imagine You would see equities take a pretty big Hit I imagine you would see Cryptocurrencies take a pretty big hit So like if it did something like this Right it fit Let me draw a um A path in here so if the dollar came Down And then came back up in in 2023 like Something like this And we got to this level and then you Know sort of bounced around for a while And then broke out to the upside You might assume that at this point the Dollar would mean that risk assets are Done for a while History shows us again coming out of a Period of high inflation that if Something like this were to happen this Part could certainly correspond to new

Lows on equities and cryptocurrencies But perhaps the dollar could continue Its rally and it not necessarily Continue to point to new lows for these Risk assets so I would encourage people To have an open mind about some of these Trends and and correlations that you've Come to know very well one of them being While the dollar goes down Risk assets go up that's not always true In the same way if the dollar goes up Like it did over here and went on this Massive bull run it actually also Corresponded to a time when the S P 500 Went on a fairly crazy bull run right From 1982 until 1987 and then we had a Pretty big pullback and then we just Simply continued on So that is another way to at least look At the market and so you know really What I what I want to do here is is just Spend the reason I made this video is Because I just want people to to look at The US dollar currency index in a Different way than perhaps you're used To and to also not just sort of Immediately assume that just because It's had this pullback that the rally is Over we could easily see a bounce in 2023 Where it comes back up and I think Probably the biggest evidence for that Potential bounce is the inversion of the Yield curve and the spreads on some of

These popular Treasuries the 10 month or the the 10-year and the three months Shows an inversion typically means we go Into a recession the stock market Usually bottoms during the recession it There was one time it bottomed after it In the last like 100 years and that was Actually during crash normally It bottoms during the recession though And when you get that bottom you'll Typically see a flight to risk off and So if we do see that in 2023 if we see a That flight to risk off once again that Could send the dollar back up right that That flight to risk off gets in the Dollar back up send equities back down Perhaps equities will at some point next Year find some type of generational low That we can then build off of going into Another Bull Run hopefully you guys find This information valuable if you do make Sure you subscribe to the channel give The video a thumbs up and again check Out into the cryptoverse premium at into The thank you guys for Tuning in subscribe and I'll see you Next time bye


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