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Bitcoin‘s recent surge above $50,000 has caught the attention of investors and analysts as it contradicts the largest cryptocurrency’s typical pattern of sharp gains during periods of a weak US dollar index (DXY) and Treasury yields. Since January 23, Bitcoin has shown a significant deviation from its historical correlation with the dollar and bond yields, with an increase of over 35%, surpassing the $52,000 level.
Bitcoin Climbs Despite Rising US Dollar and Treasury Yields
Traditionally, Bitcoin has shown a negative correlation with the US dollar and usually rises when the dollar weakens. However, the recent increase in Bitcoin’s price has occurred simultaneously with a strengthening DXY and rising Treasury yields. The DXY, which measures the value of the US dollar against major fiat currencies, has seen a 1% increase since January 23, marking a 3% rise this year.
Despite the typical relationship between Bitcoin and the US dollar, the resilience shown by the largest cryptocurrency amidst a stronger US dollar and higher Treasury yields is being associated with several reasons. One possible reason is the strong inflows into US-based spot exchange-traded funds (ETFs), which have reached approximately $5 billion since January 11.
In particular, the increase in the 10-year US Treasury yield, often considered a risk-free interest rate, typically leads to outflows from other assets. However, Bitcoin’s resistance to this trend suggests that buying pressure, possibly due to speculative entries and a search for a safe haven, is balancing the usual selling pressure.
Analysts believe that regions like China and Nigeria may be driving the demand for Bitcoin as a safe haven amidst economic uncertainties. Economic hardships such as deflationary pressures and currency crises have led citizens in these countries to turn to cryptocurrencies as a hedge against instability.
Adjustments at the Chicago Mercantile Exchange Fuel the Rally
On the other hand, market observers suggest that the decision by the Chicago Mercantile Exchange (CME) to increase margin requirements for Bitcoin futures could have contributed to the recent rally.
This adjustment at the CME led to widespread short covering over a relatively illiquid Lunar New Year holiday, causing a rise in spot prices and futures.
