Bitcoin price dips under $60K as Dollar Strength Index reaches 16-month highs

Bitcoin (BTC), which saw its worst day since September, suffered a 10% drop in price to below $59,000 on Tuesday. The U.S. dollar rose to its highest level in 16 months, however, as spending across the American retail sector increased despite inflation fears and Covid-19 concerns.

BTCs intraday low was $58,600, but it recovered to regain $60,000 psychological support. The downside movement was triggered by the U.S. President Joe Biden signing the $550 billion infrastructure bill, which includes new tax reporting requirements for cryptocurrency users.

Some people used yesterdays news (Infrastructure Bill), to shake the tree, and get more #bitcoin cheaply for themselves.
— David Gokhshtein (@davidgokhshtein) November 16, 2021

Stronger retail data

The dollars bull run continued smoothly, with sales at U.S. retailers increasing by 1.7% in October, compared to 0.4% the month before. This was another sign that the U.S. has been recovering strongly from the Covid-19 lows, as shown by the excellent Nonfarm Payrolls Report last week.

As a result, investors raised their bids on the dollar, anticipating that the Federal Reserve would accelerate the tapering of its $120 billion a month asset purchase program, leading to earlier-than-expected rate hikes, which remained near zero since March 2020.

On Nov. 16, the U.S. dollar Index (DXY), which measures how the greenback performs against a basket top foreign currencies, reached an intraday peak of 95.821, its highest point since July 2020. Bitcoin, however, which rallied strongly in the face of a lower interest environment through 2020 and 2021, has retreated.

DXY weekly chart. Source: TradingView

Dollar will see more gains

Analysts predicted that the dollar would continue to grow higher over the next few months, with Scott Melker, a market analyst, predicting DXY will reach 97.50.

Melkers bullish outlook centered around a “double bottom” setup.

Double Bottoms are formed when the price forms two points at the same horizontal level. This is a sign of a possible bullish reversal. Bullish confirmation occurs when the price breaks through a particular resistance level, which is a high point at the top of the two bottoms. This will allow the price to target a level that is equal to the pattern’s maximum height.

It appears that the U.S. Dollar index has been breaking from a similar Double Bottom setup as seen in the chart below.

Double bottom setup on the DXY daily price charts. Source: Scott Melker, TradingView

Bitcoin has a mixed outlook

Despite growing inflation concerns, Bitcoins prices have more than doubled in 2021. Chief executive of DeVere Group Nigel Green stated that Bitcoin may continue to rise in value until at least the second quarter 2022. He cited the recent U.S. consumer prices index (CPI) climb to its three-decade peak.

He noted that “this latest data from the U.S. will only increase global fears about inflation as prices pressures run high around the globe,” and added:

“Bitcoin has outperformed gold in this inflationary period. Gold has been almost universally hailed the ultimate inflation hedge, up until now.”

Daily chart of BTC/USD price. Source: TradingView

Vijay Ayyar is the head of Asia Pacific at crypto exchange Luno, Singapore. He called Bitcoins current correction a “healthy drawback,” particularly after its 175% plus year-to-date price rise to $69,000.

He noted that it would be unusual for people to continue moving up without making corrections.

Joel Kruger, a currency strategist with LMAX Group, stated that tighter Fed policies would begin to weigh on the wider market and hit the most risky assets the hardest. This is why Bitcoin and other crypto markets have been retreating from a rising dollar.

Related: Bitcoin will reach a peak of $253K and Ethereum at $22K if the 2016 bull runs halving continues

Martha Reyes, Head of Research at Bequant, a digital asset firm, called Bitcoin “a Risk-on Investment” and stated that people would like to raise cash from the most lucrative assets during times of stress.

Bitcoin traded at $60,625 as of the writing.

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