Does the rise of Bitcoin put fiat currency at risk?

This is a question that many people ask themselves. It is too early to know for sure if cryptocurrencies will displace fiat currencies in the future or if they will fit into our current financial system. The rise of cryptocurrencies has made many of us pay more attention to the money we use on a day-to-day basis and with which we transact. Today I am going to do technical analysis of the main reserve currency around the world, the US dollar. At the same time I will make a comparison of this currency with Bitcoin, which is already considered legal tender in El Salvador.

Months ago, the famous billionaire American investor Stanley Druckenmiller, known for being one of the most respected macro analysts, said that the US dollar would lose its status as the world's reserve currency. If you are interested in reading more about its analysis, here  is the article. Next, let's examine the US Dollar Index (DXY), which is one of the most well-known tools for measuring its value.

Since 1976, the year the U.S. dollar decoupled from gold, the dollar has been in a downtrend channel. As you can see in the chart below, the dollar has been losing value compared to other fiat currencies.

Tradingview. DXY (Cuadro mensual / Escala logarítmica)

Going to a shorter time frame like the daily, the U.S. dollar has formed what appears to be so far a bar chart pattern called a "double ceiling." As you can see in the chart below, the double top began to form after the DXY reached the level between 101-103 two consecutive times with a decline between the two highs. This chart pattern is considered bearish trajectory. As you can see from the chart below, after the value of the dollar, compared to other fiat currencies, completed the double ceiling the value of the dollar plummeted falling about 13%.

Tradingview. DXY (Cuadro diario / Escala logarítmica)

What can happen to the dollar in the coming months/years? If the value of the dollar compared to other currencies falls and penetrates the support zone I, we could see a rapid fall of the dollar. What would be the ultimate goal or destination of the dollar in technical terms? According to successful investor and global chart pattern expert Thomas Bulkowski,when a double-roof pattern is formed, a 73% decline on average of the distance at points from the highest peak to the valley (or support zone) can be hypothesized. In other words, the dollar would hit the bottom at the support level II.

Tradingview. DXY (Cuadro diario / Escala logarítmica)

For a long time, the relationship between the dollar and gold, which is considered a store of value, has been reversed. If you want to know why the inverse relationship, here  is an article for more information.

As I mentioned in a previous article, many analysts consider Bitcoin to be digital gold. Therefore, if the value of the dollar falls, the value of Bitcoin should rise. Next, I will analyze the Bitcoin price action.

Interest in Bitcoin has grown to unthinkable levels and all this in such a short time. To get an idea of what I'm talking about, let's use as an example Apple (AAPL) which is one of the largest companies worldwide. It took 42 years for Apple to reach a market cap of $1 trillion. It only took Bitcoin 10 years to reach that figure.  It is not only the retail investor who is looking to have exposure to such a digital asset but also institutional investors and governments themselves. Below is the monthly chart of Bitcoin's dollar price showing an uptrend channel since 2012.

Tradingview. Bitcoin/USD (Cuadro mensual / Escala logarítmica)

In a shorter time frame like the daily one, the price of Bitcoin continues to make high highs and low highs. In addition, a few weeks ago an event occurred that is considered bullish for the price of Bitcoin which is called a golden cross. The gold cross is based on the crossing of the 50-day moving average over the 200-day moving average. However, not everything is rosy for now as the volume is not accompanying this upward trend. As long as there is no new capital inflow, we will not yet be able to see the price of Bitcoin make new historical highs. Let's look at the following table:

Tradingview. Bitcoin/USD (Cuadro diario / Escala logarítmica)

What could be the events that would cause a rise in the demand and price of Bitcoin?

• More than a dozen asset management and investment companies have sent applications to the SEC to seek approval of Bitcoin exchange-traded funds (ETFs). The SEC is ready to give its final decision. The approval of these exchange-traded funds (ETFs) would be very encouraging for the cryptocurrency market.
• The administration of US President Joe Biden is considering an executive order that would be related to the cryptocurrency industry.
• Some public companies in the United States have converted part of their dollar reserves to Bitcoin. More companies are likely to follow tesla, Microstrategy, Square, Coinbase, and more.

Every Monday, I will publish a technical report on cryptocurrencies and other markets. If you have any questions, please do not hesitate to email me at andres@digitalcurrencyexchange.us.

Note: The information you find in these reports is not financial advice. Your investment in cryptocurrencies or another asset has to be proportional to your level of understanding of it.

Until next time!