The dollar index broke its 20-year record; Is Bitcoin to fall further?

The dollar index broke its 20-year record;  Is Bitcoin to fall further?

After fluctuating at a very short distance from the $20,000 level all Saturday and Sunday, the price of Bitcoin witnessed a further drop at 3:30 a.m. Monday Tehran time and decreased to $19,526; until the support level equal to the 2017 bull run peak ($19,666) is broken again.

According to Blockchain Homeland, the price of the largest digital currency fell 10.46% from the start of Jerome Powell’s speech at 18:30 Friday evening to 3:30 this morning, losing about $2,280 of its price. However, it does not seem that the market’s negative reaction to Jerome Powell’s emphasis on the continuation of contractionary policies has ended.

Bitcoin price
Bitcoin price chart in hourly timeframe; Source: Tradingview

As you read in the previous technical analysis of the blockchain homeland, most analysts evaluate the current market trend as bearish, but among them, some believe that due to the accumulation of short sale contracts, it is possible that before the downward trend continues with an upward movement to liquidate short contracts or Let’s face the so-called “squeeze shorts”. Whether the direction of the market will be upward or downward in the short term, it will become clearer at 6 o’clock today with the start of trading in New York.

But regarding the direction of the market in the long term, the respected analyst of the crypto space, Benjamin Cowen, on his YouTube channel He had interesting comments. Considering the strong correlation between the price of Bitcoin and the S&P 500 index of the American stock market, he took a look at the status of this important index and tried to predict the effect of the contractionary policies of the Federal Reserve until the end of 2023 on this index.

The S&P 500 index has decreased by 3.42% (equivalent to about 143 points) since the beginning of Jerome Powell’s speech until the time of this writing. But Cowen believes that if the end result of the Federal Reserve’s contractionary policies is to burst the bubble created by the money printing during the Corona period, a logical floor for the current bear market is the decline of the S&P 500 index to its pre-corona peak (bottom chart).

S&P 500 index
S&P 500 index chart in weekly time frame; Source: Tradingview

As can be seen in the chart above, the current level of the S&P 500 index (equal to 4057) with its peak before the start of Corona (3380), more than 16% distance has it. If we see a 16% drop in this index due to the continuation of the contractionary policies of the Federal Reserve until the end of 2023, it can be assumed that the price of Bitcoin How many times this drop? to witness If the scenario described by Cowen comes true, we can say that the price of BTC is far from its price floor in this bear market.

Meanwhile, the dollar strength index (DXY) has broken its 20-year record and crossed the 109 mark. This indicator shows the strength of the US dollar against other currencies and is strengthened by contractionary monetary policies from the Federal Reserve. The DXY index usually has an inverse correlation with the price of Bitcoin.

Dollar capabilities index
dollar capabilities index; Source: TradingView

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