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Will the continued decline in dollar liquidity affect Bitcoin’s bullish season in October?

آیا تداوم کاهش نقدینگی دلار بر فصل صعودی بیت کوین در ماه اکتبر تأثیر خواهد گذاشت؟

While we are witnessing a long-term slump in the digital currency market, Bitcoin’s recent October rally has many traders looking forward to capitalizing on this bullish season. However, with the dollar’s liquidity dropping sharply in recent months, October is likely not going to be bullish for Bitcoin this year either.

To Report Coin Desk, according to the data of the trading view platform, Bitcoin has had a positive performance in October 8 out of the last 12 years with an average return of about 30%. In other words, the yield in October was a positive 66%.

However, one of the indicators that measures the liquidity of the dollar has called on buyers to be cautious in transactions.

According to the data of the Trading View chart, the USD Liquidity Condition Index has reached its lowest level in the last 19 months, 5.7 trillion dollars.

Lewis Harland, researcher at Decentral Park Capital, said in his daily analysis of market developments: “Pure liquidity [دلار] “The Federal Reserve is falling, this will be a clear sign of headwinds for the price of digital currencies.”

This index evaluates the liquidity of the dollar based on the interaction of three factors: the size of the Federal Reserve’s balance sheet, the Treasury General Account (TGA) and the repurchase agreement (Repo) reserve balance held at the Federal Reserve Bank of New York.

Liquidity decreases when the small Federal Reserve balance sheet and the Treasury’s general account and repurchase agreement balances increase. On the other hand, the growth of the Federal Reserve’s balance sheet along with the decrease in the balance of the general treasury account and the reserve of the repurchase agreement indicate an increase in the liquidity of the dollar.

The Federal Reserve began its tightening cycle in early March and has raised borrowing costs by 3 percentage points since then. The US Federal Reserve is likely to continue this upward trend and raise interest rates to 4.7% in the coming months. In addition, the Federal Reserve is reducing the size of its balance sheet by $90 billion every month.

Since 2021, the highs and lows of Bitcoin have coincided with the highs and lows of the dollar liquidity index. Arthur Hayes, one of the founders and former CEO of Bitmax digital currency exchange, mentioned Bitcoin as a powerful benchmark for (measuring) the dollar index in a blog post on August 23 (September 1).

Will the continued decline in dollar liquidity affect Bitcoin's bullish season in October?
A chart showing the timing of the peak and trough of the Bitcoin price with the dollar liquidity index

With the dollar liquidity index falling to its lowest level since the beginning of this year, it seems unlikely that the price of Bitcoin will rise in the October bull season.

“This is probably the last knife to the bone,” Harland wrote, referring to the possibility of a final stage of surrender by Bitcoin investors as the dollar’s liquidity continues to decline.

Bitcoin is trading in the $19,300 range at the time of writing. Since buyers and sellers do not want to follow past price data (price action), the price of Bitcoin has fluctuated between 18,000 and 20,000 dollars since September 21 (30 Shahrivar).

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