In a sign of continued maturity as a macroactive, bitcoin now appears to be leading the price action in the forex (FX) markets.
The dollar slid back to flat Monday after a rise in bitcoin to record highs caused the US currency’s attempt to pull back from [U.S. nonfarm] payroll-induced losses in the previous session, ”said a Reuters article earlier this week.
The article claims that the Tesla-led rally in bitcoin (BTC) EUR / USD (euro-dollar exchange rate) helped extend Friday’s gains in the wake of gloomy investor confidence in the eurozone.
A closer look at the price action of the two markets shows that EUR / USD, the most liquid currency pair worldwide, followed bitcoin higher after the Tesla news.
EUR / USD broke out of a downward channel (top left) Monday at 2:00 PM UTC, indicating a continuation of Friday’s rise from 1.1990 to 1.2040, fueled by the bleak U.S. non-farm payroll (labor market) figures.
Notably, the currency pair breakout occurred at least an hour after Tesla news pushed bitcoin to new highs above USD 42,000. The US electric car maker announced its $ 1.5 billion bitcoin investments, confirming the cryptocurrency’s appeal as a reserve.
It appears that FX traders were selling dollars, pushing the EUR / USD higher as the dollar took a hit against bitcoin, an alleged inflation hedge / digital gold. It is worth noting that macro factors such as slow vaccine delivery in the Eurozone and the relatively lukewarm economic recovery helped drive the EUR / USD down.
Both bitcoin and EUR / USD have largely remained on offer since then. The cryptocurrency set a new peak price of $ 48,925 early Friday, while EUR / USD is now trading above 1.2100.
While it may be too early to call bitcoin a leading indicator for the FX markets, analysts are confident that the cryptocurrency is heading in that direction.
“While I certainly think this is where we’re going, bitcoin has to mature a bit before we get there,” Joel Kruger, a currency strategist at LMAX Digital, told CoinDesk in a Telegram chat.
The crypto community views bitcoin as a better store of value and medium of exchange than the US dollar and fiat currencies in general. That’s because the rate of bitcoin’s supply expansion slows down by half every four years, which is in stark contrast to the expansive (inflationary) monetary policies of the US Federal Reserve and other major central banks.