US dollar’s weakness could drag down price of Bitcoin: report

Economists have warned investors to “strap in for what could be a bumpy ride” as they predict the US dollar will continue to weaken – and that it could drag Bitcoin down with it. 

Bitcoin has skyrocketed this year — opening at $59,130.31 on Tuesday after starting the year at $44,187.14. But the cryptocurrency’s prices started to come down in late August and have continued to falter in the first days of September.

“September has traditionally been a volatile month for bitcoin, with an average return of 4.78% and a typical peak-to-trough decline of 24.6%,” analysts with the Bitfinex crypto exchange told Forbes via email. 

Investors have been hoping the Federal Reserve will issue rate cuts during its two-day meeting in September and deliver a soft landing for the economy. 

If the Fed issues the highly anticipated cuts, Bitcoin could tumble below $40,000 again, Bitfinex analysts warned.

Bitcoin is typically a volatile stock in September during an end-of-summer trading lull, and rate cuts would only worsen this volatility, analysts said.

September rate cuts seem more likely than ever after Federal Reserve Chair Jerome Powell came off more dovish than expected during his Jackson Hole speech, which sent the US dollar falling further.

“It’s been a tough summer for the greenback,” Neil Roarty, analyst at investment platform Stocklytics, told Forbes via email. “As recently as April, dollar dominance looked unstoppable as its price soared versus almost all global currencies. Now it’s at 2024 lows against the euro, the pound and the yen.”

Federal Reserve July meeting minutes showed they might cut rates more than initially expected after a series of pandemic-induced rate hikes that propelled rates to 23-year highs. 

Roarty reaffirmed that interest rates might fall faster than expected – by as many as 100 basis points by the end of the year.

He said investors should keep an eye on how other central bankers – like the European Central Bank, the Bank of England and the Bank of Japan – react, specifically the difference between their interest rates and the rates in the US. 

“That all important rate gap…could be the driver of some significant currency volatility over the coming months,” Roarty said. “Strap in for what could be a bumpy ride.”

The European Central Bank and the Bank of England are both expected to continue making rate cuts.

Investors remain unsure about the next move from the Bank of Japan, which acted as the catalyst for a steep market sell-off in July after issuing a surprise interest rate hike.

Meanwhile, Bitcoin prices have dropped off from strong growth during the first half of the year.

“While we remain optimistic about digital assets’ mid- to long-term prospects, the current evidence calls for caution,” Markus Thielen, the chief executive of 10x Research, wrote in a note.

Although the market bounced back in V-shaped rebounds after dips in May, July and August, each dip has become deeper and each recovery has become meeker, Thielen said.

“The latest end-of-month data indicates that we may be nearing a critical tipping point in September, marked by a decline in demand,” he said.

But other analysts have focused on Bitcoin’s historically poor performance in September and argued that rate cuts could actually help the cryptocurrency’s performance.

Data shows Bitcoin has an average value depletion rate of 6.56% in September, Innokenty Isers, founder of UK-based crypto exchange Paybis, told Forbes via email.

Isers argued that rate cuts – which typically increase US dollar flow, thus weakening the value of the dollar – could make Bitcoin seem like a healthy alternative.

“If the Fed’s policies weaken the dollar, switching to risk assets with higher growth potential might be inevitable,” he said.

He said the popularity of spot Bitcoin exchange-traded funds (ETFs) could also bolster Bitcoin’s performance in September. 

The Securities and Exchange Commission greenlit the ETFs – which allow investors to acquire stakes in funds that own Bitcoin offered by firms including Blackrock and Fidelity – early this year after a decade-long battle with the crypto industry.

The ETFs were a massive hit, spearheading a trading frenzy and driving Bitcoin prices above $60,000 for the first time in two years in February.

The Bitcoin ETFs from Blackrock and Fidelity are some of the fastest-growing ETFs in history.