• Bitcoin’s recent move above $50,000 is contrary to its previous record of posting steep gains, mostly when the dollar index or Treasury yields are weak.
  • One observer suggested that we could see a rise in demand for bitcoin as a safe haven currency from China and Nigeria.

BTC Price Index and Live Chart – CoinDesk”>(BTC) has jumped over 35% to over $52,000 since Jan. 23, consistent with its reputation of chalking double-digit gains in a matter of weeks. This latest move is notable because it coincides with a rebounding U.S. Dollar Index (DXY), and Treasury yields.

The DXY index, which measures the exchange rate of the dollar against the major fiat currencies has gained around 1% this year.

In the past, bitcoin was negatively correlated to the U.S. Dollar, and only experienced sharp gains during periods of dollar weakness. The DXY, for example, fell by 2% in February 2021 to below 90 when bitcoin rose above $50,000.

As a reserve currency, the U.S. Dollar is a dominant force in international finance. A strengthening dollar can lead to a financial tightening around the world, which will discourage investment in risky assets such as technology stocks, cryptocurrency and commodities like gold.

In the same way, an increase in the yield on the 10-year U.S. Treasury, or what is known as the “risk-free rate”, usually leads to a flight from other assets. The yield has increased from 4.10% up to 4.26% over the past three weeks. A higher-than-expected U.S. Inflation figure is reducing the likelihood of an early Fed rate reduction.

Bitcoin’s resilience is likely due to the strong inflows of funds into U.S.-based exchange-traded fund (ETF) in the U.S. Since Jan. 11, nearly a dozen ETFs have amassed approximately $5 billion in net flows.

Noelle Acheson is the author of the popular Crypto Is Macro Now Newsletter. She told CoinDesk that the strong inflows began when BTC did not drop with the increase in DXY or U.S. yields. There was a buying pressure countering the usual selling pressure. This seems to be increasing.

Acheson said, “We may be seeing more safe-haven buying from countries such as China and Nigeria – and we are probably also seeing speculative flows that have a head start on the growth in the investor base.

China, the world’s second-largest economy, has been facing deflationary pressures, a property market crisis, and a stock market meltdown. According to Reuters Chinese citizens are turning to bitcoin in the face of economic hardship. Nigeria’s ongoing currencies crisis, and rampant inflation could have also fueled cryptocurrency demand.

Acheson explained that bitcoin was always a safe haven (or risk asset) to some, and a new technology for others. This explains the demand for hedging the cryptocurrency. “The ETFs do not change that. They just act as a conduit,” he said.

According to QCP Capital’s analysis, CME’s decision of increasing the margin required for trading bitcoin futures could have contributed to bitcoin rally.

This has become a major trigger for volatility in recent months. In this instance, leveraged traders were short and the new requirement led to widespread short covering during a relatively unliquid Lunar New Year Weekend. Both spot and forward prices rose as a result. QCP reported on X that the forward spread trade for BTC has returned to 11-12% annually.

Parikshit Miishra is the editor.