Bitcoin Price Can Reach Local Top Soon if BTC Dollar Correlation Strengthens
Analyzing the Relationship Between BTC & DXY | Credit: Hameem Sarwar
Key Takeaways
- The Bitcoin price and the Dollar Index (DXY) often have a negative relationship.
- A nearly perfect positive relationship has coincided with market bottoms and tops.
- If the correlation increases, will the BTC price reached its cycle top soon?
Bitcoin’s price has corrected since reaching an all-time high price of $73,777 on March 14. The decrease has coincided with an upward movement in the Dollar Index.
The BTC price bounced after its April 19 low, potentially beginning another increase toward the all-time high. Can analyzing Bitcoin’s relationship to the Dollar Index give any insights to this upward movement?
Analyzing Bitcoin’s Relationship to the Dollar
The Bitcoin and the Dollar Index price movement over the past 18 months reveals that notable movements in one are often mirrored by a similar move in the other direction in the other. This has been the case several times so far, most notably in July to December 2023 and March 2024.
However, cases in which the DXY price moves gradually do not seem to have a clear effect on the BTC price. Rather, BTC sometimes increases and sometimes falls when DXY does move in a clear trend.
Since March 2024, the DXY has increased while BTC corrected. But, BTC has seemingly regained its footing despite an ongoing DXY increase.
The weekly time frame adds further information to this relationship. The correlation (blue) between them has been negative most of the time, verging on perfectly negative (a correlation reading of -1). A perfectly negative relationship indicates the movement in one asset causes an equal magnitude movement in the other direction for the other asset.
While the correlation has never been perfectly positive (1), it has reached 0.8 in four occasions. Two of them market cycle bottoms (green) while the other two cycle tops (red). While this does not help determining which direction the next movement will be, it shows that a significant reaction is expected once the correlation reaches 0.8.
Bitcoin’s correlation to DXY is currently at 0.75. Going by this pattern, a reaction is likely if it reaches 0.8. Since the BTC price is increasing, it is more intuitive for this to be a top rather than a bottom. However, an exclusive look at the Bitcoin price movement in different time frames is needed to determine if this will be the case.
What is Bitcoin’s Correct Wave Count?
Bitcoin’s wave count shows the price began a five-wave upward movement in November 2022 (white). This is true in both potential counts. However, the exact short-term movement since the increase began differs.
In the bullish count, the price is still in wave three of a five-wave upward movement (white). The sub-wave count is in black, indicating the BTC price has just begun the fifth and final sub-wave.
A potential target for the top of this increase is between $89,700 – $90,500. The target is found by giving wave three 2.61 times the length of wave one (white), and sub-wave five 0.618 times the length of sub-waves one & three (black).
The weekly RSI & MACD are still leaning bullish. While they have fallen recently, the RSI has not crossed below 70 and the MACD has not made a bearish cross (green circle). The price action is similarly positive, showing BTC has bounced (green icon) at the previous all-time high.
The bearish count suggests that wave three (white) has already ended. In this count, the BTC price will correct toward $45,000. The price action and wave characteristics both suggest this is less likely to be the correct count.
Wave three does not have a relation to wave one, being between 1.61 times and 2.61 times its length. Also, in these 1-2/1-2 wave structures, the slope of the second one (black) has to be steeper, and this is not the case.
Finally, the price action will require a breakdown below the previous all-time high for the count to be accurate. Since the DXY has not reached 0.80 yet, the pattern suggests another high is likely before a major correction, in line with the bullish scenario.
BTC Price Prediction: All-Time High Before Correction
Finally, the shorter-term 12-hour chart also supports the bullish count. Since the correction started in March, the BTC price has completed an A-B-C structure (yellow), where waves A:C had an exactly 1:1 ratio. The structure is also contained inside a descending parallel channel, conforming with the wave count.
A breakout from the channel will confirm that the final portion of the upward movement is in progress. As outlined from the previous counts, the target for a top is between $89,700 – $90,500.
To conclude, the Bitcoin price usually has a negative correlation with the Dollar Index. Notable positive correlations often coincide with local tops or bottoms. In the current movement, the most likely wave count suggests another increase before reaching a cycle top. This can align with another final increase in the DXY, which leads to a significant correction.
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