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Dollar index fell by almost 3%. What does this mean for cryptocurrencies?

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Dollar index is one of the most watched indexes from the point of view of global markets and directly affects the prices of various assets. Cryptocurrencies, which react to the appreciation or depreciation of the dollar, are no exception. Since the beginning of 2021, the index has been growing rapidly and it seems that the growth is not ending.

The DXY index surpassed the 20-year high of June 2002 and caused the value to equalize against the euro almost 1:1 at the time of writing. However, even the growing trend is accompanied by smaller declines. The index is experiencing a similar short-term slump right now. Down 2.72% in about 5 days which we can see in the graph below.

Dollar index DXY

Dollar index DXY. Source: TradingView

Dollar index and correlation with cryptocurrencies

When we focus on the price of cryptocurrencies, we find that BTC in exactly the same period, i.e. during the last 5 days, rose by about 20%. BTC is still the most capitalized coin and its growth has directly affected the prices of altcoins. However, they reacted more weakly, as BTC grabbed the attention with its dominance, as it has in the last 5 days rose by 5.65%. Overall though a decline in the DXY index causes an increase in risky assets.

However, digital currencies are not the only ones that are growing due to the decline of the dollar. For the same period the S&P 500 index also rose by 4.60%. However, cryptocurrencies react more dynamically to similar changes due to volatility, whether it is a bullish or bearish trend. However, the dollar index does not yet show signs of a long-term correction, which could mean a further price drop for cryptocurrencies in the future. Moreover, it is still true that the reversal of the long-term correction is still not a hot topic whether from the point of view of technical analysis or the global economy.

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All content in this article is for informational purposes only and in no way serves as investment advice. Investing in cryptocurrencies, commodities and stocks is very risky and can lead to capital losses.

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