An entire asset can act as indicator for digital gold
The DXY index is one of the main tools for determining the real “strength” of the US dollar, as the indicator shows the growth of the USD against a range of foreign currencies. Predictably, the growth of DXY generally drags other assets down as it makes more sense to support the currency which stops losing value and provides stable income with bonds.
According to the correlation graph provided by IntoTheBlock, Bitcoin is showing an extremely strong negative correlation with DXY, so whenever the asset grows, Bitcoin and other risky assets fall.
The correlation can be reassured if we look at the movement of technology stocks which greatly affect the movement of Bitcoin and also have a negative correlation with the US Dollar Index.
How can it be used in crypto trading?
The continuous strengthening of the U.S. Dollar that we see today could be considered one of the main sources of pressure on Bitcoin. In the last 10 days, DXY rallied by 2.5%, which is considered a significant move. In the same period of time, Bitcoin has lost 5% of its value, as do most stocks in the U.S. market.
But at the same time, the technical indicators suggest that the US Dollar rally could end quite quickly as we see a strong divergence of DXY with the relative strength index at the very top of the rally, which is one of the indicators for strongest inversion.
At press time, Bitcoin is trading at $20,110 and showing a mild price decrease in the last 24 hours while moving in a calm consolidation range for the last two weeks.
