Wild Fiat Swings Are Bad News For Bitcoin

---

Three major currencies, the US dollar, the European Euro and the British Pound, have all seen massive swings this year. While the Pound and the Euro are slumping, the American Dollar is soaring. That last one is bad news for Bitcoin.

Pound scandal, Euro war and dollar strength

Bitcoin, the largest digital currency, was supposed to act as a replacement for fiat currencies. Satoshi Nakamoto, the anonymous Bitcoin inventor, created Bitcoin to act as a counterbalance for the unlimited printing options of global central banks.

Given the limited number of Bitcoins that could be mined, he figured the scarcity of the good would make its price rise.

That has worked in the long run. However this year seems to be special, with a war in Ukraine pushing the Euro down, a scandal in Britain over shorting the Pound and strength of the US dollar over its energy reserves which lead the dollar higher.

Send #DXY to 117.700 with haste

Sorry #btc and #spx bulls … the king is not finished. You’ll have to wait a couple more months minimum.

Also #eurusd and #gbpusd , you’re fucked. pic.twitter.com/FXGN2afXI9

— pvptrader (@pvp_trader) September 25, 2022

The dollar index, tradeable as DXY, has been acting like a sledgehammer all year. Because of both the energy reserves that the US holds and the Federal Reserve’s economic tightening policy, it has jumped to 20-year highs.

The British pound was already weakened, trading lower since 2016 because of Brexit, but on Friday fell through the floor apparently after the new minister of finance announce huge tax cuts. Apparently some backers of new Prime Minister Liz Truss knew about this before and shorted the pound, making millions in the process.

⚠️ It’s hard to overstate how serious this is.

I could use various terms for this behaviour, but… just have a read:

[from Sunday Times] pic.twitter.com/Frh3pWxRNc

— Mike Galsworthy (@mikegalsworthy) September 24, 2022

Over here in Europe, the local currency is weakened by both the war in Ukraine, the first major war on Europe’s borders in three decades, and the fact that this has highlighted Europe’s energy dependence. Lastly, the European Central Bank has responded to the weakening euro by raising interest rates, but at a much slower pace than the Federal Reserve.

All this means market participants and investors now have less cash to invest in riskier assets like cryptocurrencies and tech stocks. In turn, this reduces demand, causing asset prices to fall.

Two global developments could now prove to be a turning point for Bitcoin: a stop to the war in Ukraine or a fast fall of inflation (which would put a stop to rising interest rates). The first one seems more likely than the second at this point.

ulchik74 / Depositphotos.com