Emily Walker
On January 14, a post from Julien Bittel, head of Macro Research at Global Macro Investor (GMI), highlighted growing concerns about the rising dollar and its effects on financial conditions—a topic garnering attention from market observers, including those in cryptocurrency.
Impact of the Rising Dollar on Cryptocurrency
Bittel indicated that the “dollar wrecking ball” is gaining traction, significantly influencing global liquidity and reducing unexpected economic developments in the U.S. Although the crypto sector often experiences market fluctuations due to macroeconomic factors, Bittel suggests that some relief might be coming. He stated, “The dollar wrecking ball is in full swing,” alluding to the dollar’s rapid rise over the past 15 weeks.
He asserts that this surge has “massively tightened financial conditions,” which is starting to show in U.S. economic indicators. He said, “This sharp move is already impacting U.S. economic surprises—something I previously indicated in the GMI and MIT reports last Q4.”
According to Bittel, there has been a decline in economic surprises since peaking in November, a delay in response that he views as expected after such tightening. For investors, particularly in the crypto space, this trend might lead to earlier adjustments in Federal Reserve policy than anticipated.
“The key takeaway: This situation suggests the Fed might soon begin cutting rates, contrasting with the current belief that no cuts will take place in 2025, and the forward rate curve pricing in only 28 basis points for the entire year,” Bittel articulates.
While the general outlook predicts few rate cuts this year, Bittel emphasizes signs indicating the conditions for policy easing are developing. He mentions that the Fed could find it necessary to intervene when weak U.S. economic data becomes undeniable.
“As we experience the lag effects, weaker economic data points are emerging. If this trend continues, the Fed will have no option but to respond. When that occurs, we can expect the dollar’s strength to plateau and easing yield pressures,” Bittel clarified.
From a cryptocurrency perspective, a shift from tightening can have substantial implications. Historically, risk assets, such as Bitcoin and other cryptocurrencies, have performed well in environments characterized by supportive monetary policy and increased liquidity. If the dollar’s dominance diminishes, it could ease the liquidity constraints affecting crypto prices recently.
Bittel also mentioned the psychological aspects tied to these macroeconomic shifts. He stated, “This easing will relieve the liquidity pressure, allowing risk assets the chance to rebound. Poor news might end up being seen as positive…”
Interestingly, the DXY’s trajectory could mirror that of Donald Trump’s initial presidency. In 2017, he deemed the dollar “too strong,” leading to a substantial DXY decline that catalyzed a significant rally in the Bitcoin and crypto markets, a point Bittel previously explored.
As of this writing, Bitcoin is trading at $96,228.