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Correlation Between Bitcoin, Ethereum & Dollar Index is Negative Again! What Does it Signify?

Correlation Between Bitcoin, Ethereum & Dollar Index is Negative Again! What Does it Signify?

It is a known fact that the crypto price movements are deeply correlated with the DXY Index since its inception. While the DXY index gets stranger, Bitcoin, Ethereum, and many other assets tend to fall. Besides, if the cryptos manifest their strength, then the dollar’s strength tends to fall. In a recent update, the correlation between the BTC, ETH & DXY has yet again turned negative which signifies a negative correlation. 

Correlation Turns Negative

Correlation between the coefficient measures the relationship between the assets, and usually trends between 1 and -1. While the levels at 1 imply a perfect relation between the assets, and the -1 level indicates a perfect negative relation. In the meantime, the 0 indicates that no-linear relation exists. 

Since July, the relationship between DXT and BTC has been largely consistent, with a recent bullish rise into positive ranges. After reaching a high of around 0.84 on November 19 after rising from lows of -0.94 in July, the relationship has now fallen back into negative territory at -0.94. 

On the other hand, Ethereum’s correlation with the dollar index also has turned negative along with Bitcoin. Meanwhile, the volatility of both the tokens also has slashed by 40% & 35% respectively. Interestingly, ETH usually follows the star crypto with a coefficient of 0.90. 

Read more: Bitcoin Price Prediction

What is the Impact on Bitcoin Price?

Bitcoin usually holds an inverse relation with the traditional financial markets. Investors tend to flock to markets that exhibit strength and hence mount enough bullish pressure, elevating the prices accordingly. However, the asset managers have been extremely bearish as they continue to slash the long BTC positions for the third consecutive week. 

This coincides with when the market faced a massive crash due to the FTX turmoil that halved most of the asset’s values in just a couple of days. Now when the relationship is negative, it indicates that either the crypto markets could restart with new comfort prices or macro narratives may regain their dominance. 

So can these rates turn positive?

The correlation highly depends on the traditional financial markets which in turn determines the strength or weakness of the dollar index-DYX. Meanwhile, the DXY-Index in recent times has reached the highest levels beyond 112 for the first time in the past 20 years. This has hampered the BTC price growth nowadays. 

However, a slight stability in the BTC price may mount significant pressure back on the DXY-Index as the market participants may have made a shift into crypto. This is when Bitcoin may gain strength to outpower the traditional markets. 

Hence, the correlation coefficient is positive when the variables, BTC & DXY fit in which all data points align in a straight line indicating that they are perfectly correlated.

Read more: Ethereum Price Prediction

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