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Crypto: What does a strong dollar mean for crypto?

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The U.S. dollar’s ongoing strength could put more downward pressure on crypto prices, which have already suffered along with other risk assets, as bitcoin lost almost 60% of its value year-to-date. 

For the past few months, the dollar
DXY,
+0.02%

has been rallying to historic levels against its major rivals. 

The British pound
GBPUSD,
-0.08%

on Friday tumbled to its lowest level against the U.S. dollar since 1985, trading at as low as $1.14. In July, the euro
EURUSD,
-0.06%

fell below parity against the dollar for the first time in almost 20 years, before bouncing back to parity. Earlier this month, the Japanese yen
USDJPY,
+0.30%

tumbled to the lowest level against the U.S. dollar since 1998, while the greenback rose above 7 yuan
CNYUSD,
-0.33%

to the dollar for the first time in more than two years. 

The dollar has benefited from the Federal Reserve raising interest rates at a pace faster than other major central banks, analysts said. 

“That gives international investors a lot of confidence that the U.S. is going to be the place to be because they’re not going to allow inflation to get out of control,” said Mike Vogelzang, chief investment officer at Captrust. 

Meanwhile, the U.S. is “probably not going to have a recession that’s as deep as say the one in Germany or England or the U.K.,” Vogelzang noted. 

The dollar’s outperformance is detrimental to cryptocurrencies, with the majority of bitcoin trades happening against USD. About 70% of the trading volumes between bitcoin against fiat currencies happen in dollars. The largest cryptocurrency
BTCUSD,
-3.41%

is down 14% over the past week and down almost 60% year-to-date, according to data from CoinDesk. 

What’s worse for the crypto, the dollar’s rally is likely to continue, noted Martha Reyes, head of research at crypto exchange Bequant. “The only way the dollar can go is still up,” Reyes said, citing the energy crisis in Europe, the negative-rate policy in Japan and China’s zero Covid policy. 

Read: Why an epic U.S. dollar rally could be a ‘wrecking ball’ for financial markets

That said, it appears that the dollar strength is getting stretched, according to Todd Morgan, chairman and partner at Bel Air Investment Advisors. 

“I think the surprise with the dollar will be coming and next year it will start dropping once again to a more normalized level,” Morgan said in an interview. “But it’s also pretty hard to call it a dollar movement as it is interest rates.”

Need to Know: The mighty dollar may be about to crack, says this strategist, who names stocks to watch on either side.

Hear from Mike Novogratz at the Best New Ideas in Money Festival on Sept. 21 and Sept. 22 in New York. The Galaxy Digital CEO has ideas about navigating the crypto winter.

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