Why a strong U.S. dollar might benefit crypto in the long term
A weekly look at the most important moves and news in crypto and what's on the horizon in digital assets.
Hello, welcome back to Distributed Ledger, our weekly crypto newsletter that reaches your inbox every Thursday. I’m Frances Yue, crypto reporter at MarketWatch. I’ll walk you through the latest and greatest in the digital asset world this week.
Find me on Twitter at @FrancesYue_ to send feedback, or tell us what you think we should cover. You can also reach me through email to share your personal stories with crypto.
Crypto in a snap
Bitcoin BTCUSD went up about 8% during the past seven days, and was trading at around $20,617 on Thursday, according to CoinDesk data. Ether ETHUSD surged over 20.6% over the seven-day stretch to around $1,548. Meme token Dogecoin DOGEUSD gained 28.8% while another dog-themed token, Shiba Inu SHIBUSD, rallied 10.2% from seven days ago.
Crypto Metrics
|Biggest Gainers||Price||%7-day return|
|Klaytn||$0.26||89.7%|
|Tokenize Xchange||$17.93||38.5%|
|Evmos||$2.17||36.4%|
|Dogecoin||$0.08||32.2%|
|Aptos||$9.21||28%|
|Source: CoinGecko as of Oct. 27|
|Biggest Decliners||Price||%7-day return|
|Maker||$921.91||-15.3%|
|Chain||$0.05||-14.4%|
|Axie Infinity||$9.2||-9.4%|
|BTSE Token||$3.52||-4.7%|
|Ethereum Name Service||$17.74||-4.4%|
|Source: CoinGecko as of Oct. 27|
The dollar is king?
It has been a volatile year for the global currency market, with the U.S. dollar rallying to its highest in 20 years against its major rivals.
Last month, the U.S. dollar DXY index rallied to as high as 114.8, the loftiest level since 2002, before it fell to about 110.4 on Thursday.
The Japanese yen USDJPY last week weakened against the dollar to 151.95 yen, its lowest level against dollar since July 1990, before it rebounded to about 146.25 yen Thursday, according to Dow Jones market data.
Earlier this month, the Chinese yuan fell to a 14-year low versus the dollar, before it rebounded to about 7.23 yuan Thursday.
The British pound hit a record low of $1.03 last month, before it recouped some losses and traded at around $1.16 on Thursday, while the euro has lost over 12% against the dollar so far this year.
A strong dollar has also hurt cryptocurrencies, with the majority of bitcoin trades happening against the greenback, as I’ve written here. “At the end of the day, you know, value fluctuation is always led by the dollar,” according to Eric Chen, chief executive and co-founder of Injective Labs.
However, some industry participants argued that in the long term, the high volatility in the foreign exchange market might benefit crypto.
“When I look at the really wild movements of traditional fiat currencies over the past year, I do think it speaks to the long term value of Bitcoin,” said Matt Hougan, chief investment officer at Bitwise Asset Management. “As the sort of wilding of the forex (foreign exchange) market accelerates, that’s a long term catalyst that makes Bitcoin more attractive as sort of a safety valve for investors in case things get really out of control, which looks not probable but possible at this point,” Hougan noted.
“Every time there’s kind of this volatility in currencies, especially in developing countries where people’s livelihood depends on it, I think the most important part to consider is that it reaffirms the value prop of Bitcoin as this unbiased, leaderless, and ownerless asset class,” Chen noted. “That being said, in the short term, people just buy the dollar,” according to Chen.
When a currency becomes too volatile, people might turn to not only bitcoin, but also stablecoins, or cryptocurrencies whose value are pegged with other fiat currencies, such as the U.S. dollar, as a store of value, noted Mark Connors, head of research at 3iQ. “I think that’s constructive for the entire ecosystem,” Connors said.
Low volatility
Bitcoin prices have a history of extreme swings, but the rolling 20-day volatility of the crypto has been lower than that of the S&P 500 index and the Nasdaq Composite since Oct. 17, according to Dow Jones Market data. Prior to that, the last time bitcoin’s volatility went lower than both of the stock indexes was in November 2018. Since bitcoin hit a 2022 low of about $17,601 in June, the crypto has been trading above that level and below $25,300.
The primary reason for the rangebound market is that “you have forces working against each other in the crypto market,” according to Bitwise’s Hougan.
The macroeconomic outlook has been gloomy, with persistent inflation in the U.S. and slowing growth of the global economy, while the crypto space has seen increasing institutional adoption, Hougan noted.
“You have a negative pull for macro and a positive pull of the crypto industry and they’re canceling each other out,” Hougan said.
“I think people are just in waiting mode to see, okay, is this close to the bottom or will it take another dive?” said Niclas Sandstrom, chief executive at Hilbert Capital.
Hougan said he expects bitcoin’s price to continue to trade in consolidation for the rest of this year, but “as we turn to 2023 and the macro environment normalizes. it’s going to create the foundation for the crypto spring that a lot of people are waiting for,” according to Hougan.
Crypto companies, funds
Shares of Coinbase Global Inc. COIN dipped 1.4% Thursday at around $72.72, while they were up 14.4% over the past five trading sessions. Michael Saylor’s MicroStrategy Inc. MSTR shares slipped 0.4% Thursday to $271.74, while they were up 23% over the past five days.
Mining company Riot Blockchain Inc. RIOT shares lowered 1.1% to $6.98 Thursday, while they were up 25% over the past five days. Shares of Marathon Digital Holdings Inc. MARA edged up 0.1% to $13.80, and up 26.5% over the past five days. Another miner, Ebang International Holdings Inc. EBON lost 1.8% to $0.30 on Thursday, contributing to a 4.5% loss over the past five days.
Overstock.com Inc. OSTK’s shares plunged 8% at $23.58. The shares traded 0.5% lower over the five-session period.
Shares of Block Inc. SQ, formerly known as Square, added 1.7% to $60.5 and were up 9.6% for the week. Tesla Inc. TSLA shares edged up 0.1% to 204.78%, up 8.5% over the past five days.
PayPal Holdings Inc. PYPL went down 0.7% to $88.01, up 3.8% over the five-session stretch. Nvidia Corp. NVDA shares gained 3% to $132.71, looking at a 8.8% gain for the past week.
Advanced Micro Devices Inc. AMD shares went down 0.8% to $59.24 on Thursday, up 2.5% from five trading days ago.
Among crypto funds, ProShares Bitcoin Strategy ETF BITO declined 0.6% to $12.75 Thursday, while its Short Bitcoin Strategy ETF BITI rose 0.6% to $35.68. Valkyrie Bitcoin Strategy ETF BTF went down 0.8% to $7.95, while VanEck Bitcoin Strategy ETF XBTF decreased 0.5% to $20.23.
Grayscale Bitcoin Trust GBTC tanked 3% to $12.15.
Must Reads
- Institutional Investors Are Wading Into Volatile Crypto Markets: Fidelity (Barron’s)
- The Only Crypto Story You Need, by Matt Levine (Bloomberg)
- Removing Sanctions on Crypto Mixer Tornado Cash Won’t Be Easy (The Wall Street Journal)
- The surprising maturity of the crypto-rave crowd (The Economist)