A weakening US dollar could be bullish for Bitcoin, but two metrics could be cause for concern in the short term, according to Real Vision crypto analyst Jamie Coutts.
“While my framework is turning bullish as the dollar plunges, two metrics still raise alarms: Treasury Bond volatility (MOVE Index) and Corporate Bond spreads,” said Coutts in a March 9 post on X.
The analyst framed Bitcoin as a “game of chicken” with central banks, presenting a “cautiously bullish” outlook despite these concerning metrics.
The US Dollar Index (DXY) has declined to a four-month low of 103.85 on March 10, according to Market Watch. DXY is an index of the value of the greenback relative to a basket of other currencies.
Coutts explained that US Treasuries function as global collateral and increased Treasury volatility forces collateral haircuts, tightening liquidity.
The MOVE Index, which is a measure of expected volatility in the US Treasury bond market, is currently stable but climbing, he observed.
MOVE Index and US dollar Index. Source: Jamie Coutts
“With the dollar’s rapid decline in March, one might expect volatility to compress, or if it doesn’t, for the dollar to reverse,” which is bearish, he said.
Heightened Treasury volatility can lead to tighter liquidity conditions, which could potentially force central banks to intervene in ways that might ultimately benefit Bitcoin, he suggested.
Meanwhile, corporate bond spreads have been widening consistently over three weeks, and major corporate bond spread reversals have historically coincided with Bitcoin price tops, Coutts said.
Coutts concluded that, overall, these metrics paint a negative picture for Bitcoin. “Still, the dollar’s depreciation— one of the largest in 12 years this month — remains the primary driver in my framework,” he added.
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On March 6, Bravos Research said that a declining DXY “could be a major tailwind for risk-on assets,” such as stocks and crypto.
Coutts also identified other bullish factors, including a global race for strategic Bitcoin reserves or accumulation via mining, Michael Saylor’s Strategy adding another 100,000 to 200,000 coins to its BTC treasury this year, a potential doubling of spot ETF positions, and increased liquidity.
“Think of Bitcoin as a high-stakes game of chicken with the central planners. With their options dwindling — and assuming HODLers remain unleveraged— the odds are increasingly in the Bitcoin owner’s favor.”
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