Bitcoin Maintains Momentum as Dollar Weakens, Is the Cryptocurrency Undervalued by 50%?
Bitcoin‘s sustained performance above $65,000 overnight suggests a growing momentum as it eyes the $66,000 level. However, recent market dynamics have painted a contrasting picture. Following the Federal Reserve’s rate cut, traditional assets such as gold, U.S. equities, and Chinese A-shares have all experienced significant boosts in investor sentiment, while Bitcoin appears somewhat subdued in comparison.
Research conducted by market analyst Game of Trades has delved into the divergence between Bitcoin and the S&P 500 over the past six months, as well as the inverse correlation between Bitcoin and the U.S. Dollar Index (DXY). The findings suggest that Bitcoin may be undervalued by as much as 50%, with a more accurate valuation potentially exceeding $120,000 to $140,000.
Historically, Bitcoin’s price movements have often mirrored those of the U.S. stock market during periods of economic optimism. This trend was evident during key phases of recovery: from the bottom in late 2018 to mid-2019, the surge from April 2020 to early 2021, and the rebound from the bear market in late 2022 to early 2024. These periods highlight Bitcoin’s correlation with U.S. equities, especially during bullish cycles.
A common misconception among investors is that Bitcoin’s upward trajectory is inevitably linked to rising equity markets, while a downturn in equities is almost always accompanied by a decline in Bitcoin’s value. While it is true that Bitcoin often lags in rallying behind a rising stock market, the overall gains made by Bitcoin have historically outpaced those of major U.S. indices.
The six-month period of consolidation in Bitcoin’s price has provided an extended window of opportunity for investors who entered at the March highs to accumulate more assets during dips, effectively building stronger positions. The average cost of accumulation is estimated to be around $60,000, which could mark the foundational level for the next phase of upward movement.
This potential rise is influenced by a fundamental driver: Bitcoin’s price is denominated in U.S. dollars, meaning that when the dollar weakens, Bitcoin’s nominal value effectively becomes a discount. This discount incentivizes non-U.S. investors to make purchases, driving up demand. This phenomenon highlights Bitcoin’s unique position as a global asset and a world currency, capitalizing on fluctuations in the strength of the dollar.
Bitcoin serves as a highly sensitive indicator of dollar weakness. Its historical performance reveals a consistent pattern of inverse correlation with the U.S. Dollar Index. For instance, as shown in historical data, the declines in DXY in 2013, 2017, 2020, and 2023 were all followed by notable surges in Bitcoin’s value, reinforcing its role as an asset of choice during periods of dollar depreciation.
With the Federal Reserve’s monetary policy leaning towards dovishness and the increasing signs of dollar weakness, Bitcoin could be poised for a significant breakout. Investors and market participants may find this juncture opportune for capitalizing on the undervalued status suggested by recent analyses. As traditional markets adapt to shifting economic conditions, Bitcoin continues to present itself as a viable alternative for those seeking returns beyond the constraints of national currencies and traditional assets.