Experts Warn: “Bitcoin is Very Close to $100,000, But…”

Bitcoin As we approach the long-awaited $100,000 milestone, analysts warn that macroeconomic hurdles, particularly the strengthening US dollar, could prevent further price gains.

“Dollar appreciation could limit Bitcoin’s upside, as historical performance shows that Bitcoin tends to underperform during periods when the dollar is strengthening,” Bitwise Europe Research Manager André Dragosch said in an interview. “It points to tight global liquidity, which could pose a hurdle for Bitcoin in the near term.”

The US Dollar Index (DXY), which measures the dollar against a basket of major currencies, has risen from 103.42 to 105.93 since the US election earlier this month, according to TradingView data. Dragosch noted that Bitwise’s quantitative models currently identify the dollar as the most important macroeconomic factor influencing Bitcoin’s performance, outpacing monetary policy and global growth expectations.

The monetary policy of the US Federal Reserve also played a role in strengthening the dollar. While investors initially expected aggressive interest rate cuts in 2024, these expectations have diminished. The CME FedWatch tool shows the probability of a 25 basis point interest rate cut at the Federal Open Market Committee (FOMC) meeting on December 18 as 66%, while the probability of interest rates remaining unchanged is 34%.

Tighter monetary policy supports the dollar, creating less favorable conditions for risky assets like Bitcoin that thrive in looser financial conditions.

Beyond the US, global developments could also put pressure on Bitcoin. Increasing expectations that the Bank of Japan (BoJ) will raise interest rates at its next policy meeting caused the yen to strengthen against the dollar. This shift could lead to the unraveling of the yen carry trade, a strategy in which investors borrow yen at low interest rates to invest in higher-yielding assets elsewhere.

A similar shift in August triggered a liquidation event in risky assets, including Bitcoin, as investors began exiting yen carry trade positions. A possible interest rate hike by the BoJ could reignite similar pressures.

Tokyo consumer price data released on Friday showed that inflation increased for the first time in the last three months, strengthening the possibility that the BoJ will increase borrowing costs in December. BOJ Governor Kazuo Ueda recently signaled a shift towards tighter monetary policy, emphasizing that Japan’s economy is moving towards sustained, wage-driven inflation.

“Bitcoin’s performance is closely tied to liquidity conditions, and as global central banks tighten, the road to $100,000 may not be as smooth as some expect,” Dragosch said.

*This is not investment advice.