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US Dollar Will Crash “Faster and Harder,” Says Pro-Bitcoin Economist

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A recent sharp pullback move in the US dollar market is insufficient to log a full-fledged upside breakout.

So says Stephen Roach, the former chairman of Morgan Stanley Asia. The pro-Bitcoin economist wrote in an op-ed that the US dollar could fall by as much as 35 percent by the end of 2021 due to strengthening foreign currencies, rapid macroeconomic imbalances in the US, and the end of the American hegemony over global reserve assets.

Mr. Roach stressed that the net national savings rate in the US has plunged into negative territory for the first time since the 2008-09 economic crisis. It did so with an unusually higher downside momentum, falling 3.9 percentage points from the previous quarter – the sharpest decline since 1947.

Expansionary Policies

The fall in national savings occurred despite a brief uptick in personal savings, the Yale faculty added. It showed that the Americans failed to outrun a record expansion in the federal deficit budget. That happened especially after the US government approved $1,200 relief cheques to unemployed Americans.

While the move boosted personal savings, the need to spend that money resulted in a sharp decline from 33.7 percent in April to 17.8 percent in July. Mr. Roach noted that that savings rate would fall further as the Americans seek another round of relief measures from the US Congress.

“With the federal budget deficit exploding towards 16 percent of gross domestic product this financial year, according to the Congressional Budget Office, the savings plunge is only a hint of what lies ahead,” the economist wrote.

US dollar is showing signs of downside continuation after validating 94.74 as resistance. Source: TradingView.com

It is not the depleting savings that could put pressure on the US dollar.

Mr. Roach said that he expects the Federal Reserve’s expansionary approach to further trim the greenback. As Bitcoinist also covered earlier, the US central bank’s decision to keeping interest rates near zero until 2023 and target inflation above 2 percent, would keep the US dollar under risks of further declines.

“In short, the vice is tightening on a still-overvalued dollar,” Mr. Roach wrote.

What It Means for Bitcoin

A tightening US dollar upside could leave Bitcoin in a better-than-expected bullish bias, also noted Mr. Roach but back in June 2020.

The economist, nevertheless, added that cryptocurrencies and gold markets are very small to absorb major adjustments in the $6.6 trillion global foreign exchange. But overall, he expected that Bitcoin and gold would benefit from the US dollar’s decline.

At the time of his statement, BTC/USD was trading 148 percent higher from its mid-March nadir of $3,858.

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Bitcoin is finding it difficult to sustain its rally above $11,000. Source: TradingView.com

Earlier this year, many renowned names from the mainstream financial sector associated themselves with Bitcoin. That included billionaire hedge fund manager Paul Tudor Jones who allocated 1-3 percent of his $22 billion worth portfolio to Bitcoin Futures. Also, a public-traded firm MicroStrategy purchased $425 million worth of BTC in two separate rounds.

They both cited a weakening US dollar outlook as their primary reason behind their Bitcoin investments.



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Bad call? Bitfinex bears closed a block of Bitcoin shorts before the drop below $32K

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Bitcoin price is still in a rut, trading near $33,000 and trapped in a downtrend that just seems to get worse with the passing of each day. As the price slumps, analysts have consulted with several technical and on-chain metrics to explain the price collapse, but none of these have picked up on the exact reason. 

One area of interest has been the sharp rise in short positions at Bitfinex in the past week. Traders are placing exaggerated importance on these Bitcoin (BTC) margin shorts as if they are predictors of the current market crash. Still, as Cointelegraph previously reported, analysts forget that Bitcoin margin longs are usually much larger.

On June 18, longs outnumbered Bitfinex shorts by at least 22,800 BTC, but 87% of the short positions were closed before June 22. Currently, margin longs are 43,850 BTC higher than the amount shorted.

While those shorts are usually savvy traders, it is unlikely that they knew in advance that Chinese banks would prevent their clients from engaging in activities involving crypto trading or mining.

More importantly, these bearish positions were built while MicroStrategy was buying $500 million in Bitcoin after a successful senior secured note private offer. To make things worse, Michael Saylor’s business intelligence firm announced the intention to raise another $1 billion by selling stocks to buy Bitcoin.

Let’s take a look at how these courageous shorts fared.

Bitfinex margin shorts (blue) vs. Bitcoin price in USD (orange). Source: TradingView

On June 6, shorts increased from 1,380 to 6,700 at an average price of $36,150. Three days later, another 12,180 shorts were added when Bitcoin was trading at $37,050. Lastly, between June 14 and 15, shorts increased 6,000 to a 25,000 peak while Bitcoin averaged $40,100.

By looking at the Bitcoin prices when those short position increases took place, it is reasonable to assume that the 23,500 contract increase (green circles) had an average price of $37,625.

Related: Traders search for bearish signals after Bitcoin futures enter backwardation

Traders closed positions before BTC crashed bel$32,000

These short positions were steadily closed over the past three days when Bitcoin was already trading below $37,000. However, 17,000 short contracts had already been closed by the time the price plunged below $33,500. Therefore, it is implausible that the average price was below $34,500.

No one would complain about gaining 8%, shorting the market to generate a $73 million profit. However, it is essential to note that on June 16, when Bitcoin reached $40,400, these shorts were underwater by $65 million.

This analysis shows how even highly professional traders can go deep underwater. There’s no way to know if this trade would have been profitable had the crackdown on China not aggravated Bitcoin price or if MicroStrategy managed to raise the $1 billion before the price drop.

If anyone still believes in market manipulation, at least there’s comfort in knowing that pro traders can face drastic losses as well. However, unlike us mortals, whales have deep pockets and patience to withhold even the most rigorous thunderstorms.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.