A recent analysis by crypto analytics firm Glassnode has suggested that the digital asset market could be at risk of experiencing a bear market in the short-term. This comes as the U.S. Dollar Index (DXY), which serves to measure the value of the U.S. dollar relative to a basket of foreign currencies, has witnessed noted bullish movements since January 2021, resulting in a sluggish start for risk assets in 2022. Decreases in the DXY can result in a major bullish impact on risk assets, including cryptocurrencies, as the two are often inversely correlated.

This prediction has been further supported by a chart published by the Glassnode analyst which shows that the DXY's upward correction has the potential to cause a bear market. The implications of these movements are conducive to riskier investments such as digital assets, as a strong U.S. dollar can lead to a lack of investment in cryptocurrencies as investors opt for the U.S. currency as a safe-haven asset. This can result in investors liquidating their holdings to reduce the risk associated with digital assets.

The effects of the DXY's movements can also be felt beyond the digital asset market, with investors throughout the global economy being affected. When the DXY strengthens and the U.S. dollar increases in value, commodities such as gold and oil become more expensive for holders of other currencies, leading investors to reallocate their portfolios in order to adjust to the shifting market. This can then, in turn, lead to an indirect decrease in the value of cryptocurrencies due to an overall lack of investment.



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