The price of Bitcoin rose to as high as $12,086 on Coinbase, as Ethereum (ETH) buoyed overall market sentiment. While the cryptocurrency market’s momentum is evidently strong, there are two potential threats to the rally.
The two possible obstacles to the ongoing Bitcoin and Ethereum rallies are the U.S. dollar recovery and the historical performance of BTC in the month of September.
Is The Weakening U.S. Dollar Momentum Reversing?
Analysts have generally attributed the upsurge of both Bitcoin and gold to the fading dollar in recent months.
In late July, the U.S. dollar plunged to a two-year low due to the slowing economy and soaring virus cases.
Since then, the U.S. dollar has continuously declined. From March, within five months, the U.S. dollar index dropped from 102.99 points to 91.75 points, by more than 10%.
The weakening dollar seemingly fueled the sentiment around alternative assets, including Bitcoin and gold.
But, some analysts say that the decline of the dollar is overexaggerated. On August 23, Capital Economics’ senior economist Jonas Goltermann said the DXY does not depict the full picture.
He described the “downfall” of the dollar as a “greatly exaggerated” narrative. He noted that the U.S. dollar remains the dominant reserve currency, with more stability over the euro and renminbi.
“Perhaps more importantly, there is no obvious alternative to the dollar. The next two largest economies, the euro-zone and China, are both smaller than the US, and the euro (due to its still-fragile political underpinnings) and the renminbi (due to China’s capital controls and unique political system) have significant shortcomings as reserve currencies,” he said.
The U.S. dollar has fallen sharply since May, and it remains to be seen whether the dollar could rebound at a key support area.
The recovery of the dollar could cause the uptrend of Bitcoin, gold, and other cryptocurrencies to slow.
Another potential factor to consider is the historical performance of Bitcoin during the month of September.
Every monthly candle in the last three years for the month of September closed as red. While the data is more coincidental than cyclical, it would be compelling to see if the pattern breaks for the first time in 4 years.
The Momentum of Bitcoin And Ethereum Remains Strong
For now, the momentum of both Bitcoin and Ethereum remains strong. Even at a high price point, the on-chain market analysis firm Santiment said traders undecided on whether to take profit.
“BTC jumped above $12k today for the first time in 2 weeks, while $ETH hit a 25-month high of $485. Volume, especially for #Ethereum, has soared as traders polarize and decide whether to #FOMO in or profit take,” Santiment researchers said.
Key on-chain data points also continuously signal the start to an extended uptrend. Rafael Schultz-Kraft, the chief technical officer at Glassnode, said the Bitcoin short-term holder net unrealized profit and loss activity (NUPL) has been above zero for four months.
A positive NUPL historically “served as an indication for BTC bull markets,” Kraft noted.