Despite the stagnation of the past three weeks, the price of Bitcoin can still continue to rise at a high speed.

Bitcoin Trends

The core of the bullish thesis remains the U.S. dollar. Although, the global currency value index has tried to reverse from the bearish trend in 2020, which caused its value against the top six foreign currencies to fall by 6.8%. This year, the dollar index has rebounded by 2.60% on bets that the U.S. economy will recover faster than expected.

US dollar trend

But despite the dollar’s ​​short-term gains, central banks around the world remain less confident in its long-term gains.

Central banks remain the biggest players in the foreign exchange market. They oversee more than $12 trillion in foreign exchange reserves, so investors are more likely to take cues from the way they treat certain assets, such as the U.S. dollar.

The latest data from the International Monetary Fund shows that the dollar’s ​​share of global reserves has fallen to levels last seen in 1995. Based on December 2020 data, central banks’ dollar reserves were 1.5% lower than in the third quarter of 2020.

Zach Pandl, head of foreign exchange research at Goldman Sachs, said excessive short bets on the dollar may have pulled central banks out of the greenback. He pointed to “several structural trends that tilt the medium-term dollar outlook in a negative direction,” including a widening U.S. trade deficit, a buoyant European general bond market and a strong recovery in China.

Several factors have contributed to the decline in the US dollar market. The most important is the decision of the Federal Reserve (Fed) to introduce and maintain ultra-low interest rates after the global market crash in March 2020. This injected more cash liquidity into the market, prompting investors to see the purchasing power of the US dollar decline.

In addition, the US government deposited free dollars into the accounts of millions of Americans. The oversupply further put pressure on the dollar. Bitcoin benefited from the new capital influx. The dollar fell further.

The cryptocurrency ended the first quarter of 2021 up 100%. True, it has fallen several times near strong technical resistance levels, partly due to rising U.S. bond yields, which made the prospect of holding dollars more attractive among investors. However, it has maintained its upward trend as investors see it as a hedge against rising inflation.