Can Cryptos Withstand Dollar's Surge?

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Cryptocurrency markets have declined around 1.5 percent overnight in the backdrop of the announcement that Jerome Powell would continue at the helm of affairs at the Federal Reserve. Hawkish bets on the interest rate tightening regime set to be ushered in, led the Dollar Index, which measures the strength of the U.S. Dollar against a basket of six currencies to surge to 96.55 on Monday and to a high of 96.60 on Tuesday. It is currently at 96.56.

Market leader Bitcoin is trading at $56,423.40, recording an overnight drop of 2 percent and weekly loss of 7 percent. Rival Ethereum is at $4,153.65 down 1.5 percent in a day and 3 percent in a week. Only one-fourth of the top-100 cryptocurrencies are currently in overnight positive territory.

Categories making noteworthy gains despite the subdued sentiment in the crypto market are Gaming which has added 6.71 percent; Metaverse which rallied 6.36 percent; Play to Earn which advanced 5.1 percent; Content Creation which spiked 2.2 percent; and NFTs and Collectibles which has surged 1.92 percent.

The rise in market capitalization in the Gaming, Play to Earn, Metaverse and NFT categories are to a great extent contributed by the surge in 25th ranked Axie Infinity (AXS), 27th ranked Decentraland (MANA) and 41st ranked The Sandbox (SAND).

The 34-percent overnight rally in The Sandbox (SAND) stands out in the top-100 assets category. SAND touched an all-time high of $5.68 about an hour ago amidst the frenzy.

The virtual metaverse is also gearing up for the reported entry of Tik Tok's parent company Byte Dance.

Smart Contracts market capitalization has declined by 2.1 percent to $762 billion; DeFi market cap has shed 2.1 percent to touch $173 billion whereas Stablecoins have edged down to $144 billion.

Meme category is down around 4 percent amidst Dogecoin (DOGE) shedding 0.5 percent and SHIBA INU (SHIB), losing 5 percent overnight.

13th ranked Crypto.com Coin is extending gains with an overnight rally of 13 percent and weekly uptick of 88 percent. The cryptocurrency token of Crypto.com Chain — a decentralized, open-source blockchain developed by the Crypto.com payment, trading and financial services company touched a fresh all-time-high of $0.8085 a few hours ago.

23rd ranked Elrond (EGLD) coin also touched a fresh-all-time high of $542.58 a few hours ago amidst a 6 percent overnight rally resulting in a 67 percent weekly uptick.

54th ranked crypto token Fountain (FTN) that surged from $0.008539 on November 18 to an all-time-high of $48.33 on November 21 is currently trading at $35.47, recording an overnight decline of 23 percent and weekly gain of 391289 percent.

55th ranked crypto token Amp (AMP) has surged 44 percent overnight and 40 percent in the past week.

In every dip that crypto sphere encounters, the question of Bitcoin's strength vis-à-vis Dollar and Gold reemerges, warranting a detailed scrutiny of the price trajectory.
The last time the Dollar Index (DXY) had been at these levels was in July 2020. That was more a moment of relief as DXY was declining from the peak of 102.99 touched in March 2020, triggered by the shock of the unprecedented coronavirus pandemic.

DXY's return to the 96+ level is after a 16-month gap and after touching a low of 89.21 in January 2021. Post this low, the Dollar has been broadly strengthening except for very brief spells of sub-90 levels. The Dollar's strength has more or less coincided with a sharp rise in the inflation in the U.S.

The annual inflation in the U.S. was near 1.4 percent in January 2021. It breached the 2 percent level in March, the 4 percent level in April, the 5 percent level in May and the 6 percent level in October. And the heating up of the economy invariably set in motion a progression to tapering of monetary stimulus and tightening of monetary policy.

In January 2021, Bitcoin traded at average level of $35k, and then soared to touch a high $63k in April. It soon plunged to $30k by July and rallied strong enough to touch almost $70k in November. It is now trading near $56k.

In early January, Gold traded above $1900 per troy ounce, then dipped briefly to below $1700 in March and again recovered to $1900 in June. Since then, it has been mostly between $1750 and $1850 levels. It is now trading near $1800.

If pandemic era surplus liquidity has driven inflation to decade-high levels, the retaliatory tightening in monetary policy has caused the Dollar to increase and price-in the anticipated interest rate differential.

The Dollar has already risen amid the Fed's inflation combat strategies. For Gold or Bitcoin to demonstrate effectiveness as an inflation-hedge, it should invariably correlate its price movements to offset the surge in inflation. Both Gold and Bitcoin have to demonstrate more to be impressive on this count.

If Bitcoin can rise up to be digital hedge against inflation, then the entire spectrum of crypto currencies would jump in to partake in that moment of glory.

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