Cryptocurrency prices seem to be moving opposite to the US dollar
It makes sense, especially as cryptocurrencies start maturing into value-holders in their own right.
There's a stark inverse correlation between the US dollar and cryptocurrency prices, eToro senior analyst Mati Greenspan notes.
See for yourself.
Over 2017, Greenspan explains, the crypto markets tended to more closely mirror the stock market. But a sharp correction at the start of the year, for both the stock markets and the cryptocurrency markets, may have severed that tie.
Now they more closely resemble commodities, which often swing against the dollar.
With cryptocurrency prices generally being denominated in US dollars, a falling dollar signifies an apparent rise in cryptocurrency prices. That this happens at all – if it is what's happening – might be a solid sign of maturity in digital assets, showing that they're starting to hold some value of their own beyond the USD price tag.
"This kind of behaviour is typical of commodities. As the buck falls, it takes more Dollars to buy a barrel of oil or an ounce of gold and vice versa," Greenspan explains. "My suspicion here is that as the Dollar dominates the markets people are placing more faith in it over bitcoin and of course, vice versa when the Dollar falls."
It also makes sense in line with the functionality of cryptocurrencies. "Digital gold" type currencies like bitcoin are generally seen as a safe harbour in the face of central bank mismanagement, rising inflation or the general collapse of a specific fiat currency, so there might just be more reasons to buy when the US dollar falls.
In some ways, it's exactly like how people sell more volatile cryptocurrency holdings for stablecoins when the markets are slumping. By immunising oneself against falling prices, traders can then buy back in at the bottom without any real loss of value.
By the same token, when the US dollar starts falling people might start looking towards cryptocurrency as a place to ride it out.
If you're trying to make a prediction, a reasonable place to start these days might be the US dollar. And, of course, the Tether printing schedule.
Given the significance of foreign investment to a currency's value, and the way currencies tend to respond to general confidence in the state of a country, someone might tentatively predict more ups than downs for cryptocurrency in the next six months.
That's assuming any of this holds true. By accepting the theory that USD drops mean crypto rises, one is also implicitly acknowledging that the markets are changing and finding different correlations over time.
The only rock solid cryptocurrency predictions that are fully backed with historical precedence are that prices go up and they go down, that there isn't always a reason for everything, and that cryptocurrency has a habit of making fools of analysts.
Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VET, XLM, BTC, ADA