Overnight, Bitcoin briefly slipped to $85,000, showing the first signs of a cooling phase as financial markets adjust to a strong dollar. According to CoinDesk data, these pauses are not unusual and often serve to gather bullish momentum for the next breakout. Options traders are already positioning for a rise to $110,000 – $120,000, suggesting bullish expectations for Bitcoin in the near term, per insights from QCP Capital.

Dollar Rally vs. Bitcoin’s Path

However, it’s no coincidence that Bitcoin’s momentum has stalled amid growing interest in a strong dollar, especially as traders hedge against inflation risks and a possible Fed rate hike. A sustained rise in the DXY may bring back the historical negative correlation between the two, potentially slowing Bitcoin’s upward trend.

Since the recent election victory of Donald Trump, both the DXY and BTC—often dubbed “Trump trades”—have surged. The DXY has climbed 2.7% to a six-month peak at 106.78, reinforcing its role as a safe-haven asset and a counterbalance to riskier assets.

Bond Yields Tighten Further

Another headwind for BTC is the rise in U.S. Treasury yields, providing added support for the dollar. The two-year Treasury yield touched 4.36%, marking its highest level since July. Meanwhile, the 10-year Treasury note is nearing its recent highs, signaling investor caution as Trump’s policies, including potential immigration shifts, heighten inflationary concerns.

Dario Perkins from TS Lombard remarked that reversing immigration trends could re-create labor shortages seen post-COVID, applying upward pressure on wages and inflation, complicating the Fed’s decisions on rate cuts.

The outlook remains bullish in the long term, but Bitcoin’s rally may face some headwinds if the dollar’s strength persists.

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