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Risk to Bitcoin's $25K Breakout Prospects

A strong recovery of the United States dollar may pose a potential problem for Bitcoin investors grappling with the recent cryptocurrency company failures and banking issues.

Bitcoin logo and Dollars
Bitcoin logo and Dollars

U.S. Dollar Strength Reemerges

The U.S. Dollar Index, which measures the greenback's performance against a basket of top foreign currencies, has risen 4% from its February 3rd low of 100.82 due to expectations that the Federal Reserve will continue to raise benchmark rates to curb inflation.

Inflation Persists

Fresh data from the US shows that inflationary pressure has not subsided despite the Fed's rate hikes. A recent survey by Bloomberg revealed that 90% of US manufacturers are grappling with rising input prices, and consumer spending has remained strong.

Interest Rates to be Raised

The Bank of America Global Research anticipates the Fed to raise the interest rate to almost 6% from its current 4.5-4.75% range, which could renew investors' demand for the dollar and put pressure on "riskier" assets like Bitcoin.

Bitcoin logo and Dollars
Bitcoin logo and Dollars

Technical Analysis of the U.S. Dollar

The U.S. Dollar Index looks poised to rise due to forming a classic bullish reversal pattern called the inverse head-and-shoulders. If the DXY breaks above its neckline of 105.25, it could lead to an extended recovery toward 109.75 in 2023.

Impact on Bitcoin Price

The stronger dollar prospects come as Bitcoin struggles to sustain the price rally and break the $25,000 technical resistance level. The price of Bitcoin has fallen by around 13% due to macro headwinds and concerns over Silvergate and its potential impact on the industry.

Traders should watch for a potential break below the exponential moving averages, which, along with rising rates and negative news, could see the BTC price retesting the key $20,000 support level in the coming weeks.