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  • On recent currency devaluations, investors sell EUR and GBP for Bitcoin in record numbers.
  • After a 3-month slump, trade volumes increased 16% in September.
  • Following a rise on Tuesday, bitcoin fell on Wednesday. The unexpected decision to acquire bonds by the Bank of England prompted a response from conventional markets.
  • The key US government employment data, Nonfarm Payrolls (NP), is due on Friday of this week.

    Bitcoin (BTC) recovered from daily lows after the Bank of England (BOE) announced plans to address the government bond market’s liquidity crisis. The announcement raised hopes that central banks, including the United States Federal Reserve, are approaching their pain threshold in response to market volatility and will soon abandon policy tightening.

The Bank of England announced on Wednesday morning that it will begin buying long-dated gilts in unlimited quantities on Wednesday in order to stabilize the United Kingdom’s bond market, which has recently become volatile due to concerns that the government’s tax-cut plan will put the country’s finances on an unsustainable path. The bank also announced a halt to planned bond sales under its quantitative tightening programme.

Source: TradingView

The BOE’s action caused Bitcoin to rise from its daily low of $18,550 to reach $19,100. The 10-year U.K. government bond yield(GBY) decreased by 28 basis points to 4.12%, while the pound dropped by about 1% to $1.06.

Source: TradingView

Bond purchases are commonly related to quantitative easing (QE), in which central banks freely create reserves on their balance sheet and use those new reserves to buy securities on the open market, injecting money into the system.

The BOE has made it clear that the action is only temporary and primarily intended to restore orderly conditions, even though its most recent promise to buy unlimited long-duration bonds appears to be a new round of QE. Once the market has stabilized, it has committed to reverse the purchases.

The Dollar Index (DXY) fell last week after reaching a new 20-year high over 114.50 as a result of a robust rebound in the euro and pound. Given that the euro accounts for over 55% and the pound for over 10% of the DXY weighted, any further recovery in either currency could have a short-term impact on the index’s direction.

Source: TradingView

A DXY retracement or weakness in the DXY trend might give cryptocurrency a break and trigger a relief rally. Bitcoin has a minor inverse correlation to DXY and a high correlation to conventional markets (U.S. Dollar index).

In the months of August and September, exchange trade volumes rose month over month by 16%. Since April and May of this year, the amount of transactions on cryptocurrency exchanges has not increased much. The exchange’s monthly trading volume increased by 16% from August to September, reaching $733 billion. According to The Block’s Legitimate Volume Index, there were $629 billion in volumes in June, $633 billion in July, and $630 billion in August.

According to CryptoQuant, between Thursday and Saturday, centralized exchanges saw a loss of more than 60,000 BTC, or $1.1 billion. It is the biggest level of outflows in recent months. This is a sign of rising demand in the market after several months of price reductions. Exchange outflows are often interpreted as an indication of an investor’s intention to keep their coins for a long time.

Dollar bulls are off to a rough start as the first month of Q4 begins. Even if it has lost ground versus the majority of currencies, it is still early. The majority of us anticipate a 75-basis point rate increase in November with a 66% probability. If this happens, it would be the fourth straight 2022 75 bp rate hike to combat the threat of inflation. A move like that might give the dollar bulls new motivation. Important US economic data and remarks from Fed members ahead of the Fed’s next policy meeting next month may affect expectations regarding how quickly rates are raised.

Due to the dollar’s continued sensitivity to speculation about rate increases, there may be volatility over the next few weeks. The traditional and crypto markets may shortly bottom out and stage a big rally if we do have a drastic drop. However, before that happens, the majority of bulls might be scared out of their stalls. According to historical data, the month of October tends to be modestly bullish for the market as a whole.

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