The U.S. dollar is under tremendous strain, and it seems as though it's one headwind after another. Cryptocurrencies have performed well again, as many investors have bought the pullback. I suspect further dollar weakness and crypto strength.
The dollar weakness is far from over
The dollar weakness is far from over, and it seems as though supply will keep on increasing until the jobs market is restored. Lower interest rates tend to depreciate currencies as supply increases and return on money market and bond investments erode.
Furthermore, liberalized capital markets, below mean average trading and China trade wars are still weighing in heavily. The large inflow of foreign investment in the stock market could cause severe damage if a herding effect erupts during a bear market.
The last matter to discuss is the looming contractionary tax policy. When a country raises fiscal policy without debt to gross domestic product being the overwhelming factor, you'll see significant divestment as tax-efficient investors might seek new pastures.
I don't think that speculative investors have fully indulged in dollar weakness. Balance of payments hasn't been what it should be, and the capital account has nowhere near made up for current account deficits.
Crypto surge
I believe that excess market liquidity is a driving factor behind crypto price action. It seems as though liquidity's shifting between two asset classes, namely meme stocks and cryptocurrencies.
I also believe that crypto is being used as a dollar hedge more so than gold of late.
Yes, we have now learned that there will be a tax on capital gains and that central authorities are creating their own coins, but this doesn't take away from the fact it will stack up well against the dollar for the time being, as there isn't any central authority trying to drive the price down artificially.
Final word
The cryptocurrency market looks set for another bull run. The reluctance of the U.S. Federal Reserve to curb its expansionary monetary policy will continue to cause downward pressure on the dollar. Investors could buy into crypto now more than ever as confidence in the central bank's policymaking is eroding among consumers.
