Surprisingly, a Strong Dollar Means Strong Bitcoin - Analyst

Many have suggested virtual currency Bitcoin is the new gold for speculators. This would suggest that Bitcoin would strengthen as the U.S. Dollar (USD) weakens and vice-versa; which is how gold normally trades. However, Citi's Global FX Head Steven Eglander said the opposite is true - Bitcoin strengthens as the USD strengthens

Looking at the data, Eglander said what stands out is: 1) the strong correlation between USD strength and Bitcoin strength and 2) this strong USD = strong Bitcoin correlation is stronger than the correlation (inverse) with between gold and Bitcoin. "It suggests that investors bid up Bitcoin when the USD is strengthening against other G10 currencies," he said.

Eglander said regression analysis also supports the view that the USD –Bitcoin link is stronger than the Bitcoin – gold link, whether in level terms or rate of change terms.

The strategist said he was puzzled by the findings and is looking for answers. "I must admit that I am puzzled to see such a strong link and present it as a correlation looking for an explanation," he said.

Eglander provided the following chart to show the correlations between Gold, Bitcoin and USD:

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