With the recent “cryptopocalypse” that has wiped $250B in value from the cryptocurrency ecosystem in the last few days, one thing that has taken me by surprise is the seemingly coincidental moves in traditional USD FX markets. Over a 36 hour window from the beginning of the latest Bitcoin bear run, the USD fell almost two points in futures markets from 92 to 90, and the USD spiked downwards across all currency pairs.
This was particularly prominent in the EUR/USD market, which saw the Euro rise to over 1.23 against the US dollar for the first time since the major bear market of 2015. This milestone is not insignificant, with all recent extraordinarily-positive economic data coming out of the USA having driven the Dow to record highs at over 26,000. Given all foreign macro economic data being relatively stable, this temporary fall in the USD may well have been due to volatility in the Bitcoin markets, which if true, will have many FX traders, banks, and governments concerned.
Another factor that supports this hypothesis was the timing of recovery in the USD futures markets directly after the rebound in cryptocurrency markets. The major USD rose in all of its major pairings, with the EUR/USD market dropping back down to 1.221 after reaching a high of 1.23.
While many cryptocurrency enthusiasts will rue the aggregated loss of $250B from an industry that while internally priced in Bitcoin, are still valued relative to the US dollar. The question we are left with is: why did the major selloff in cryptocurrency markets spill over to a minor selloff in the US dollar? If this hypothesis is proved correct, this could very well be one of the biggest signals yet that digital currencies are beginning to have a material impact on global financial currency markets.
USD fell almost two points
EUR/USD market dropping back down to 1.221