Bitcoin is back above $40,000 after a rough few weeks.
Though the largest cryptocurrency by market value is down 11% in the last 14 days, it’s slowly recovering. After dipping to around $38,779 on Monday, Bitcoin (BTC) is currently trading at $41,431, according to price data site CoinGecko.
Along with Bitcoin’s bounce, the greater cryptocurrency market is up 3.2% in the last 24 hours. Ethereum (ETH), the second-largest cryptocurrency by market value, is currently trading at $3,098 after dropping to $2,898 on Monday.
But Bitcoin might continue to struggle to remain over $40,000, as the U.S. Dollar Currency Index (DXY) hit a 52-week high today of 101.02. This inverse trend between the dollar and Bitcoin has been consistent over the last 10 years, analysts at cryptocurrency research firm Delphi Digital wrote in an April 14 report.
Bitcoin’s price tends to “trend in the opposite direction of DXY momentum,” Delphi Digital wrote. This means that when the U.S. dollar gains momentum, Bitcoin tends to underperform, and vice versa.
In addition to this, a number of other factors are likely attributing to Bitcoin’s recent slump.
“In financial markets and especially crypto, it’s often very hard to point to one very specific thing for a selloff. It’s generally a confluence of circumstances,” Tom Dunleavy, senior research analyst at cryptocurrency market intelligence firm Messari, told Fortune.
But Dunleavy thinks that tax day in the U.S. was a main driver in the recent market slide, saying Americans were redeeming their cryptocurrency to pay their taxes before the April 18 deadline.
“We had BTC and ETH rebound literally right after the stock market close on Monday (4 p.m. EST),” he said. “It’s not clear whether that was algorithms or discretionary traders, but overall tax selling seems to be the underlying reason.”
Earlier this month, Bitcoin began to dip along with the stock market.
This came as the U.S. Federal Reserve released minutes on April 6 from its March 15–16 policy meeting, which revealed the central bank plans to reduce its balance sheet and raise interest rates. Following this announcement, tech stocks and risk assets like cryptocurrency nosedived.
“Crypto’s correlation with stocks was back on the rise,” Lucas Outumuro, head of research at IntoTheBlock, a crypto analysis company, wrote in its April 8 newsletter. “This week we observed this in play as markets reacted negatively to news of a likely 50-basis points interest rate increase and quantitative tightening in the upcoming Federal Reserve meeting.”
That’s why, contrary to the common narrative that Bitcoin is a safe haven asset and hedge against inflation, data has shown that the cryptocurrency moves frequently with the S&P 500.
“The higher correlations come as a result of the institutionalization of crypto over the past few years, where many of the largest buyers are highly susceptible to interest rates and quantitative tightening [QT], just as with stock investors,” Outumuro told Fortune in April. “Thus, the recent hawkish news and likelihood of QT beginning in May has been taking a toll on crypto prices.”
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