US dollar decline bolsters Bitcoin outlook amid caution from analyst

A weakening US dollar could present a bullish scenario for Bitcoin (CRYPTO:BTC), according to Real Vision analyst Jamie Coutts, although he raises concerns about certain market metrics.

Coutts describes the current situation as a "high-stakes game of chicken" between Bitcoin and central banks, maintaining a cautiously optimistic outlook despite potential risks.

As of March 10, the US Dollar Index (DXY) has fallen to a four-month low of 103.85, indicating a significant decline that could favor Bitcoin.

Coutts notes that while the dollar's drop may typically compress volatility, heightened Treasury bond volatility, as measured by the MOVE Index, poses challenges.

The MOVE Index is currently stable but on an upward trajectory, suggesting increased uncertainty in the Treasury bond market.

Coutts explains that rising Treasury volatility can lead to tighter liquidity conditions, which may prompt central banks to intervene in ways that could ultimately benefit Bitcoin.

Additionally, widening corporate bond spreads over the past three weeks have historically coincided with peaks in Bitcoin prices, raising further concerns about the cryptocurrency's near-term prospects.

Despite these warning signs, Coutts emphasises that the dollar's depreciation—one of the largest in 12 years—remains a primary driver for his bullish framework regarding Bitcoin.

He also identifies several positive factors that could support Bitcoin's price, including strategic accumulation by major players and potential increases in spot ETF positions.

Coutts concludes that while caution is warranted due to current market metrics, the ongoing decline of the dollar could set the stage for a more favorable environment for Bitcoin moving forward.

Investors are advised to closely monitor these developments as they navigate potential volatility and shifts in market sentiment influenced by macroeconomic factors.

At the time of reporting, the Bitcoin (BTC) price was $82,267.23.