It’s been a volatile week for Bitcoin (BTC +3.07%), with the world’s leading cryptocurrency currently down more than 1% on the week. However, an early Halloween rally to wrap up so-called “Uptober” appears to be forming, with Bitcoin surging 3.2% since yesterday’s close at 4 p.m. ET, as of noon Friday.

Bitcoin

Today’s Change

(3.07%) $3267.45

Current Price

$109871.00

This move is intriguing, and one that isn’t without conflicting catalysts and headwinds. Let’s dive into the one key driver I think is making the biggest difference in Bitcoin’s move today, and why I think this key factor isn’t getting as much attention as it probably should among investors.

Bitcoin is living in a macro world

Image source: Getty Images.

With a market capitalization that’s now rivaling some of the largest and most influential megacap tech stocks in the world, Bitcoin’s price movements are meaningful for investors around the world.

As such, central bank moves (such as the 25 basis point or 0.25% cut from the Federal Reserve this past week) matter a great deal to how Bitcoin is valued on the global stage. That’s because Bitcoin, like many other commodities (the SEC has identified Bitcoin as a commodity-like option for investors) can rise or fall based on U.S. dollar strength.

So when the Fed announced its rate cut this past week, but also delivered guidance that a December cut is “far from” certain, probabilities around where the ultimate federal funds rate will be a year from now have changed considerably.

In short, if the Fed continues to cut interest rates while other central banks around the world hold their currencies steady, this should create U.S. dollar weakness. But if the Fed holds steady as other central banks cut, we could see dollar strength return, which would negatively impact Bitcoin. Over the past five days, we’ve seen a marked increase in the DXY (a measure of the U.S. dollar relative to a basket of other global currencies), which is what I’m seeing as driving the volatility in Bitcoin right now.

Where to go from here?

In my view, we’re likely going to see global central banks eventually converge on their monetary policy, at least in the developed world. This is a dynamic we’ve seen play out over time, where there’s some divergence. And there’s certainly divergence today.

But for investors thinking reasonably long term (say, a decade or so down the road), current macro and monetary policy drivers such as recent dollar weakness may not be the canary in the coal mine many think as a reason to get out of Bitcoin. In short, the investment thesis around Bitcoin isn’t blown, far from it.