Why has Bitcoin's green light been delayed? Raoul Pal points to US dollars

Core Points

Raoul Pal distinguishes a rebound from a sustained recovery. Financing conditions help interpret dollar signals. The stagnation of the AI sector is the second-best situation in his eyes. If Bitcoin continues to buy, it will strengthen his bullish logic.

According to Real Vision founder Raoul Pal, Bitcoin's performance has fallen significantly behind the Nasdaq index and gold, leaving room for "making up". He described this relative performance as oversold, but did not give a specific technical threshold. "The macro background is relatively positive," Pal said, pointing to rising bond yields and what he considers to be an overly strong dollar. These pressures explain his reservations: "I don't give a 'full green light' signal to everything."

Why U.S. dollar borrowing is crucial to Bitcoin

When a company that earns in its local currency needs to repay U.S. dollar loans, if the U.S. dollar strengthens and is not hedged against exchange rate risk, it will face difficulties. To cover the same dollar repayments, the company needs more local currency, which could reduce the amount of money available for investment or make it difficult to rationalize further borrowing.

A working paper published by the Bank for International Settlements (BIS) in 2018 pointed out that the strength of the US dollar is related to the slowdown in cross-border US dollar loan growth and the decline in investment in emerging markets. This finding suggests that the impact of currency fluctuations is not limited to the foreign exchange market, but also affects a wider range of financing areas.

An improved financing environment could provide investors with the ability to purchase risky assets, including Bitcoin. Whether this ability translates into demand for crypto assets depends on investors 'allocation decisions. Pal expects a weaker dollar to create an opportunity for this process: "If they can devalue the dollar, then we have a 'green light' for crypto assets to rise further."

A weaker dollar requires the right conditions

If the dollar weakens while funding becomes easier and credit conditions remain stable, this will more convincingly support Pal's view of recovery. This combination suggests that relieving pressure is not limited to money markets.

Conversely, if the U.S. dollar weakens amid heightened U.S. growth concerns, lenders become more cautious, and investors dump risky assets, Bitcoin could still come under pressure even if the currency moves in the direction Pal expects. The reasons for the decline are as important as the decline itself.

Financing pressure is also reflected in Pal's assessment of the AI trading field. His ideal scenario is a comprehensive easing of the monetary and financing environment; if this situation fails to materialize, he calls the AI sector's sideways swings a second-best scenario. A pause period could give investors room to rethink asset allocation and turn their attention to cryptocurrencies. He is concerned that an AI crash driven by financing pressures could drag down other risky assets, creating a market environment different from the one in which investors reallocate assets during pauses. However, price changes alone cannot establish that funds have flowed directly from AI stocks into Bitcoin.

Indicators that strengthen its argument

Pal also distinguishes between narrow U.S. liquidity indicators and broad bank loan data. His view is that these indicators may diverge, so simply claiming that "liquidity is rising" is incomplete.

For example, BIS's global liquidity data tracks credit to non-bank borrowers through loans and international debt securities. The increased data indicates an expansion in financing, but does not specify who will use the funds to buy Bitcoin.

The currency benchmark also needs to be clarified. Pal does not mention specific indices in this section. The commonly watched ICE Dollar Index (DXY) measures the exchange rate of the U.S. dollar against six currencies, with the euro weighing 57.6%. The Federal Reserve's broad dollar index uses different currency baskets, so the two are not interchangeable.

Dollar movements, yields and credit conditions describe the financing context. ETF capital flows and continued strong prices provide independent evidence of buying behavior within the Bitcoin market. Taken together, they provide a way to assess whether the conditions described by Pal are taking shape:

Indicator Contents to be inspected Dollar Trend Use a consistent benchmark (such as the Federal Reserve's Broad Dollar Index ) to determine whether weakness persists. Real yield of treasury bonds Change in government debt inflation-adjusted yields. FRED released a 10-year series of data. Financing conditions Whether financing conditions relax with the trend of the US dollar. The Chicago Fed Index covers currency, debt, equity markets and banking conditions. Bitcoin Demand Whether the net inflow of ETFs continues and whether prices can hold on to the increase. ETF funds flow to only one channel that represents demand, not all buyers.

These indicators are released differently with different frequencies and data may be revised. The dates covered should be clear when making comparisons.

Bitcoin's $85,000 reversal demonstrates the importance of confirmation

Bitcoin's response on September 30 illustrates the difference between an encouraging release and a sustained recovery. Driven by lower-than-expected inflation data, Bitcoin briefly rebounded above $85,000, but quickly fell below $84,000 as Treasury yields rebounded. Although the timing cannot be determined, buyers clearly failed to maintain their initial gains.

The same difference applies to Pal's dollar signal. A long-term decline in the U.S. dollar, accompanied by an improving financing environment and continued Bitcoin buying, will strengthen his recovery arguments. If credit tightening or rebound fails repeatedly, the weakness of the dollar will not fully confirm that conditions for a longer cycle of gains are in place.

This article is for reference only and does not constitute investment advice. Pal's remarks reflect personal views that macroeconomic indicators do not guarantee Bitcoin's future performance.