This is an area of much debate and indeed many traders use this in their trading strategy. Furthermore, there are 'copy trading' paid-for websites that also use this BTCDXY correlation as the principle set up for their strategy. However, to offer a short answer, BTC is not correlated to the dollar long-term except in "chunks"; and this is where maybe the argument lies within.

So let's analyse by looking at a longer-term chart and a shorter-term chart to end 2021. I have used 2 charts credited to the authors but I have added arrows to offer a simple visual representation as to the flow of BTCDXY correlation.

The chart above I have have zoomed it in from original to give a timeframe starting Mid-2017 to Mid-2021. Bitcoin in this period shows it's two tops late 2017 - early 2018 bull cycle and the 64K ATH Q2 2021. We have arrows in 'pairs' being GREEN: Inverse correlation, and RED: Positive correlation. What does that all mean? From the argument that BTCDXY is correlated then it is viewed that there is an inverse correlation between the two assets, that is, when BTC rises the dollar drops and vice-versa. As indicated by the green arrows, in this chart you can clearly see that on three occasions it's true, but on two occasions as indicated by the red arrows it's not as a positive correlation is occurring and thus not inversely correlated given the aforesaid argument.

However, and to discuss "Chunks"; you can visualise from the chart that the green chunks are longer in length than the red chunks, thus BTCDXY correlation is indeed more inversely correlated than positively correlated over this 4 year snapshot. Maybe this supports the general argument of the 'yes correlated' camp, but for me it doesn't wash. How can you at any point in time reliably use this as a metric? When do you know the point at which it will switch from a negative to a positive correlation? For me, it becomes a crystal ball exercise in knowing when.

So, viewing a 2 year shorter-term chart 2020 & 2021, visually one extended green inverse correlation from the corona dump but then followed by three chunks of red positive correlation in a row as the BTC price went up and down and up again. Right now to the end of the year back to green inverse correlation. So, and for most of 2021, arguably it can be seen that BTCDXY wasn't inversely correlated and thus it surely makes it rather difficult to again believe in this metric and apply to a trading strategy. Agreed, that first big green chunk is longer in extension than the three red ones put together, but again: when do you know its going to flip?

To conclude, from the short answer at the beginning of this article, in my opinion it is not worth viewing BTC as being correlated to the dollar in an inverse manner sought and thus shouldn't be used as a long-term strategy. For some, and maybe they have greater insight as to when the green chunks take hold and thus then it would work short-term, but for me it's crystal ball analysis at the end of the day.

Notes:

1. If you wish to understand correlation, please google further yourself but in the simplest terms: Correlation works on a scale +1 to Zero to -1: If two assets move in the same direction they are positive. If two assets move in opposite direction they are negative/inverse; Flipping Zero reverses this from one to the other thus nullifies asset correlation as being constantly positive or negative/inverse.

2. DXY: "Dollar Currency Index". A basket of six currencies with the EURO for example weighted at 57.6% of the basket. Started in 1973 it is a guide to the determine the strength of the dollar as to other leading currencies in the world. Go google for more.

3. I have forgotten the person who forwarded some 2 years ago but the argument was that if there was any long-term correlation then it was a "Weak inverse correlation at best" with the coefficient hovering negatively near to zero. Giving some case for the overall idea but in opposition to my thoughts; albeit a "weak" one.

I'm not saying I'm right with my viewpoint as to this, so please if you agree or disagree please comment below and explain why. Again just one man's thought and analysis.

Feel free to say hello to me over on BBS.market/GGGXX, DM & AMA.

Cheers, CryptoGlyn.