Short the dollar: How Goldman's bearish stance uplifts Bitcoin Q4 sentiment

Goldman Sachs, the $71.4 billion investment bank, is reportedly bearish on the U.S. dollar. For Bitcoin (BTC), which has recently rallied above the dreaded $11,100 level, this could serve as a potential catalyst.

Bitcoin is heading into the last two months of the year with significant uncertainty. But if the dollar continues to slump, it could buoy the momentum of BTC and gold in the fourth quarter.

Why Goldman Sachs is not optimistic on the dollar

Zach Pandl, the co-head of Global FX, Rates, and EM Strategy at Goldman, predicts the dollar to hit 2018 lows.

In a note to clients obtained by CNBC, Pandl and his team of analysts pinpointed two major factors. First, Pandl said the potential “blue wave” election remains a significant risk to the U.S. Dollar Index (DXY). Second, the prospect around COVID-19 vaccines remains unclear.

On Sept. 30, Moderna CEO Stéphane Bancel told the FT that the vaccine would not likely be ready until after the election.

The lack of clarity on the production and distribution of vaccines, as well as the election risk, could hinder the dollar’s momentum. Pandl wrote:

“In our view, a ‘blue wave’ U.S. election and favorable news on the vaccine timeline could return the trade-weighted Dollar and DXY index to their 2018 lows.”

If the dollar drops, it would naturally benefit alternative stores of value like Bitcoin and gold. Since alternative assets are priced against the dollar, the decline of the DXY causes other stores of value to rise.

Atop the declining dollar, Pandl additionally noted that potential vaccine breakthroughs could boost risky assets. As such, if institutions view Bitcoin as a risk-on asset, it could further boost the sentiment around BTC. Pandl wrote:

“To be sure, there are important risks: we are most uncertain about the length of the vote count (especially for the Senate) and the equity market reaction to a ‘blue wave’. But the wide margin in current polls reduces the risk of a delayed election result, and the prospect for near-term vaccine breakthroughs may provide a backstop for risky assets.”

Bitcoin technical structure remains optimistic

A persistent narrative around the medium-term performance of Bitcoin has been its high time frame structure. 

The weekly and monthly charts of Bitcoin remain highly positive due to BTC’s reaction from the $10,500 to $10,700 support range.

On Oct. 12, Bitcoin surged above $11,500 for the first time since September, demonstrating strong momentum.

The recovery of BTC above the $11,300 resistance level is critical because it follows a series of negative events in October.

From charges against BitMEX to U.S. President Donald Trump’s pushback on the stimulus, BTC faced numerous occurrences that could have led to a sharp pullback.

Following a prolonged period of stagnance throughout September, the recent price action of Bitcoin remains positive.