Bitcoin (BTC) is experiencing a pause at the $90,000 resistance level identified last week as foreign-exchange traders concentrate on the rally of the dollar index (DXY), raising concerns of financial tightening that can adversely affect risk assets.

Since early Tuesday, Bitcoin's impressive rise has encountered difficulties at the $90,000 barrier, with prices momentarily dropping down to $85,000, according to CoinDesk data.

Following a significant lift of $20,000 within just a week, it is typical for such pauses to occur, as these often recharge bullish sentiment for the next upward movement. Options market traders are currently gearing up for a breakout towards $110,000-$120,000, as indicated by data from QCP Capital.

Betting on a Dollar Rally

Interestingly, the timing of the price pause coincides with signs of traders betting on a sustained rise in the dollar index, capturing the U.S. currency's value against various major fiat currencies.

“Traded levels of volatility are rising notably as it seems the market is actively positioning (investors) or hedging (corporate treasurers) in expectation of a stronger dollar,” ING noted earlier in the week. “All we would say here is not to fight this emerging trend.”

Both BTC and USD, core components of the so-called "Trump trades", have surged significantly since the victory of Donald Trump in last week's U.S. elections. As noted by TradingView, the DXY has increased by 2.7% to 106.78, marking a six-month peak.

Persistent strengthening of the dollar could potentially re-establish the historical inverse relationship between it and Bitcoin, possibly slowing down BTC's rise or halting it completely. The U.S. dollar serves as a global reserve currency, playing a crucial role in global trade, international debt, and non-bank borrowing, making its appreciation often detrimental to riskier asset classes such as stocks and cryptocurrencies.

Hardening Bond Yields

Meanwhile, yields on U.S. Treasury notes are also moving upwards, lending further support to the dollar. The yield on the two-year note climbed to 4.36%—its highest since July 31. The 10-year note is approaching the multi-month peak of 4.46% noted a week ago.

Market dynamics appear to reflect worries regarding President-elect Trump's policies, particularly mass deportations, which could inflate prices and hinder the Federal Reserve from lowering interest rates next year.

“Strong immigration was one of the big things that made central banks (not just the Fed) much more relaxed about underlying price dynamics,” remarked Dario Perkins, managing director of global macro at TS Lombard, in a note to clients. “It helped to solve post-COVID labor shortages (not just in the U.S.). Sending millions of people back to their country of origin would reverse those trends and, depending on how many people were deported, recreate the situation we were in two years ago.”