Bitcoin price fails to go parabolic as the US Dollar Index (DXY) falls — Why?

Bitcoin (BTC) has fallen 12% since March 2, when it nearly reached $94,000. Interestingly, during the same period, the US dollar weakened against a basket of foreign currencies, which is usually seen as a positive sign for scarce assets like BTC.

Investors are now puzzled as to why Bitcoin hasn’t reacted positively to the declining DXY and what could be the next factor to trigger a decoupling from this trend.

Up to mid-2024, the US Dollar Index (DXY) had an inverse relationship with Bitcoin’s price, meaning the cryptocurrency often rose when the dollar weakened. During that time, Bitcoin was widely viewed as a hedge against inflation, thanks to its lack of correlation with the stock market and its fixed monetary policy, similar to digital gold.

However, correlation does not imply causation, and the past eight months have shown that the rationale for investing in Bitcoin evolves over time. For instance, some analysts claim that Bitcoin’s price aligns with global monetary supply as central banks adjust economic policies, while others emphasize its role as uncensorable money, enabling free transactions for governments and individuals alike.

Bitcoin gains from DXY weakness can take months or years to materialize

Julien Bittel, the head of macro research at Global Macro Investor, pointed out that the recent drop in the US Dollar Index—from 107.6 on Feb. 28 to 103.60 on March 7—has occurred only three times in the past twelve years.

Bittel’s post on X highlights that Bitcoin’s price surged after the last significant drop in the DXY Index in November 2022, as well as following the March 2020 event, when the US dollar fell from 99.5 to 95 during the early weeks of the COVID-19 crisis. His analysis emphasizes that “financial conditions lead risk assets by a couple of months. Right now, financial conditions are easing – and fast.”

While Bittel’s comments are highly bullish for Bitcoin’s price, the positive effects of past US dollar weakness took more than six months to materialize and, in some cases, even a couple of years, such as during the 2016-17 cycle. The current underperformance of Bitcoin may be due to “short-term macro fears,” according to user @21_XBT.

The analyst briefly cites several reasons for Bitcoin’s recent price weakness, including “Tariffs, Doge, Yen carry trade, yields, DXY, growth scares,” but concludes that none of these factors alter Bitcoin’s long-term fundamentals, suggesting its price will eventually benefit.

For example, cuts by the US Department of Government Efficiency (DOGE) are highly positive for the economy in the medium term, as they reduce overall debt and interest payments, freeing up resources for productivity-boosting measures. Similarly, tariffs could prove beneficial if the Trump administration achieves a more favorable trade balance by increasing US exports, as this could pave the way for sustainable economic growth.

Related: Crypto market’s biggest risks in 2025: US recession, circular crypto economy

The measures taken by the US government have trimmed excessive but unsustainable growth, causing short-term pain while lowering yields on US Treasury notes, making it cheaper to refinance debt. However, there is no indication that the US dollar’s role as the world’s reserve currency is weakening, nor is there reduced demand for US Treasurys. As a result, the recent decline in the DXY Index does not directly correlate with Bitcoin’s appeal.

Over time, as user @21_XBT noted, macroeconomic fears will fade as central banks adopt more expansionary monetary policies to stimulate economies. This will likely lead Bitcoin to decouple from the DXY Index, setting the stage for a new all-time high in 2025.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.