By Chris Hollingworth 
Bitcoin (BTC) has experienced a 12% decline since March 2, after nearly reaching $94,000. Interestingly, during this period, the US dollar has weakened against a basket of foreign currencies, typically viewed as a positive sign for scarce assets like Bitcoin. Investors are now contemplating why Bitcoin has not responded positively to the declining DXY and what might trigger a decoupling from this trend.
Historically, up to mid-2024, the US Dollar Index (DXY) and Bitcoin had an inverse relationship, with the cryptocurrency often rising when the dollar weakened. Bitcoin was commonly seen as a hedge against inflation during this period due to its lack of correlation with the stock market and its fixed monetary policy, akin to digital gold. However, correlation does not necessarily imply causation, and the reasons for investing in Bitcoin have evolved over time.
Some analysts now suggest that Bitcoin’s price aligns with global monetary supply adjustments by central banks, while others emphasize its role as uncensorable money facilitating free transactions for governments and individuals. The potential gains for Bitcoin from DXY weakness may take months or even years to materialize.
Julien Bittel, the head of macro research at Global Macro Investor, highlighted the recent drop in the US Dollar Index and its historical implications. Despite his bullish stance on Bitcoin’s price, past instances have shown that the positive effects of US dollar weakness took time to materialize, ranging from several months to a couple of years. The current underperformance of Bitcoin may be attributed to short-term macroeconomic concerns.
Factors contributing to Bitcoin’s recent price weakness, as pointed out by analyst @21_XBT, include tariffs, Doge, Yen carry trade, yields, DXY, and growth fears. However, these factors are unlikely to alter Bitcoin’s long-term fundamentals, implying that its price may eventually benefit from them.
The US government’s measures, including cuts by the Department of Government Efficiency (DOGE) and tariffs, aim to trim unsustainable growth and could have positive medium-term effects on the economy. Despite short-term challenges, there is no indication of a weakening role for the US dollar as the world’s reserve currency or reduced demand for US Treasurys, suggesting that the recent decline in the DXY Index may not directly impact Bitcoin’s attractiveness.
Looking ahead, as macroeconomic concerns subside and central banks implement more expansionary monetary policies to stimulate economies, Bitcoin could potentially decouple from the DXY Index, paving the way for a new all-time high in 2025.
