BTC traders often track the DXY metric because of the correlation between the dollar’s dominance and Bitcoin’s pump and dump cycles.
Right now, the DXY has sunk to a historically weak level, trading 6.5 points below its 200-day moving average, marking the largest deviation in the past 21 years. Meanwhile, U.S. debt has also reached new all-time highs.
Both occurrences are concerning, but crypto enthusiasts may not feel too concerned about the falling DXY as it actually tends to benefit risk assets like Bitcoin.
BTC bulls hope the falling DXY benefits Bitcoin as it has historically done. Source: CryptoQuant
The dollar’s weakness historically gives BTC an edge
When the dollar weakens , losing its safe-haven appeal, investors are forced to reassess their portfolio and allocate capital toward alternative asset classes like BTC.
Historical data shows that periods like this, where the DXY showed great weakness, have been highly favorable to BTC. Good examples of times when this happened include 2021 and 2023, when there were significant DXY drops that coincided with BTC rallies.
As it stands, analysts believe the market is setting up for the weakness of the DXY to potentially fuel a new BTC price rally.
That opportunity is made even more enticing thanks to current monetary policy expectations including rate cuts, rising global M2 money supply and an increased demand for high-yield corporate bonds.
The impact of the DXY’s weakness on BTC’s price has yet to reflect
It is true the dollar is significantly weakened currently, but unlike in the past, its effect on Bitcoin’s price action seems subdued as the leading crypto is currently more than 2% lower than its all-time high of $111,814.
This hesitation on Bitcoin’s end to behave as it would historically have during periods of dollar weakness can be linked to technical factors like the strong resistance level at the $110,000 – $112,000 range.
Another potential reason is the sidelined liquidity. Yes, Bitcoin has finally secured a foothold in the corridors of power. However, many investors are still sidelined due to macroeconomic factors and analysts are convinced it contributes to BTC’s delayed response to the DXY’s weakness.
Despite this, traders remain bullish on BTC’s potential. The DXY’s current significant deviation below its 200-day moving average is a powerful indicator of early bull phases for BTC, not just because of the technical triggers, but because it signals pending liquidity flow into the crypto markets.
Overall activity on the Bitcoin network has also reduced and continues to do so as more investors go into HODL mode after previous rounds of profit taking. The institutional race to stockpile Bitcoin has also caused the percentage of coins left unmoved for over a year to increase from 61.7% to 63.61% by April 2025.
If the DXY does not recover, it increases the potential of Bitcoin trending higher as retail investors who faded into the woodwork when institutions started buying heavily may emerge again.
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