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

BitcoinBTCSince March 2, it has dropped 12%. It was nearly $94,000 on that date. It is interesting to note that during this same time period the US dollar fell against a basket foreign currencies. This can be seen as an encouraging sign for rare assets such as BTC.

Investors have been puzzled by the fact that Bitcoin did not react positively to the DXY decline. What could the next event be, which would trigger the decoupling of this trend?

The US Dollar Index DXY had an inverse correlation with Bitcoin up until mid-2024. This meant that the price of Bitcoin rose whenever the US Dollar Index fell. Bitcoin, which was a popular hedge against inflation at the time due to its low correlation to stock markets and fixed monetary policies, similar to that of digital gold, became more widely accepted.

The past eight months show that Bitcoin’s rationale changes over time. Some analysts say that Bitcoin is in line with the price of gold. global monetary supply While central banks are adjusting economic policies and others stress its uncensorable role, it allows free transaction for both governments as well as individuals.

The gains that Bitcoin can make from DXY’s decline may take many months or even years.

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 article on X highlights the fact that Bitcoin’s prices surged following both the November 2022 drop of the DXY Index, and the March 2020 fall in which the US Dollar fell from 99,5 to 95 in the first weeks after the COVID-19 Crisis. The analysis highlights that “financial conditions lead risk assets by a couple of months. Right now, financial conditions are easing – and fast.”

Although Bittel’s remarks are bullish on Bitcoin, it took some time for the benefits of previous US dollar weakness to manifest. In fact, they could take up to two years in certain cases. Bitcoin’s underperformance may be due in part to “short-term macro fears,” According to @21_XBT,

Analyst briefly lists several reasons why Bitcoin has recently seen a price decline, including “Tariffs, Doge, Yen carry trade, yields, DXY, growth scares,” The report concludes that Bitcoin’s fundamentals will continue to be the same over time, and its value is likely to rise.

The US Department of Defense, for example, has made cuts to its budget. 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. Tariffs may also be beneficial to the economy if Trump’s administration is able to achieve a better trade balance through increased US exports. This could lead the way towards sustainable economic growth.

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

US Treasury Notes have experienced a drop in yields which has made refinancing debt cheaper. There is still no sign that the US Dollar’s position as the global reserve currency will be diminished. reserve currency The demand for US Treasurys is not decreasing. In other words, Bitcoin’s popularity is not directly related to the recent fall in the DXY Index.

User @21_XBT pointed out that macroeconomic worries will eventually fade away as central bankers adopt expansionary monetary policy to stimulate economies. It is likely that Bitcoin will decouple itself from the DXY Index and reach a new high by 2025.

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