Bitcoin is once again at the centre of attention, and this time, the reason is a record-breaking weakness in the US Dollar. As the Dollar Index (DXY) drops to levels not seen in over two decades, analysts are pointing to highly favourable conditions for Bitcoin and other risk assets. Onchain data and macroeconomic indicators suggest that BTC could be gearing up for a strong upward move.
US Dollar Index (DXY) Hits 21-Year Weakness
In early July, the US Dollar Index (DXY) dropped to 96.377, a level last seen more than three years ago, and currently sits over 10% lower year-to-date. Even more striking is that DXY is now 6.5 points below its 200-day moving average (MA), the largest deviation in 21 years.
US Dollar Index (DXY) 1-week chart with 200-day MA. Source: TradingView
According to CryptoQuant, a well-known onchain analytics platform, this is a rare and significant moment. Contributor Darkfost highlighted that while this may seem alarming, it’s historically been very bullish for Bitcoin and other risk assets.
The dollar’s drop coincides with the US national debt reaching all-time highs and new trade tariffs, both of which are weakening the greenback’s position globally.
Bitcoin and the Inverse Dollar Correlation
Bitcoin has a long-standing inverse correlation with the US Dollar Index. This means that when the dollar weakens, Bitcoin often strengthens and vice versa. Although this relationship has had exceptions, the broader trend still holds weight.
US Dollar Index (DXY) vs. BTC/USD (screenshot). Source: CryptoQuant
CryptoQuant’s recent data shows that Bitcoin typically performs well when the DXY trades below its 365-day moving average. We’re currently in one of those phases, and historically, that has been a setup for strong BTC rallies.
“As the dollar weakens and loses its safe-haven appeal, investors reassess their portfolios and shift capital toward alternative asset classes,” said Darkfost.
This shift is not just technical but also psychological. As confidence in fiat currencies declines, crypto assets like Bitcoin gain more appeal.
US Debt and Tariffs Add More Pressure
The current economic backdrop in the US is adding further weight to the dollar’s decline. Trade tariffs have been ramped up, weakening international demand for the dollar. At the same time, US debt continues to climb, fuelling concerns about the long-term value of the currency.
Economist Lyn Alden weighed in on the situation, stating that the only time holding dollars makes sense is when it is extremely strong. With current policy trends indicating more debt and higher credit levels, that strength looks unsustainable in the long run.
“If total credit and dollars in the system keep increasing over the next five, seven, ten years, that’s one of the macro factors that makes Bitcoin useful to own,” said Alden.
What This Means for Bitcoin Investors
Despite the perfect storm forming in Bitcoin’s favour, the price hasn’t reacted sharply. That may present a golden opportunity for long-term investors. If history repeats itself, a weak DXY typically triggers a strong BTC uptrend within weeks or months.
It’s also worth noting that Bitcoin has become increasingly mainstream, with growing institutional interest. So, any major price action could be amplified by faster adoption and bigger capital inflows.
For crypto investors, the current DXY weakness could be the cue they’ve been waiting for. If you’re holding or considering buying Bitcoin, the macro backdrop is starting to align in your favour.
