Will Bitcoin benefit from a weakening US dollar index?

Author: Marie Poteriaieva, CoinTelegraph; Translated by: Bai Shui, Jinse Caijing

Summary

• Lynn Alden stated that the depreciation of the dollar is crucial for the United States to stabilize its financial system.
• Bitcoin and gold are expected to benefit from de-dollarization.
• As the global dominance of the US dollar begins to weaken, sovereign wealth funds and various countries have started to increase their holdings of Bitcoin.

The weakness of the US dollar (DXY) is no longer headline news. As the turmoil in the American economy intensifies, the depreciation of the dollar has become one of the background factors. Since the beginning of 2025, the dollar index has fallen by 11% and is currently hovering around the levels seen since April 2022. The market largely just shrugs it off. After all, isn’t the weakening of the dollar to be expected during a period of deep restructuring?

The problem is that this may not be a temporary decline. The decline of the dollar may reflect a deeper and more long-term restructuring of the U.S. economy and the global monetary order. Independent market analyst Lyn Alden presented a compelling argument in her newsletter on May 4: The dollar may not only weaken but it may also be necessary. Alden believes that moderately relinquishing dollar hegemony might be one of the few ways to stabilize an increasingly fragile system. If the U.S. abandons its central position in the monetary world, the world will need other options. Neutral assets like gold and Bitcoin may be able to play a more central role.

The United States and the US dollar are undergoing a “long-term transformation.”

The fractional reserve banking system, which relies on fiat currency, creates money through lending. Each time a bank issues a loan, it expands the supply of broad money, but it does not necessarily create enough base money to repay the principal and interest on the loans. This means that the current financial system depends on continuous credit expansion and refinancing to maintain solvency.

Currently, the U.S. economy holds about $102 trillion in public and private dollar-denominated debt, with an additional $18 trillion held by borrowers outside the United States. This does not include derivatives, which would significantly increase the total.

However, in reality, only 58 trillion of base currency exists.

“It’s like a game of musical chairs, with more than 20 kids for each chair,” Alden wrote. “And the music won’t stop for too long.”

The United States plays a special role in this system. Its imports exceed its exports, and surplus countries reinvest their dollar earnings into U.S. stocks, bonds, real estate, and private equity. For the $18 trillion in dollar liabilities held overseas, non-U.S. entities hold approximately $61 trillion in dollar assets. However, when dollar liquidity tightens—when everything comes to a halt—foreign holders often have to sell these assets to repay debts, which in turn threatens U.S. financial stability.

This situation occurred in March 2020, during the peak panic of the COVID-19 pandemic, when parts of the U.S. Treasury market became frozen. The Federal Reserve intervened, quickly establishing emergency swap lines with foreign central banks and printing trillions of dollars in base money to re-support the market system. This solved the liquidity problem but triggered inflation, which hit low-income Americans the hardest.

Coupled with decades of industrial decline and an ever-widening social gap, this situation ultimately created a political mandate for Donald Trump and his protectionist agenda. However, Alden believes that the tariff shock is unlikely to succeed. The current system means that the United States must maintain a structural trade deficit in order to provide enough dollars for the global economy, thereby maintaining the dollar’s dominance. The only way to rebalance trade flows is to weaken the dollar and abandon monetary hegemony.

As Alden said, “I believe that the financial system in the United States and even globally is likely to begin a very long-term transformation.”

The Relationship between Bitcoin and the US Dollar Index

BTC is negatively correlated with the US dollar index. When the dollar strengthens, risk assets like Bitcoin (BTC) become less attractive to investors. When the dollar weakens, BTC is not only more appealing as a speculative tool but also as an alternative currency. In a system where fiat currency must depreciate over time to function normally, the fixed supply and monetary neutrality of Bitcoin provide an extremely attractive hedging tool.

Overlay the BTC and USD index charts; significant divergences between the two often coincide with trend reversals in Bitcoin. In April 2018 and March 2022, these divergences signaled bear markets, while November 2020 marked the beginning of a bull market rebound.

During the 2023-2026 period, BTC caught up with the US Dollar Index at the beginning of 2024, and their trends have been largely synchronized until recently. In early April 2025, a significant divergence began to appear between the two, with the US Dollar Index falling below 100 for the first time in two years.

If past patterns can serve as a reference, this may signal the beginning of a new round of Bitcoin price increases. If the United States strategically weakens the dollar in the long term, its impact may extend far beyond the typical cyclical price movements of Bitcoin.

The 1-day chart of the US Dollar Index ( DXY) against BTC/USD. Data source: Marie Poteriaieva, TradingView.

Where to Invest in the Post-Dollar Era?

As we all know, it is difficult to cope during periods of currency volatility. While short-term strategies may vary, long-term strategies point to neutral, high-quality reserve assets—especially those that are expected to structurally benefit from de-dollarization.

Gold meets this requirement, and so does Bitcoin.

Some sovereign entities have been accumulating Bitcoin. El Salvador and Bhutan are directly purchasing and mining Bitcoin. Abu Dhabi’s Mubadala Investment Company and a pension fund from Wisconsin, USA, hold Bitcoin through a spot Bitcoin ETF. Several states in the US hold equity in Michael Saylor’s Strategy, along with over 13,000 companies and institutions. Even the world’s largest sovereign wealth fund in Norway holds Bitcoin through shares in Strategy, Mara Holdings, Coinbase, and Riot.

As the US dollar exits the global financial stage, other currencies will have greater room for development. An increasing number of international trade transactions are settled in RMB, dirhams, or other national currencies. According to Reuters, cross-border RMB payments soared to a record high in March. The euro is also rising, having appreciated 10% against the dollar since February. Considering that the European Central Bank has been continuously cutting interest rates, with the current rate at only 2.5%, far lower than the Federal Reserve’s 4.5%, the appreciation of the euro is even more impressive.

The controversial “de-dollarization” is no longer a fantasy, but is unfolding in real time. As countries and enterprises seek stable and neutral alternatives for trade settlement and value storage, the borderless and politically neutral characteristics of Bitcoin make it a strong competitor.