Will Bitcoin benefit from the weakening of the US dollar index?

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

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 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 US 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 levels not seen since April 2022. The market mostly just shrugs it off. After all, isn’t the weakening of the dollar to be expected during a period of deep restructuring?

The issue is that this may not be a temporary decline. The drop 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 4th: The dollar may not only weaken but may also be necessary. Alden believes that moderately relinquishing dollar hegemony may be one of the few ways to stabilize an increasingly fragile system. If the U.S. gives up 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 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 relies on ongoing 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, there are only 58 trillion USD in base currency.

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

The United States plays a special role in this system. Its imports exceed its exports, while 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 about $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 the financial stability of the United States.

This situation occurred in March 2020, during the peak of panic caused by 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 addressed the liquidity issue 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 sufficient dollars to 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 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 attractive as a speculative tool but also as an alternative currency. In a system where fiat currencies must depreciate over time to function normally, Bitcoin’s fixed supply and monetary neutrality provide a highly attractive hedging tool.

Overlay the BTC and US dollar 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 bullish rebound.

During the 2023-2026 cycle, BTC caught up with the US dollar index in early 2024, and their movements have been largely synchronized until recently. In early April 2025, a clear divergence began to appear, 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 start of a new round of Bitcoin price increases. If the U.S. strategically weakens the dollar in the long term, its impact could extend far beyond Bitcoin’s usual cyclical price movements.

US Dollar Index ( DXY ) 1-day chart with BTC/USD. 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 turbulence. While short-term strategies may vary, long-term strategies point towards neutral, high-quality reserve assets—especially those assets 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 the pension fund in Wisconsin, USA, hold Bitcoin through a spot Bitcoin ETF. There are over a dozen states in the USA that hold equity in Michael Saylor’s Strategy, as well as more than 13,000 companies and institutions. Even the world’s largest sovereign wealth fund in Norway holds Bitcoin through shares of 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 being settled in Renminbi, dirhams, or other national currencies. According to Reuters, cross-border Renminbi payments surged to an all-time high in March. The euro is also on the rise, 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 below 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 companies seek stable and neutral alternatives for trade settlement and value storage, the borderless and politically neutral characteristics of Bitcoin make it a strong contender.