Will Bitcoin benefit from the weakening of the 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 weakening 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 this off. After all, isn’t a weakening 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 made a compelling point in her newsletter on May 4: 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 the 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 of the loan. This means that the current financial system depends on ongoing credit expansion and refinancing to maintain solvency.

As of now, the U.S. economy holds about $102 trillion in public and private dollar-denominated debt, with another $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 dollars of base currency in existence.

“It’s like a game of musical chairs, with more than 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 import volume is greater than its export volume, and surplus countries reinvest their dollar earnings into U.S. stocks, bonds, real estate, and private equity. Of 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 U.S. financial stability.

This situation occurred in March 2020, during the peak of the 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 issuing trillions of dollars in base money to re-support the market system. This solved the liquidity problem but triggered inflation, which had the most severe impact on low-income Americans.

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 U.S. must maintain a structural trade deficit in order to provide enough dollars for the global economy, thus 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 Dollar Index

BTC and the US dollar index are negatively correlated. 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 currency 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 reversals in Bitcoin’s trend. 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 cycle, BTC caught up with the US Dollar Index in early 2024, and their trends have been largely synchronized until recently. In early April 2025, a significant divergence began to emerge, 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 herald the beginning of a new round of Bitcoin price increases. If the U.S. strategically weakens the dollar in the long term, its impact could far exceed Bitcoin’s usual cyclical price trends.

US Dollar Index (DXY) and the 1-day chart of 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 turbulence. While short-term strategies may vary, long-term strategies point to neutral, high-quality reserve assets—especially those assets 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 pension funds from Wisconsin, USA hold Bitcoin through spot Bitcoin ETFs. 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 by owning 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 surged to a record high in March. The euro is also rising, having appreciated by 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 businesses seek stable and neutral alternatives for trade settlement and value storage, the borderless and politically neutral characteristics of Bitcoin make it a strong contender.