Dollar Weakness Fuels Potential Tailwinds for Bitcoin as DXY Hits 21-Year Low

The US Dollar Index (DXY), which tracks the greenback’s strength against a basket of major currencies, has plummeted to levels unseen in over three years, raising concerns and potentially creating opportunities for risk assets like Bitcoin (BTC).

Data shows the DXY dropped to a record low of 96.377 on July 1, marking a decline exceeding 10% year-to-date. A recent analysis by crypto analytics platform CryptoQuant has reinforced the historical inverse correlation between the dollar and Bitcoin pricing.

DXY is currently trading significantly below its 200-day moving average by more than six points – a deviation last seen over two decades ago, according to CryptoQuant research. Multiplied by the broader pattern of DXY weakens relative to its 365-day moving average, the combined “tailwinds” suggest a favorable environment for Bitcoin.

Analysts posit that while the dollar’s strength on this month’s bounce-off was concerning, its current weakness erodes its traditional appeal as a safe haven and could shift portfolio allocation towards Bitcoin.

“As the dollar weakens and loses its safe-haven appeal, investors reassess their portfolio allocations and shift capital toward alternative asset classes,” noted CryptoQuant contributor Darkfost. Historical data underscores this, showing periods of DXY weakness have been highly favorable for BTC, suggesting potential upside despite any recent lack of a visible price reaction.

Hence, weaker DXY readings emerge as a potential catalyst for new buying interest in BTC, intensifying the case for investors to view Bitcoin as a macroprudential alternative, given the ongoing expansion of the dollar-based credit system.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.