All Eyes on Bitcoin as Dollar Index (DXY) Hits 26-Month High

Bitcoin (BTC) enthusiasts are keeping a close watch on the pioneer cryptos next move as the US Dollar Index (DXY) surges to a 26-month high of 110.

Historically, Bitcoins performance has shown an inverse correlation with the DXY, prompting speculation that a pivotal moment for the digital asset may be on the horizon.

Crypto Experts Sound the Alarm As DXY Soars to 110

Quinten Francois, a prominent crypto educator, noted the historical significance of DXY levels in a recent post. He also highlighted that when DXY goes down, Bitcoin goes up, predicting that this will happen in 2025.

“Last time DXY was this high, BTC was at $20,000. Something big is brewing,” he stated.

The comments reflect growing anticipation within the crypto community that the DXY topping out could pave the way for Bitcoin to rally. Elsewhere, HZ, a crypto researcher, warned of the broader risks associated with a surging DXY.

“DXY at 110 is dangerous. A few more points up, and markets will collapse. A surging dollar triggers a global credit crunch, kills liquidity, wrecks earnings, and crushes emerging markets. If you‘re overleveraged, you’re standing on a trapdoor,” HZ cautioned.

Adding to the discussion, the financial analytics platform Barchart highlighted that hedge funds have been the most bullish on the US dollar since early 2019. This sentiment reflects the strengthening dollars appeal as a safe haven amid ongoing global economic uncertainties.

Hedge Funds Betting on Bitcoin. Source: Barchart

Bitcoin and Risk Assets Face Key Tests

Meanwhile, Capital Hungry, a market research firm, pointed out that the DXYs surge has been partially driven by tariff fears. It also highlighted upcoming economic data as crucial for market direction.

“If we see lower PPI Tuesday or neutral CPI Wednesday, bearish retracement on DXY short term from intraday highs, US equities and risk assets could catch a bid,” Capital Hungry predicted.

This could create favorable conditions for Bitcoin to hold above $94,000 and potentially climb to $99,000 in the short term. However, a stronger-than-expected DXY could invalidate this scenario, pushing Bitcoin prices lower.

The DXYs movements hold significant implications beyond cryptocurrency. A strong dollar can strain emerging markets and global liquidity, potentially triggering economic slowdowns. On the flip side, any signs of easing in the DXY could provide relief for risk assets, including Bitcoin.

In August, the DXY hit its 2024 lows in a dip that coincided with a brief Bitcoin rally. This reinforced the inverse relationship between the two assets. If the dollar index retraces from its current highs, analysts believe Bitcoin could experience renewed upward momentum.

The crypto market‘s optimism is further buoyed by institutional developments. Capital Hungry highlighted BlackRock’s newly launched BTC ETF (exchange-traded fund), which could significantly influence Bitcoin‘s trajectory. The growing involvement of traditional financial giants like BlackRock is seen as a major endorsement of Bitcoin’s legitimacy and potential for mainstream adoption.

Nevertheless, the crypto market remains at a crossroads, with Bitcoins next major move potentially hinged on the direction of the DXY.

DXY vs. Bitcoin Performance. Source: TradingView

While the dollar index currently exerts downward pressure on risk assets, a reversal could set the stage for a Bitcoin surge.