Bitcoin and the dollar are in an unexpected correlation

Since March 2024, Bitcoin and the DXY dollar index have shown similar movements, breaking with traditional dynamics. We analyze the causes behind this phenomenon.

In an unexpected turn, Bitcoin (BTC) and the DXY dollar index have maintained a positive correlation since March 2024, a phenomenon that has surprised analysts and investors. While Bitcoin benefits from the Trump administration's deregulation promises, the dollar fluctuates due to the Fed's high interest rates and changes in economic policy. What is driving this atypical relationship?

Between March and August 2024, both Bitcoin and the DXY index experienced a correction. / Tradingview

Bitcoin and the dollar: A relationship that breaks the mold

Historically, Bitcoin and the dollar have had an inverse relationship: when one goes up, the other goes down. However, since March 2024, both assets show similar movements. For example:

Between March and August 2024, both Bitcoin and the DXY index experienced a correction.

Following Donald Trump's victory in the US elections, both assets rallied, driven by promises of deregulation of the crypto sector and high interest rates from the Fed.

Why do Bitcoin and the dollar move together?

Fed monetary policy:
High interest rates (4.5%) strengthened the dollar, but also led investors to seek refuge in bitcoin amid fears of an economic slowdown.

Crypto deregulation under Trump:
The Trump administration promised to deregulate the crypto sector, boosting confidence in bitcoin as a legitimate financial asset.

Geopolitical uncertainty:
The threat of trade tariffs and cuts in government spending generate volatility in traditional markets, leading investors to seek refuge in both the dollar and bitcoin.

Institutional adoption of Bitcoin:
The launch of Bitcoin ETFs in 2024 allowed the entry of institutional capital, increasing its correlation with traditional markets.

Recent Drop: Bitcoin and Dollar Losing Ground

In recent weeks, both Bitcoin and the Dollar are experiencing a simultaneous drop:
Bitcoin is undergoing a correction, despite the announcement of the creation of a Strategic Bitcoin Reserve by the White House.

The dollar is also losing value due to the reduction in Treasury bond yields, which increases pressure on the Fed to cut interest rates.

Stagflation on the horizon?

The correlation between Bitcoin and the Dollar could be a sign of stagflation: a scenario in which inflation (currently at 3%) remains high, while economic growth stagnates. In this context, investors are using both the Dollar and Bitcoin as safe haven assets.

Where are Bitcoin and the Dollar headed?

The unusual correlation between Bitcoin and the Dollar reflects a change in the perception of the cryptocurrency, which has gone from being a speculative asset to a hedging tool and store of value. However, this relationship could weaken if economic or political conditions change.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Cryptocurrency investments are volatile and carry risk. Please do your research before investing.