The market is at a crossroads. Zooming out, the weakness in the U.S. dollar reflects fading investor confidence, driven by rising debt and ongoing tariff uncertainty, both of which are eroding the dollar’s yield advantage.
This is already showing up in the data. DXY fell 9.4% in 2025, its worst performance in eight years. Now, the pressure has carried into 2026, with the index still down 2.23% so far, signaling further erosion in yield support.
Historically, setups like this have favored Bitcoin [BTC]. In 2017, DXY fell below 96, and BTC rallied nearly 8×. A similar move in 2020, driven by liquidity injections, saw BTC climb roughly 7× in the months that followed.
Naturally, the question now is whether the playbook will repeat.
From U.S. President Donald Trump’s perspective, a weaker dollar is considered constructive. He has argued that a softer dollar boosts exports, keeps rates low, and supports GDP, making it a potential tailwind for the economy.
Meanwhile, his ongoing pressure on Fed Chair Powell for rate cuts only reinforces dollar weakness, suggesting the 2.23% dip could be just the start of a deeper move, forcing investors to continue rotating capital elsewhere.
Against this backdrop, Bitcoin’s historical rallies against a falling DXY look solid, and BTC’s chop below $90k reinforces its pre-breakout pattern. Yet, the key question is whether investors will follow through on this setup.
Key Bitcoin divergences
The Fed clearly signaled its “independence” with the recent rate decision.
At the FOMC meeting, Chair Jerome Powell resisted pressure and kept rates steady, reinforcing that policy will remain data-driven. Bitcoin reacted with a modest 1.3% intraday dip but remains well supported around $85k.
However, this isn’t the only divergence putting the market at a crossroads. Bitcoin’s LTHs have offloaded 143,000 BTC over the past month, the fastest pace in four months, pushing their net position deeper into the red.
According to AMBCrypto, it suggests LTHs aren’t buying the DXY thesis.
Even with President Trump backing a softer dollar, analysts remain wary on the long-term outlook. The U.S., world’s top importer, faces inflation risk, a headwind that could undermine Trump’s rate-cut narrative.
In this environment, Bitcoin failing to follow its historical rallies against the dollar isn’t surprising. In fact, with bids weakening, investor confidence could slip further, pushing capital into safer assets even more aggressively.
Final Thoughts
- DXY’s decline, combined with Trump’s support for a softer dollar, sets the stage for Bitcoin.
- LTHs are offloading, and rising inflation risk may undermine the rate-cut narrative, putting investor confidence under pressure and driving capital toward safer assets.
