Will Bitcoin Benefit from a Weaker U.S. Dollar Index?

Author: Marie Poteriaieva, CoinTelegraph; Compiler: Baishui, Golden Finance

Summary

• Lynn Alden said that the devaluation 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 countries have begun to increase their holdings of Bitcoin.

The weakening of the US dollar (DXY) is no longer a headline news. As the US economic turmoil intensifies, the devaluation of the US dollar has become one of the background factors. Since the beginning of 2025, the US dollar index has fallen 11% and is currently hovering around the level since April 2022. The market has mostly shrugged this off. After all, isn't it expected that the dollar will weaken during a period of deep restructuring?

The problem is that this may not be a temporary decline. The dollar’s ​​decline may reflect a deeper, longer-term restructuring of the U.S. economy and the global monetary order. In her May 4 newsletter, independent market analyst Lyn Alden makes a compelling argument: a weaker dollar is not only possible, but may be necessary. A measured abandonment of dollar hegemony may be one of the few ways to stabilize an increasingly fragile system, Alden argues. If the U.S. abandons its central role in the monetary world, the world will need alternatives. Neutral assets such as gold and Bitcoin may be able to play a more central role. The U.S. and the dollar are in the midst of a “secular transition.”

The fractional reserve banking system on which fiat currencies depend creates money by lending. Every time a bank makes a loan, it expands the supply of broad money, but it does not necessarily create enough base money to repay the principal and interest on the loan. This means that the current financial system relies on continued credit expansion and refinancing to remain solvent.

The U.S. economy currently holds about $102 trillion in public and private dollar-denominated debt, and another $18 trillion is held by borrowers outside the United States. This does not include derivatives, which would greatly increase the total.

Yet only $5.8 trillion of base money actually exists.

“It’s like a game of musical chairs with more than 20 kids for each chair,” Alden writes. “And the music never stops for long.”

The United States plays a special role in this system. It imports more than it exports, and surplus countries reinvest their dollar proceeds into U.S. stocks, bonds, real estate, and private equity. For every $18 trillion in dollar liabilities held overseas, non-U.S. entities hold about $61 trillion in dollar assets. But when dollar liquidity tightens—when everything stops—foreign holders often have to sell those assets to pay back their debts, which in turn threatens U.S. financial stability.

This happened in March 2020, when parts of the U.S. Treasury market froze up at the height of the coronavirus panic. The Fed stepped in, quickly opening emergency swap lines with foreign central banks and printing trillions of dollars in base money to re-support the market system. This solved the liquidity problem but spurred inflation that hit low-income Americans the hardest.

Combined with decades of industrial decline and widening social disparities, this situation ultimately created a political mandate for Donald Trump and his protectionist agenda. Alden, however, believes that tariff shocks are unlikely to succeed. The current system means that the U.S. must run a structural trade deficit to supply the global economy with enough dollars to maintain the dollar’s ​​dominance. The only way to rebalance trade flows is for the dollar to weaken and for it to abandon its monetary hegemony.

As Alden puts it,"I think it's very possible that we are beginning a very long-term transformation of the U.S. and global financial systems."

Bitcoin's Relationship with the U.S. Dollar Index

BTC and the U.S. Dollar Index are negatively correlated. When the dollar is stronger, risk assets like Bitcoin (BTC) become less attractive to investors. When the dollar is weaker, BTC becomes more attractive not only as a speculative vehicle, but also as an alternative currency. In a system where fiat currencies must depreciate over time to function properly, Bitcoin's fixed supply and monetary neutrality provide an attractive hedge.

Overlaying the BTC and U.S. Dollar Index charts shows that major divergences between the two often coincide with trend reversals for Bitcoin. In April 2018 and March 2022, this divergence foreshadowed bear markets, while November 2020 marked the start of a bull rally.

In the 2023-2026 cycle, BTC caught up with the US dollar index in early 2024, and the two had been moving roughly in sync until recently. In early April 2025, the two began to diverge significantly, with the US dollar index falling below 100 for the first time in two years.

If past patterns are any guide, this could signal the start of a new rally for Bitcoin. If the U.S. strategically weakens the dollar over the long term, the impact could extend far beyond Bitcoin's usual cyclical price movements.

1-day chart of the US Dollar Index (DXY) and BTC/USD. Source: Marie Poteriaieva, TradingView

Where to invest in the post-dollar era?

It is well known that periods of monetary turmoil are difficult to deal with. While short-term strategies may differ, long-term strategies point to neutral, high-quality reserve assets - especially those that are expected to structurally benefit from de-dollarization.

Gold fits that bill, as does Bitcoin.

Some sovereign entities are already hoarding Bitcoin. El Salvador and Bhutan are buying and mining Bitcoin directly. Abu Dhabi's Mubadala Investment Company and a Wisconsin pension fund hold Bitcoin through spot Bitcoin ETFs. More than a dozen U.S. states hold stakes in Michael Saylor's Strategy, in addition to more than 13,000 companies and institutions. Even Norway's sovereign wealth fund, the world's largest, holds Bitcoin through shares in Strategy, Mara Holdings, Coinbase and Riot.

As the U.S. dollar exits the global financial stage, other currencies will have more room to develop. More and more international trade transactions are settled in yuan, dirhams or other national currencies. Cross-border yuan payments soared to a record high in March, Reuters reported. The euro is also rising, having appreciated 10% against the dollar since February. The euro's appreciation is even more impressive considering that the European Central Bank has been continuously cutting interest rates, which are now only 2.5%, far lower than the Federal Reserve's 4.5%.

The controversial "de-dollarization" is no longer a fantasy, but is unfolding in real time. As countries and companies seek stable, neutral alternatives for trade settlement and value storage, Bitcoin's borderless and politically neutral nature makes it a strong contender.