Bitcoin Bulls Watch Closely as US Dollar Hits 70-Day Low: A Turning Point Ahead?
On February 20, the US dollar fell against a basket of other currencies and reached its lowest level in 70 days, while the S&P 500 saw a 1% fall. Bitcoin’s favorable association with the US Dollar Index (DXY) during the last six months has caused traders to wonder if a correction is imminent. It is difficult to prove that the price of Bitcoin and the DXY Index are causally related. However, after rising from September 2024 to January 2025, neither was able to sustain its upward trend.
Donald Trump’s win, according to some observers, encourages budgetary restraint, which may result in a stronger home currency. Notwithstanding recent data, whether attributable to the previous administration or not, it indicates possible stagflation in the future due to the US’s ongoing inflation and declining retail sales.
How Will May Rising Inflation and Government Budget Cuts Impact Bitcoin’s Market Position?
Although it is too soon to fully evaluate the effects of recent import tariffs and government budget cuts, Larry Adam, the chief investment officer at Raymond James, warned that inflation might increase by 0.5%. He highlighted a potential 0.6% negative impact on US GDP growth in research released on February 14. Although this situation is not always negative for Bitcoin, it might make investors less willing to take on risk.
The price of Bitcoin is under downward pressure due to its positive association with the DXY Index. However, as investors begin to perceive Bitcoin as a rare hedge, akin to “digital gold,” rather than as a risk-on asset, this trend may wane. Several US states have passed legislation allowing Bitcoin to become a reserve asset, which is contributing to this change.
The fact that the price of Bitcoin rose above $98,000 on February 20th indicates that investors are becoming more aware of its strict monetary policy. This is especially important because there is a significant chance that the US government will implement an expansionary monetary policy. All US households may receive $5,000 checks if Elon Musk’s Department of Government Efficiency fulfills its spending reduction goals.
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