Sharp Drop in Dollar Index Historically Signals Bitcoin Reversals
The U.S. Dollar Index (DXY) has posted one of its steepest weekly declines since 2013, a rare event that has historically coincided with bitcoin (BTC) cycle lows.
According to Bloomberg data from Global Macro Investor, the DXY’s one-week percentage drop has surpassed a negative four standard deviation move—an occurrence seen only three times in bitcoin’s history. Each of these moments marked a turning point for BTC:
- November 2022 – Bitcoin hit a cycle low of $15,500 after the FTX collapse.
- March 2020 – BTC briefly fell below $5,000 during the COVID-19 market crash.
- 2015 Bear Market – Bitcoin hovered around $250 before beginning a prolonged uptrend.
Following each of these sharp dollar index declines, bitcoin entered periods of strong price recovery.
Dollar Weakness and Bitcoin’s Outlook
Research from CoinDesk suggests that the DXY’s current rate of decline is even faster than during Trump’s first term, which overlapped with bitcoin’s 2017 bull run. A falling dollar often benefits risk assets, including BTC.
Despite its decline, the DXY remains relatively strong at 103.8, above the key 100 level. However, continued weakness in the dollar could reinforce bullish momentum for bitcoin, aligning with historical patterns of BTC rebounds following extreme dollar index drops.
