A surging US dollar, inversely correlated with Bitcoin's price, could dampen the cryptocurrency's upward momentum. Increased outflows from Bitcoin ETFs and a low stablecoin ratio suggest weakening demand, potentially leading to further price decline.
A strong dollar could weaken the demand for risk assets such as Bitcoin, which could limit the crypto’s uptrend. Bitcoin fell below $100,000 in mid-December and has struggled to regain its momentum since. At press time, BTC was trading at $96,789 following gains of 1.5% in 24 hours, still just over 10% shy of its all-time high. The U.S. dollar index (DXY), which measures the performance of the U.S. dollar against major currencies, has surged to 109 – its highest level since November 2022.
This indicates that the U.S. dollar has been gaining strength lately. The DXY is inversely correlated with Bitcoin’s price, meaning that a hike limits the coin’s upside potential. Additionally, a stronger dollar tends to weaken the demand for risk assets such as cryptocurrencies. This fall in demand is already evident in the exchange-traded fund (ETF) market. On the first day of trading in 2025, the BlackRock iShares Bitcoin Trust (IBIT) ETF recorded $332 million in outflows, marking its highest outflows in history. The total outflows from all 11 Bitcoin ETFs hit $242 million. If these outflows persist, it could fuel a surge in sell-side pressure, which could fuel a downtrend for BTC on the charts. The weakened demand is evident not only among institutional investors but also in the retail market. For instance, according to CryptoQuant, the Stablecoin Ratio, which compares the supply of stablecoins to Bitcoin's market cap, had a value of 74 at press time. This suggests that most traders are optimistic about BTC’s price movement. Since the index climbed from 65 earlier this week, it could be good news for BTC if traders start buying. However, if the buy-side pressure is not enough to absorb the sold coins, it could limit the gains on the charts
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