What’s Going On With The US Dollar And How Does It Affect Bitcoin, Ethereum Prices?

Overview

Recent reports indicate a significant decline in the US dollar, reaching its lowest level in four years, which has led to a rally in the prices of Bitcoin and Ethereum. As the dollar weakens, investors are increasingly looking toward alternative assets, including cryptocurrencies, as potential hedges against inflation and currency depreciation.

The Decline of the US Dollar

The US dollar index (DXY) has experienced a notable decline, with reports highlighting its continuous slide over recent weeks. This downturn has been exacerbated by comments from President Donald Trump, who stated that the dollar is “doing great,” despite its significant drop. This seemingly indifferent response from the President has raised concerns among traders, prompting speculation that the dollar’s decline may persist, leading to increased selling pressure.

Recent data from the web-based stock market research platform Finviz indicates that the US dollar index has fallen to 95.92, down from a previous level near 100. This marks the dollar’s weakest performance in nearly four years. Furthermore, Bloomberg reported that the Dollar Spot Index has also recorded its lowest four-day decline since Trump announced new tariffs in April 2025.

The currency markets, which amount to approximately $9.5 trillion per day, are witnessing a shift in investor sentiment. Many traders are increasingly betting on a continued decline of the dollar, driven by various US policy risks that weigh on its status as the world’s primary reserve currency.

Cryptocurrency Response

Amidst the declining dollar index, cryptocurrencies like Bitcoin and Ethereum have seen notable price increases. Bitcoin’s price has risen above $89,000, while Ethereum has climbed more than 3% to surpass $3,000 within the past 24 hours. This simultaneous rise in cryptocurrency values, alongside the weakening US dollar, suggests a shift in investor capital towards risk-on assets.

Market analyst ‘Master of Crypto’ has pointed out several factors contributing to the US dollar’s ongoing decline. These include large budget deficits, the Federal Reserve’s challenge in balancing inflation control with job market stability, steady bond supply, and foreign exchange hedging activities. In such a market environment, holding idle cash poses a significant risk for investors.

Historically, periods of US dollar weakness have been associated with rallies in Bitcoin and other cryptocurrencies. As the dollar declines, investors often seek alternative assets to preserve their value, potentially increasing demand for Bitcoin and Ethereum, which are viewed as alternative stores of value.

From author

The current landscape reflects a complex interplay between the US dollar and the cryptocurrency markets. As the dollar continues its descent, it is crucial to observe how this trend influences investor behavior and the broader market dynamics. The historical correlation between dollar weakness and cryptocurrency rallies may provide insights into potential future movements in the crypto space.

Impact on the crypto market

• The decline in the US dollar could lead to increased demand for Bitcoin and Ethereum as alternative stores of value.
• A weakened dollar may encourage investors to diversify their portfolios, potentially boosting cryptocurrency prices.
• The ongoing trend of capital rotation from traditional assets to cryptocurrencies could signify a broader market recovery.
• The relationship between the dollar’s performance and cryptocurrency prices may attract more speculative trading in the crypto market.
• Increased interest in risk-on assets could lead to heightened volatility in cryptocurrency prices as market sentiment shifts.