Dollar weakness fails to spur Bitcoin gains JPMorgan Private Bank explained the unexpected behavior as a window into the nature of the dollar’s decline.
The U.S. Dollar Index (DXY), which measures the U.S. dollar against a basket of currencies, has fallen 10% over the past year. Bitcoin, which historically rises during periods of U.S. dollar weakness, fell 13% during the same period, CoinDesk data shows. The CoinDesk 20 index (CD20), which measures the largest digital assets, fell 28%.
The bank’s strategists said the difference this time is that the dollar is driven by short-term financial flows and sentiment rather than changes in growth or monetary policy expectations, and U.S. interest rate differentials remain favorable for the dollar.
“It is worth noting that the recent decline in the dollar is not related to changes in economic growth or monetary policy expectations,” Yuxuan Tang, head of Asia macro strategy at JPMorgan Private Bank, said in a note shared with CoinDesk.
“If anything, interest rate differentials have actually moved in favor of the U.S. dollar since the start of the year. What we’re seeing now, much like last April, is a U.S. dollar sell-off driven primarily by flows and sentiment,” Tang continued.
The bank believes the weakness will ultimately prove temporary, as it did last year, and the dollar will eventually stabilize as the world’s largest economy recovers throughout the year.
This helps explain why Bitcoin has failed to function like a classic USD hedge. While gold and other hard assets rose as the dollar fell, Bitcoin remained range-bound, suggesting the cryptocurrency market does not view the dollar’s decline as a lasting macro shift.
Therefore, Bitcoin still trades more like a liquidity-sensitive risk asset than a default store of value. Absent a significant shift in monetary policy expectations, dollar weakness alone will prove insufficient to bring new capital into the cryptocurrency market.
JPMorgan Private Bank’s framework also noted that investors view assets such as gold and emerging markets as more direct beneficiaries of dollar diversification than Bitcoin.
Until growth or interest rate dynamics replace flows and sentiment as the main drivers of currency markets, the largest cryptocurrencies are likely to continue to lag traditional macro hedges even as the U.S. dollar remains weak.
