The weakening of the US dollar was seen as a strong catalyst for Bitcoin in the past, but the chart over the last year shows that this relationship has deteriorated. Bitcoin’s 13 percent decline during the period when the Dollar Index (DXY) decreased by 10 percent revealed that the usual reflexes were not working in the cryptocurrency market. According to JP Morgan Private Bank strategists, this divergence contains important clues as to why the dollar is weakening. The bank argues that the behavior of cryptocurrencies should be read through short-term capital flows and investor sentiment.
Dollar Weak But Macro Ground Hasn’t Changed
Yuxuan Tang, Head of Asia Macro Strategy at JP Morgan Private Bank, emphasized in his latest investor note that the recent depreciation of the dollar is not due to classical macro reasons. According to Tang, there is no radical break in the US growth outlook or monetary policy expectations. On the contrary, interest rates have continued to move in favor of the US dollar since the beginning of the year.
This table indicates that dollar sales are shaped mostly by short-term fund movements and market psychology. He stated that we are going through a process similar to the temporary dollar weakness experienced in April last year. In its assessment, the bank stated that it is possible for the dollar to find balance again as the US economy gains momentum as the year progresses.
In this context, it is evaluated that the current dollar weakness does not represent a permanent regime change. Global investors are cautious about restructuring their long-term positions unless they see a change in direction in US monetary policy.
Why Doesn’t Bitcoin Act Like a Classic Hedging Instrument?
The fact that Bitcoin does not rise against the dollar also clarifies how cryptocurrencies are still perceived. While gold and other hard commodities gain value as the dollar declines, it is noteworthy that Bitcoin remains in a horizontal band. The 28 percent drop in CoinMarketCap’s 20 index in the same period shows that the risk appetite in the cryptocurrency market remains limited.
According to JP Morgan, this chart confirms that Bitcoin is still traded as a liquidity-sensitive risk asset. Unless there is a strong signal of easing in monetary policy or a sharp deterioration in growth expectations, it seems unlikely that a weakening of the dollar alone will attract new capital to crypto.
The bank’s asset allocation approach emphasizes gold and developing country assets for investors who want to benefit from dollar diversification. Cryptocurrencies, on the other hand, continue to lag behind traditional hedging tools in an environment where macro dynamics do not change direction.
