Source: Cointelegraph Original: "{title}"

DXY falling below 100 has historically coincided with Bitcoin (BTC) bull markets, and in the last two instances, Bitcoin's gains exceeded 500%. Now, with escalating trade tensions and U.S. Treasury bonds facing sell-offs, some analysts believe China may be actively working to weaken the dollar. This additional pressure on the dollar increases the likelihood that it could once again become a catalyst for a significant rise in Bitcoin.

Is China weakening the dollar?

According to a Reuters report on April 9, the People's Bank of China has instructed state-owned banks to "reduce dollar purchases" as the yuan faces significant downward pressure. Large banks have reportedly been told to "enhance scrutiny" when executing clients' dollar purchase orders, indicating that China is trying to "curb speculative trading."

Some analysts speculate whether China might be attempting to weaken the dollar in response to the recent increase in U.S. import tariffs. However, Jim Bianco, president of Bianco Research, holds a different view.

Source: X/Jim Bianco

Bianco doubts that China's intention to sell U.S. Treasury bonds is to harm the U.S. economy. He points out that the DXY has remained stable around 102. While China could sell Treasury bonds without converting the proceeds into other currencies, thereby affecting the bond market without undermining the dollar, this approach seems counterproductive. Bianco believes that if China is indeed selling Treasury bonds, it is unlikely to be a significant seller.

DXY. Source: TradingView / Cointelegraph

The DXY index currently hovers around 104 and has fluctuated within the 100-110 range since November 2022. Therefore, claims that its current level reflects widespread distrust in the dollar or an impending collapse seem unfounded. In fact, stock market performance is not an accurate indicator of investors' perception of economic risk.

DXY falling below 100 typically accompanies Bitcoin bull markets

The last time the DXY index fell below 100 was in June 2020, coinciding perfectly with a Bitcoin bull market. In the following nine months, the price of Bitcoin soared from $9,450 to $57,490. Similarly, when the DXY fell below 100 in mid-April 2017, the price of Bitcoin rose from $1,200 to $17,610 over approximately eight months. Whether coincidental or not, the level of 100 has historically been closely associated with significant increases in Bitcoin prices.

A weakening DXY means the dollar depreciates against a basket of major currencies (such as the euro, Swiss franc, pound, and yen). This decline impacts U.S. domestic companies as it reduces the dollar amount they earn from foreign revenues, thereby decreasing the U.S. government's tax contributions. This issue is particularly severe given that the U.S. faces an annual fiscal deficit of over $1.8 trillion.

Similarly, when the dollar depreciates, imported goods become more expensive for individuals and businesses, even if foreign currency prices remain unchanged. Despite being the world's largest economy, the U.S. imports $160 billion worth of oil, $215 billion in passenger vehicles, and $255 billion in products like computers, smartphones, and data servers each year.

A weaker dollar has a dual negative impact on the U.S. economy. On one hand, as imported goods become more expensive, consumption tends to slow down; on the other hand, it also reduces tax revenues from international income of U.S. domestic companies. For example, large companies like Microsoft, Apple, Tesla, Visa, and Meta derive over 49% of their revenues from markets outside the U.S. Similarly, companies like Google and Nvidia also have over 35% of their revenues sourced from international markets.

Regardless of how the DXY index fluctuates, Bitcoin prices could potentially return to the $82,000 level. This may be because investors begin to worry that the U.S. Federal Reserve might inject liquidity to avoid an economic recession. However, if the DXY index falls below 100, investors may find stronger motivation to turn to alternative hedging tools like Bitcoin.

Related: Analysts say Bitcoin significantly reduces risk here, as nearly 80% of cyclical price corrections have been completed.

This article is for general informational purposes only and should not be considered legal or investment advice. The views, thoughts, and opinions expressed in the article are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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