Author: Blockchain Knight

The US dollar index has fallen to a four-year low, breaking through a 14-year support level, while gold and silver have simultaneously reached historic highs, with gold surpassing $5,200 per ounce, up over 20% year-to-date, and silver climbing above $115 per ounce.

At the same time, Bitcoin is attempting to return to the $90,000 mark but is lagging behind. When the dollar weakens, Bitcoin rises with correlated trades, or it is pressured as a leveraged risk asset during de-risking.

The decline of the dollar corresponds with the rise of precious metals and industrial raw materials. Bitwise experts believe that Bitcoin is severely undervalued in this environment.

However, Bitcoin has not replicated the vertical surge of precious metals for two core reasons:

First, the market structure is deeply integrated into global macro trading. While it can amplify gains during liquidity improvements, it is also susceptible to systemic de-risking and volatility manipulation, whereas gold does not face the same leveraged liquidation pressures as cryptocurrencies.

Second, there is a timing difference. Historically, "distrust trades" first manifest in gold, with Bitcoin often serving as a second-stage hedging tool, requiring initial volatility to stabilize before attracting strong buying interest.

The weakness of the dollar is not a singular signal but rather a combination of two scenarios that directly determine Bitcoin's trajectory.

In a loose scenario, the dollar weakens due to market expectations of US easing policies, with liquidity driving stocks, high-yield credit, and cryptocurrencies to rise in tandem, benefiting Bitcoin from marginal risk capital inflows.

In a policy uncertainty scenario, the dollar weakens as investors demand a risk premium for the volatility of US policies. While this may boost gold, it tightens credit and triggers deleveraging, making Bitcoin susceptible to forced selling alongside high-volatility assets.

The current market trend appears contradictory due to the interplay of these two factors, and the rise in bearish positions on dollar options also confirms the demand for risk hedging.

History shows that the relationship between Bitcoin and the dollar is unstable and conditional. In 2017, the dollar weakened alongside a frenzied rise in Bitcoin, but at the end of 2020, when the market was under pressure, Bitcoin fell while the dollar strengthened. In 2022, the Federal Reserve's tightening and a strong dollar were also detrimental to cryptocurrencies.

If the dollar continues to weaken alongside declining real yields and stable credit spreads, Bitcoin's lagging may diminish; however, if the dollar's decline leads to widening spreads and tightened financing, Bitcoin may still primarily exhibit high beta asset characteristics in the short term.

Currently, precious metals have clearly taken on the role of hedging against the dollar, while the ultimate direction of Bitcoin still awaits the market to define its position in the "dollar weakness scenario."

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