Key Points
- The U.S dollar index has risen to its highest level since November 2022, which could affect Bitcoin’s price.
- Bitcoin’s price has been struggling since falling below $100,000 in mid-December.
The U.S dollar index has recently seen a significant surge, reaching 109, the highest it has been since November 2022. This increase could potentially impact the demand for risk assets such as Bitcoin.
In mid-December, Bitcoin (BTC) fell below the $100,000 mark. Since that time, the cryptocurrency has been struggling to regain its momentum. At the time of writing, BTC was trading at $96,789, after experiencing a 1.5% gain in the last 24 hours. However, the crypto is still just over 10% shy of its all-time high (ATH).
Effects of a Strong U.S Dollar and Stablecoin Supply Ratio
The U.S dollar index (DXY), which measures the U.S dollar’s performance against other major currencies, has been gaining strength. This increase has implications for Bitcoin, as the DXY is inversely correlated with Bitcoin’s price. A stronger dollar could weaken the demand for risk assets such as cryptocurrencies.
This decrease in demand is already evident in the exchange-traded fund (ETF) market. On the first day of trading in 2025, the BlackRock iShares Bitcoin Trust (IBIT) ETF recorded $332M in outflows, the highest in its history. The total outflows from all 11 Bitcoin ETFs reached $242M.
In addition to institutional investors, the retail market also appears to be experiencing weakened demand. According to CryptoQuant, Bitcoin’s Stablecoin Supply Ratio (SSR) surged to 17, its highest level in seven days. A higher ratio indicates a low supply of stablecoins compared to BTC’s market cap, resulting in low buying pressure.
Market Sentiment Remains Bullish
Despite these market factors pointing to reduced demand and buying pressure, the Fear and Greed Index, which measures market sentiment, indicates that traders remain optimistic about Bitcoin’s price movement. The index was at 74 at the time of writing, suggesting that most traders are optimistic about BTC’s price movement. This could potentially be good news for Bitcoin if traders begin buying. However, if the buying pressure is not sufficient to absorb the sold coins, it could limit potential gains.