Bitcoin fails to rally despite a weaker dollar, but there’s a reason behind it

Gold and other hard assets are rallying on a weaker dollar, but bitcoin has remained largely range-bound, as markets continue to treat it more like a liquidity-sensitive risk asset than a reliable hedge.

Despite a roughly 10% decline in the Dollar Index (DXY) over the past year, bitcoin has lost 13% in the same period, while the broader CoinDesk 20 index (CD20) fell 28%, according to CoinDesk data. Historically, dollar weakness has supported BTC, but this time the cryptocurrency has failed to follow the pattern.

J.P. Morgan Private Bank attributes the disconnect to the nature of the dollar’s decline. Rather than reflecting fundamental shifts in U.S. growth or monetary policy expectations, the greenback’s slide has been driven primarily by short-term flows and sentiment. U.S. interest rate differentials remain favorable to the dollar.

“It’s important to note that the recent dollar slide isn’t about growth or monetary policy changes,” said Yuxuan Tang, J.P. Morgan Private Bank’s head of macro strategy in Asia. “If anything, interest rate differentials have moved in the USD’s favor since the start of the year. What we’re seeing now, much like last April, is a USD selloff driven primarily by flows and sentiment.”

The bank expects the weakness to be temporary. As the U.S. economy gains momentum, the dollar is likely to stabilize, which helps explain why bitcoin has not behaved like a classic dollar hedge. While gold and other hard assets have rallied, BTC remains range-bound, signaling that the crypto market does not view the dollar’s drop as a durable macro trend.

Without a clear shift in monetary policy or growth expectations, dollar weakness alone has been insufficient to draw new capital into crypto markets. Bitcoin continues to behave more like a liquidity-sensitive risk asset than a store-of-value instrument.

J.P. Morgan also suggests that assets such as gold and emerging-market exposure remain more direct beneficiaries of dollar diversification. Until flows and sentiment give way to fundamental drivers like rates or growth, bitcoin is likely to continue lagging traditional macro hedges, even in a soft-dollar environment.