A recent survey conducted by Bank of America (BofA) indicates that investor sentiment towards the U.S. dollar has reached its most negative level in over a decade. This shift in positioning, characterized by a significant underweight in net exposure, raises questions about the potential impact on Bitcoin and broader financial markets.
The February survey highlights a growing concern among investors regarding the U.S. labor market, which may lead the Federal Reserve to consider cutting interest rates. Historically, Bitcoin has exhibited an inverse relationship with the U.S. Dollar Index; as the dollar weakens, Bitcoin tends to rise, and vice versa. This trend is attributed to two primary factors: first, Bitcoin is priced in dollars, making it more affordable when the dollar depreciates; second, a strong dollar often tightens global financial conditions, negatively affecting risk assets like Bitcoin.
Given the current bearish positioning on the dollar, many investors might expect this to act as a bullish signal for Bitcoin. However, recent trends suggest a more complex relationship. Since early 2025, Bitcoin has shown an unusual positive correlation with the dollar. For instance, despite a 9% decline in the dollar index last year and a further 1% drop this year, Bitcoin has also experienced a downturn, falling 6% in 2025 and 21% year-to-date. Data from TradingView indicates that the correlation between Bitcoin and the dollar index reached 0.60 recently, the highest since April 2025.
If this correlation persists, a further decline in the dollar index may not necessarily translate to gains for Bitcoin. Conversely, a rebound in the dollar, potentially driven by a short squeeze, could lead to an increase in Bitcoin’s value. A short squeeze occurs when investors holding bearish positions are forced to buy back assets to limit losses, thereby driving prices higher and increasing volatility.
Eamonn Sheridan, Chief Asia-Pacific Currency Analyst at InvestingLive, noted that record short positions in the dollar raise the potential for significant volatility in major currency pairs. He cautioned that while weak U.S. economic data could extend the dollar’s downside, the crowded nature of current trades increases the likelihood of sharp rallies due to short-covering.
As of the latest data, the dollar index was up 0.25% at 97.13, while Bitcoin was trading at approximately $68,150, reflecting a 1% decline.
Bank of America's latest survey reveals a significant bearish sentiment towards the U.S. dollar, potentially influencing Bitcoin's market behavior. Despite historical trends suggesting a negative correlation, recent data indicates a complex relationship between the two assets, raising questions about future volatility.