According to Bank of America's latest foreign exchange and rates sentiment survey, investor positioning in the U.S. dollar has reached its most negative, or bearish, level in over 14 years, dating back to at least early 2012. Net exposure is at a record underweight, driven by deep skepticism and concerns over further deterioration in the U.S. labor market, which could prompt the Federal Reserve to cut interest rates.
This extreme bearish positioning creates a complex scenario for Bitcoin and cryptocurrency markets. Historically, Bitcoin has often moved inversely to the U.S. Dollar Index (DXY), rising when the dollar weakens. A softer dollar makes the dollar-denominated asset cheaper to buy and typically loosens global financial conditions, benefiting risk assets like Bitcoin.
However, a significant twist has emerged since early 2025. Despite the DXY plunging over 9% last year and another 1% year-to-date, Bitcoin has not followed the traditional script. BTC dropped 6% in 2025 and is down 21% year-to-date. Their 90-day correlation recently hit 0.60, the highest since April 2025, indicating a recent positive link. This means a deeper slide in the dollar may not automatically bode well for Bitcoin, and conversely, a dollar bounce could potentially drag BTC higher.
The record short positioning raises the specter of heightened volatility. Analysts warn that such a crowded trade increases the potential for sharp short-covering rallies. If the dollar experiences an unexpected bounce, bearish investors would be forced to buy back en masse to limit losses, creating a short squeeze that could propel the dollar—and possibly Bitcoin—higher, amplifying market volatility.
Market sentiment remains divided on the dollar's path. Some analysts, like trader Donny, forecast a decline below the 96 level, while others like The Long Investor suggest a much deeper structural decline into the 52–60 range over the next decade. Conversely, some see a potential bottoming process, with a recovery toward 103–104 by mid-2026 possible.
For crypto, a weaker dollar generally creates supportive conditions, positioning assets like Bitcoin as a hedge. Yet, if dollar weakness reflects slowing U.S. growth or recession risks, capital may flow into traditional safe havens like gold instead of volatile digital assets. The coming months will test whether crypto markets can capitalize on shifting currency dynamics or if macro uncertainty continues to temper momentum.
