The weak dollar has failed to stimulate the Bitcoin market. JPMorgan Private Bank describes this unexpected behavior as a window into the nature of the US currency’s decline.
The Dollar Index (DXY), which measures the dollar’s value against a basket of peers, has fallen 10% over the past year. Bitcoin, which historically rises during periods of dollar weakness, has fallen 13% over the same period, according to data from CoinDesk. The largest digital asset index, the CoinDesk 20 Index (CD20), fell 28%.
The difference this time around, the bank’s strategists say, is that the dollar is being driven by short-term flows and sentiment rather than changes in growth or monetary policy expectations, with U.S. interest rate spreads still moving in its favor.
“It is important to note that the recent dollar decline is not due to changes in growth or monetary policy expectations,” Yushuan Tan, head of Asia macro strategy at JPMorgan Private Bank, said in a note shared with CoinDesk.
“Rather, since the beginning of the year, interest rate differentials have actually moved in favor of the US dollar. What we are currently seeing is a decline in the US dollar driven primarily by flows and sentiment, similar to last April,” Tan continued.
The bank’s view is that this weakness will ultimately be temporary, similar to last year, and that the dollar will eventually stabilize as the world’s largest economy gains momentum throughout the year.
This helps explain why Bitcoin did not perform like a classic dollar hedge. While gold and other physical assets have risen as the dollar has weakened, Bitcoin has remained range-bound, suggesting that the crypto market does not view the dollar’s decline as a permanent macro shift.
As a result, Bitcoin still trades as a liquidity-sensitive risk asset rather than a default store of value. Absent a clear shift in monetary policy expectations, a weaker dollar alone has proven insufficient to draw new capital into the crypto market.
JPMorgan Private Bank’s framework also points investors toward gold and emerging markets exposure rather than Bitcoin as more direct beneficiaries of dollar diversification.
Until growth and rate trends replace flows and sentiment as the main drivers of currency markets, the largest cryptocurrencies are likely to continue to lag traditional macro hedges, even if the dollar remains weak.
Updated (January 29, 09:51 UTC): JP Morgan removed from headline.