Bitcoin’s recent drop has sparked a lot of discussion among investors and traders. Many are asking if the fall in Bitcoin’s price is connected to the strength of the US dollar and broader trends in the foreign exchange market. To understand this, it helps to look at how Bitcoin behaves when the dollar moves, what role the Federal Reserve plays, and how other global factors influence both Bitcoin and the dollar.
Bitcoin is traded in US dollars on most major exchanges. This means that the value of Bitcoin is directly affected by how strong or weak the dollar is. When the dollar gets stronger, Bitcoin often goes down. When the dollar gets weaker, Bitcoin tends to go up. This relationship is not always perfect, but it is a pattern that has shown up again and again over the years.
The US Dollar Index, often called DXY, is a measure of how strong the dollar is compared to a basket of other major currencies. When the DXY goes up, it means the dollar is getting stronger. When the DXY goes down, the dollar is weakening. Analysts have noticed that Bitcoin’s price often moves in the opposite direction of the DXY. For example, in 2025, the DXY dropped by more than 10 percent, and during that time, Bitcoin’s price surged. This inverse relationship is one of the main reasons why traders watch the dollar closely when they are trying to predict Bitcoin’s price.
The Federal Reserve, which is the central bank of the United States, has a big influence on both the dollar and Bitcoin. When the Fed raises interest rates, it makes the dollar more attractive to investors because they can earn more money by holding dollars. This often leads to less money flowing into riskier assets like Bitcoin. On the other hand, when the Fed cuts interest rates or signals that it will ease up on tightening, it makes the dollar less attractive and encourages investors to look for higher returns in assets like Bitcoin. This is why Bitcoin’s price often rises when the Fed is expected to cut rates or when it announces policies that increase the supply of money.
In 2025, the Federal Reserve cut rates to a target of 3.25 percent, which helped fuel a rally in Bitcoin. At the same time, the dollar weakened, which also supported Bitcoin’s price. However, when the Fed signaled that it might pause its rate cuts or even raise rates again, Bitcoin’s price dropped. This shows that Bitcoin is sensitive to changes in monetary policy and the direction of the dollar.
It is also important to look at what is happening in the broader financial markets. Bitcoin is not just affected by the dollar and Fed policy. It is also influenced by trends in the stock market, investor sentiment, and global economic conditions. For example, when the S&P 500 is strong, Bitcoin often performs well too. This is because both Bitcoin and stocks are seen as risk assets, meaning investors buy them when they are feeling optimistic about the economy. When the stock market weakens, Bitcoin often falls as well.
In November 2025, Bitcoin dropped below $100,000 for the first time since June. This happened at the same time that the DXY rose above 100, which was the first time since August. The stronger dollar made it harder for Bitcoin to hold its value. At the same time, there were concerns about the tech sector and fears about an AI bubble, which added to the selling pressure on Bitcoin. The Federal Reserve also became more hawkish, meaning it signaled that it might not cut rates as much as expected. All of these factors came together to push Bitcoin’s price lower.
Some people believe that Bitcoin is a hedge against inflation and a way to protect against the devaluation of fiat currencies like the dollar. However, the data shows that Bitcoin’s correlation with the dollar is not as strong as some think. While gold has a clear negative correlation with the dollar, meaning it tends to go up when the dollar goes down, Bitcoin’s correlation is much weaker. This suggests that Bitcoin is not primarily driven by fears about the dollar losing value. Instead, Bitcoin’s price is more closely tied to risk appetite and investor sentiment. When investors are feeling confident and willing to take on risk, Bitcoin tends to go up. When they are worried and want to play it safe, Bitcoin tends to go down.
Bitcoin’s price is also affected by institutional adoption and the flow of money into Bitcoin-related products. In 2025, there was a surge in inflows into Bitcoin ETFs, which helped push the price higher. At the same time, major companies like MicroStrategy continued to buy and hold large amounts of Bitcoin. This institutional support helped Bitcoin weather some of the volatility in the market. However, when the dollar strengthens and the Fed becomes more hawkish, even institutional investors may become more cautious, which can lead to a drop in Bitcoin’s price.
Another factor to consider is the real yield, which is the return on an investment after adjusting for inflation. When real yields go up, it becomes more attractive to hold assets that pay interest, like bonds, and less attractive to hold assets like Bitcoin that do not pay interest. When real yields go down, the opposite happens. Bitcoin’s price tends to be more sensitive to changes in real yields during periods when the Fed is tightening monetary policy. During periods of easing, Bitcoin’s price is more sensitive to changes in the dollar.
The relationship between Bitcoin and the dollar is not fixed. It can change depending on the economic environment and market conditions. For example, during periods of high inflation or economic uncertainty, Bitcoin might behave more like a safe haven or a hedge against fiat currency devaluation. During periods of stable economic growth and low inflation, Bitcoin might behave more like a risk asset that moves with the stock market.
Bitcoin’s price is also influenced by global events and geopolitical tensions. For example, in 2025, tensions in the Middle East helped push Bitcoin’s price higher, even as the Fed was being cautious about rate cuts. This shows that Bitcoin can be affected by a wide range of factors, not just the dollar and Fed policy.
In recent months, Bitcoin has shown resilience despite the Fed’s restrictive messaging and the stronger dollar. In Q3 2025, Bitcoin rose to $114,600, driven by the September rate cut and ongoing geopolitical tensions. Institutional adoption also continued to accelerate, with Ether ETFs attracting billions in inflows and major banks like JPMorgan increasing their Bitcoin holdings. This suggests that Bitcoin is becoming a more established part of the financial system and is not solely dependent on the direction of the dollar.
However, the drop in Bitcoin’s price in November 2025 highlights the risks that come with being a leveraged bet on risk-on markets. When the dollar strengthens and the Fed becomes more hawkish, Bitcoin can sell off quickly. This behavior reveals that Bitcoin is still seen as a speculative asset by many investors, rather than a true safe haven or inflation hedge.
The futures market also provides clues about how traders are thinking about Bitcoin and the dollar. When the futures curve shows that traders expect the dollar to remain strong and the Fed to keep rates high, Bitcoin’s price tends to be under pressure. When the futures curve suggests that the dollar might weaken and the Fed might cut rates, Bitcoin’s price tends to rise.
Bitcoin’s price