Author: Marcel Pechman, CoinTelegraph; Translated by: Baishui, Golden Finance

On February 20, the S&P 500 index fell 1%, and the US dollar weakened against a basket of foreign currencies, falling to 70 days Minimum level. Bitcoin has shown a positive correlation with the USD Index (DXY) over the past six months, leading traders to doubt whether a correction is coming soon.

DXY index (left) and Bitcoin/USD (right). Source: TradingView / Cointelegraph

While it is difficult to directly link the causal relationship between the US dollar index and the price of Bitcoin, both rose between September 2024 and January 2025 , and then face the challenge of maintaining bullish momentum.

Some analysts believe that the election of US President Donald Trump has promoted fiscal policy, which could lead to a stronger country's currency. However, recent data (whether attributed to the previous session or not) show that U.S. inflation continues and weak retail sales, indicating that "stagflation" may occur in the future.

It is too early to assess the full impact of recent import tariffs and budget cuts, but a Feb. 14 release by Raymond James Chief Investment Officer Larry Adam The report stressed that this could have a negative impact of 0.6% on U.S. GDP growth and warned that inflation could rise by 0.5%. Although this situation itself is not good for Bitcoin, it may curb investors' risk appetite.

On February 20, U.S. Treasury Secretary Scott Bescent said that he has not yet moved towards issuing more long-term bonds. “It’s still a long way to go,” Becente commented. Although Janet Yellen's preference for short-term debt has been criticized before, the last session's approach has not changed.

Bester explained that any move toward long-term bonds will depend on market conditions and inflation trends and attribute the current situation to "Biden inflation." However, more worryingly, Becente noted that “when I don’t compete with the Fed, I will be more likely to extend the period”, which has been a “big seller” of bonds.

The positive correlation with the DXY index puts downward pressure on the price of Bitcoin. However, this trend may weaken as investors transform Bitcoin from risky assets to scarce hedge assets similar to “digital gold.” This shift is partly due to the fact that several U.S. states have introduced legislation that allows Bitcoin to become a reserve asset.

On February 19, the Montana Business and Labor Commission passed a bill to establish a special collection for investment in precious metals and bitcoinEnter the account. Other states, including Utah, Arizona, Oklahoma, Illinois, Kentucky, Maryland, New Hampshire, New Mexico, North Dakota, Ohio, Pennsylvania, South Dakota and Texas, The Bitcoin Reserve Act was also proposed.

On February 20, the price of Bitcoin exceeded $98,000, indicating that investors are increasingly aware of its tough currency. This is especially important given the high risk of the U.S. adopting an expansionary currency (for example, if Elon Musk’s Department of Efficiency meets its spending cut goals).

Investor caution is also reflected in gold prices, as the precious metal hit an all-time high on February 19. Traders should not only focus on how the US dollar performs relative to other currencies, but on how to evaluate Bitcoin. Czech Bank President Aleš Michl stressed the importance of evaluating the potential of Bitcoin as a reserve asset.

Ultimately, Bitcoin’s path to an all-time high depends heavily on the inflow of spot Bitcoin exchange-traded funds (ETFs), the preferred tool for institutional investors – according to Farside Investors Data, this has not been the case in the past two days, with a cumulative net outflow of US$125 million.