Investors are most bearish on the dollar in over a decade, according to Bank of America’s (BofA) latest survey, and the extreme effort could breed bitcoin volatility, just not the way crypto bulls have become accustomed.
BofA’s February survey shows that investors’ positioning in the US dollar has fallen to its most negative (bearish) level since at least early 2012, with net exposure at a record underweight. This is driven by concerns over further deterioration in the US labor market, which could prompt the Federal Reserve to cut interest rates.
Since its inception, bitcoin has mostly moved in the opposite direction of the US Dollar Index, rising when the dollar slips and falling when it strengthens. This follows for two major reasons: As a dollar asset, a softer money makes BTC cheaper to buy and vice versa. Plus, a strong dollar tightens financial conditions globally, hammering risk assets like bitcoin and vice versa when it weakens.
So if history is any guide, the record bearish dollar positioning, a sign of investors adjusting to a weaker dollar, can be termed a classic bullish tailwind for bitcoin.
But wait, there’s a twist. Since the beginning of 2025, and especially recently, bitcoin has developed a strangely positive link to the dollar. DXY fell over 9% last year and another 1% this year. Still, BTC fell 6% in 2025 and is down 21% year-to-date. Their 90-day correlation hit 0.60 on Monday, the highest since April 2025, according to data source TradingView.
If that link holds, a deeper slide in the dollar index may not bode well for bitcoin. But the flip side is a dollar bounce, driven by a short squeeze that could drag BTC higher with it.
When investors pile into extreme bearish positions, any unexpected price jump forces them to buy back en masse to limit losses, creating a short squeeze. This frantic coverage drives the asset price higher, amplifying volatility skyward.
“Record short positioning increases risk of volatility in major USD pairs; downside may extend over weak US data, but crowded trading momentum raises potential for sharp short-covering rallies,” InvestingLive’s Chief Asia-Pacific Currency Analyst Eamonn Sheridan said in a market update.
At press time, the dollar index was up 0.25% on the day at 97.13, and bitcoin was changing hands at $68,150, down 1%, according to CoinDesk data.
