Data challenges the DXY correlation to Bitcoin rallies and corrections ‘thesis’

At the moment, it seems that there is a common assumption that Bitcoin (BTC), will suffer if the U.S. Dollar value rises against other major global currencies as measured by DXY.

Traders and influential people have been alerting about the inverse correlation and how it could lead to a reversal in Bitcoin’s price.

@CryptoBullGems, an analyst recently reviewed the DXY Index’s overbought appearance after its relative strength indicator (RSI) passed 78. This could signal a retrace of the dollar index.

This is the only thing that you should look at. The $DXY has gone crazy and is due for a correction. The $BTC is currently the most oversold on a monthly basis. BITCOIN and the DOLLAR SHARE have an inverted correlation. Fiat will decline and $BTC will increase.
— September 6, 2022, The London Crypto (@SerLondonCrypto).

Technical analyst @1coin2sydes also presents a bearish double-top formation on DXY charts, while simultaneously Bitcoin forms an equally bullish double bottom.

Beautiful Inverse Correlation between Dollar Index DXY & Bitcoin BTC As #DXY forms a Double top (which maybe a reversal of its Trend) – Heading Down!#BTC forms a Double Bottom (which may serve also as a trend reversal) – Heading UP!#2sydes
— 2sydes.eth (,) (@1coin2sydes) September 12, 2022

The general trend towards an inverse correlation does not change over time. However, correlation patterns do change with the passage of time

The DXY index and Bitcoin have not had inverse movements for more than 36 days. A negative 1 indicates that certain markets move in opposite directions. A positive 1 indicates that the correlation metric is perfect and symmetrical. The metric 0. would indicate a relationship or disparity between the assets.

Dollar Index DXY 20 day correlation to Bitcoin. Source: TradingView

Since Aug. 19, the metric has been less than negative 0.6, indicating that Bitcoin and DXY have both followed an inverted trend. The longest period of inverse correlation was April 14 to May 20, in fact.

Statistically, it would be impossible to say that Bitcoin has an inverse correlation with the DXY index. It had a negative 0.6% or lower in less 30 days since 2021.

After the FOMC minutes, the dollar strengthened

According to minutes of the July 27th meeting, officials from the United States Federal Reserve stated that further interest rate increases would be necessary until inflation decreases substantially.

Dollar Index DXY (orange right) vs. Bitcoin Blue (blue). Source: TradingView

The market gave the Fed a vote and the U.S. dollar appreciated against major global currencies. Bitcoin fell 11% to $20,800 in just two days, further proving the inverse correlation thesis.

However, a correlation does NOT imply causation. It is therefore impossible to conclude that DXY’s positive performance had an adverse effect on the Bitcoin price.

It is not a good idea to use correlation to predict moves in the short-term.

Although pundits and influentialrs may use daily price movements to explain their 20-day correlation data, it is important to analyze the DXY index over a longer time period to see the potential impact on Bitcoin prices.

Dollar Index DXY (orange right) vs. Bitcoin Blue (blue), 2021. TradingView

2021, for example, showed some positive correlation between Bitcoin and the DXY Dollar index. Perhaps some movements were predicted by one side but there was no prolonged period of inverse correlation.

Importantly, it is possible that events only relevant to cryptocurrency could have distorted this metric, as was the case with the launch of the first U.S. Bitcoin exchange traded fund on October 19, 2021. Another example is Tesla’s announcement of a $1.5 Billion Bitcoin investment on February 8, 2021.

Analysts also point out that the Chinese crackdown against mining in May 2021 is the reason for the market’s decline below $40,000. These events were not anticipated by the DXY dollars index. Therefore, any ongoing correlation may have had very little effect during those times.

Therefore, people who wait for the DXY index to turn around before betting on a Bitcoin rally don’t have statistical support. The historical correlation becomes irrelevant when there are positive or negative developments in the cryptocurrency industry.

Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.

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Eileen Wilson

Eileen Wilson –Technology and Energy My Name is Eileen Wilson with more than 5 years of experience in the Stock market industry, I am energetic about Technology news, started my career as an author then, later climbing my way up towards success into senior positions. I can consider myself as the backbone behind the success and growth of with a dream to expand the reach out of the industry on a global scale. I am also a contributor and an editor of the Technology and Energy category. I experienced a critical analysis of companies and extracted the most noteworthy information for our vibrant investor network.

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