Investors are the most bearish on the dollar in more than a decade, according to the latest Bank of America (BofA) survey, and that extreme bet could generate bitcoin volatility, but not in the way crypto bulls have become accustomed to.
BofA’s February survey shows that investor positioning on 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 due to concerns about further deterioration in the US labor market, which could lead 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 falls and falling when it strengthens. This is for two big reasons: As a dollar-denominated asset, a weaker dollar makes BTC cheaper to buy and vice versa. Furthermore, a strong dollar tightens financial conditions globally, hitting risky assets like bitcoin, and the opposite occurs when it weakens.
So if history is any guide, the dollar’s record bearish positioning, a sign that investors are aligned with a weaker dollar, could be called a classic bullish tailwind for bitcoin.
But wait, there’s a twist. Since early 2025, and especially lately, bitcoin has developed a strange positive link with the dollar. DXY plunged more than 9% last year and another 1% this year. However, BTC fell 6% in 2025 and 21% so far this year. Its 90-day correlation hit 0.60 on Monday, the highest since April 2025, according to data source TradingView.
If that link holds, a deeper drop in the dollar index may not bode well for bitcoin. But the flip side is that a dollar rebound, fueled by a brief squeeze, could drag BTC up with it.
When investors take extreme bearish positions, any unexpected price rebound forces them to buy back en masse to limit losses, creating a short squeeze. This frantic covering drives asset prices higher, amplifying volatility skyward.
“Record short positions increase the risk of volatility in major USD pairs; the downside may extend to weak US data, but crowded trading dynamics increase the potential for strong short-covering rallies,” InvestingLive Asia-Pacific chief 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 changed hands at $68,150, down 1%, according to data from CoinDesk.
