Investors are most bearish on the dollar in over a decade, per Bank of America’s (BofA) latest survey and that extreme bet could breed bitcoin volatility, just not the way crypto bulls have become used to.
BofA’s February survey shows investor positioning in the U.S. 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 U.S. 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 U.S. Dollar Index, rising when the greenback slides and falling when it strengthens. That tracks for two big reasons: As a dollar-denominated asset, a softer buck makes BTC cheaper to buy and vice versa. Plus, a strong dollar tightens financial conditions globally, hammering risk assets like bitcoin and the reverse holds when it weakens.
So, if history is a guide, the record bearish dollar positioning, a sign of investors aligned for a weaker dollar, could be termed a classic bullish tailwind for bitcoin.
But wait, there’s a twist. Since early 2025, and especially lately, bitcoin has developed a weird positive link to the dollar. DXY plunged over 9% last year and another 1% this year. Yet BTC dropped 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 sticks, a deeper slide in the dollar index may not bode well for bitcoin. But the flip side is a dollar bounce, fueled by a short squeeze, could drag BTC higher with it.
When investors pile into extreme bearish positions, any unexpected price bounce forces them to buy back en masse to limit losses, creating a short squeeze. This frantic covering propels the asset price higher, amplifying volatility skyward.
“Record short positioning raises the risk of volatility in major USD pairs; downside may extend on weak US data, but crowded trade dynamics increase 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 changed hands at $68,150, down 1%, according to CoinDesk data.