Investors are the most bearish on the dollar in more than a decade, according to the latest Bank of America (BofA) survey, and this extreme bet could lead to 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 situation is explained by fears of a further deterioration in the American labor market, which could prompt the Federal Reserve to reduce its interest rates.
Since its inception, bitcoin has primarily moved in the opposite direction to the U.S. dollar index, rising when the greenback slides and falling when it strengthens. There are two main reasons for this: As a dollar-denominated asset, a weaker dollar makes BTC cheaper to buy and vice versa. Additionally, a strong dollar tightens financial conditions globally, which hits risky assets like bitcoin, and the opposite happens when it weakens.
So, if history is any guide, the dollar’s record bearish positioning, a sign of investors aligned with a weaker dollar, could qualify as a classic bullish tailwind for bitcoin.
But wait, there’s a twist. Since the beginning of 2025, and especially recently, bitcoin has developed a strange positive link with the dollar. The DXY plunged more than 9% last year and another 1% this year. Yet BTC has fallen 6% in 2025 and 21% since the start of the year. Their 90-day correlation hit 0.60 on Monday, the highest since April 2025, according to data source TradingView.
If this link persists, a deeper decline in the dollar index may not bode well for bitcoin. But the flip side is that a dollar rebound, fueled by a short squeeze, could take BTC higher with it.
When investors find themselves in extremely bearish positions, any unexpected rebound in prices forces them to buy back en masse to limit losses, creating a short squeeze. This rampant hedging propels asset prices higher, amplifying volatility skyward.
“Record short positioning increases the risk of volatility on major US dollar pairs; the decline may extend due to weak US data, but crowded trading dynamics increase the potential for strong rallies to cover short positions,” Eamonn Sheridan, InvestingLive’s Asia-Pacific chief currency analyst, 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.
