Crypto Markets Slumped for a Second Day as the US Dollar Index (DXY) Chased New Highs

Cryptocurrency markets fell for a second day on March 13 as the US dollar index (DXY) chased new highs amid rising treasury yields and investors’ concerns over the Federal Reserve’s monetary policy plan.

While the DXY began the week with a 0.92% decline, which was followed by an abrupt rally to $102,000 by Bitcoin ( BTC ) on March 11, the index quickly reversed course, reaching 109.37 on Monday — hitting levels not seen since November 2022.

Markets also reacted negatively to a surge in US Treasury yields, where the 10-yr note topped 4.7%, and the yield on the 30-year note rose to 4.93%.

While the catalysts for the increases are multiple and complex, they essentially reflect market participants’ concern that inflation will remain elevated as President-elect Donald Trump’s economic policies are likely to expand deficits.

In simpler terms, the market is beginning to price in the potential for an increase in longer-dated US debt, and the incoming Trump administration’s policies are expected to send inflation higher, even if they boost growth.

Related: 'Trump dump' risks pulling Bitcoin price down to $88K'

Par for the course, Bitcoin price reacted negatively to DXY strength, and analysts now anticipate that yield curve controls will become a common talking point once again.

DXY vs BTC 3-day chart. Source: TradingView

BTC price slipped to an intra-day low of $92,500 and analysts warned that prices could continue to fall in the short term if the $90,000 support fails to hold.

Speaking to Cointelegraph, Biyond co-founder Burkan Beyli said:

"The recent strength in the DXY is putting pressure on Bitcoin price, and if the critical support at $90,000 fails to hold, we could see prices drop to the next support level around $85,000.”

Real Vision chief crypto analyst Jamie Coutts appears to disagree with Beyli’s perspective, writing off DXY’s recent strength as less relevant than the anticipated liquidity expansion and pro-crypto stance of the incoming Trump administration.

According to Coutts, "The DXY move is less interesting than the crypto friendliness of the Trump administration and the liquidity expansion, which should be supportive of both crypto and equities."

However, the crypto analyst also highlighted the potential for a "Trump dump" in the markets, adding that the risk of such an event is "material, especially if the administration pivots on crypto friendliness."

"If the administration pivots and crypto gets hit with a tax or regulation, we could see a large sell-off, and the recent strength in DXY would amplify the downside pressure," Coutts explained.

The strength of the dollar index is typically viewed as a不利 factor for crypto markets, as rising DXY tends to push capital away from riskier assets. However, several crypto analysts have argued that the correlation between DXY and crypto markets has weakened in recent months.

A recent analysis by crypto exchange Bitfinex showed that the correlation between BTC and the DXY hit a low of 0.1 in February, indicating a possible decoupling between the two markets.

"This development suggests that cryptocurrencies are becoming less sensitive to shifts in the US dollar, and other factors, such as institutional interest and regulatory developments, are playing a more significant role in driving crypto prices," the Bitfinex report noted.