The continued strength of the US dollar could pose challenges for Bitcoin (BTC) in the coming months, according to analyst James Van Straten.
Since US President-elect Donald Trump’s decisive election victory two months ago, the dollar has gained more than 3% against a basket of global currencies, mirroring its performance since Trump’s previous victory in 2016.
In December 2016, the U.S. Dollar Index (DXY), which measures the currency’s value against its major trading partners, peaked and fell throughout the following year. That period coincided with Bitcoin’s bull run in 2017. But Van Straten suggests this cycle could be different. The DXY shows no signs of easing, and Trump’s economic policies, along with the Fed’s monetary actions, could keep the dollar rising.
While a strong dollar typically puts pressure on riskier assets, Trump’s strong support for Bitcoin has helped propel BTC higher since his election. BTC recently hit several record highs before retreating about 10% from its mid-December peak of $108,300. Andre Dragosch, Bitwise’s head of research in Europe, believes the rally could face hurdles ahead.
“The Fed is stuck between a rock and a hard place,” Dragosch said in an interview on X. “They either act too late and risk a recession in the U.S. or they face a resurgence in inflation.”
Trump’s proposed tariffs on major trading partners could increase geopolitical uncertainty, boosting demand for the safe-haven dollar. This is coupled with a strong U.S. economic performance that includes GDP growth above 3% and high inflation that is keeping interest rates high. The Fed has signaled just two rate cuts through 2025, far fewer than previously expected.
“The Fed has communicated to the markets that it will only cut two rates in 2025, which is much less than expected,” Dragosch said. “So the dollar is gaining value and yields are continuing to rise. This macro environment is a drag for BTC.”
*This is not investment advice.
