Falling DXY part of US financial system’s ‘long-term transition’ — Will Bitcoin continue to shine?

What to know:

• Lyn Alden says a weaker dollar is necessary for the US to stabilize its financial system.

• Bitcoin and gold are well-positioned to benefit from de-dollarization.

• Sovereign wealth funds and various nations are already increasing their Bitcoin exposure as the dollar’s global dominance starts to wane.

The weakening of the US dollar (DXY) is no longer headline news. With mounting disruptions across the US economy, a declining greenback has become part of the backdrop. Since the start of 2025, the US Dollar Index has dropped 11%, now hovering around levels last seen in April 2022. Markets have largely responded with a shrug. After all, in times of deep restructuring, isn’t some dollar weakness to be expected?

The trouble is, this might not be a temporary dip. The dollar’s slide could reflect a deeper, long-term reconfiguration of both the US economy and the global monetary order. In a May 4 newsletter, independent market analyst Lyn Alden made a compelling case: not only is a weaker dollar likely, but it may be necessary. According to Alden, a controlled retreat from dollar hegemony might be one of the few paths left to stabilize an increasingly fragile system. And if the US relinquishes its role at the center of the monetary universe, the world will need alternatives. Neutral assets like gold and Bitcoin could be well-positioned to take on a more central role.

The US and the dollar are in a “long-term transition”

Fractional reserve banking, the system that fiat money relies on, creates money through lending. Each time a bank issues a loan, it expands the supply of broad money, without necessarily creating enough base money to cover the loan principal and its interest. This means that the current financial system relies on continual credit expansion and refinancing to remain solvent.

Today, the US economy holds around $102 trillion in public and private dollar-denominated debt, with another $18 trillion owed by borrowers outside the US And that’s not even counting derivatives, which would push the total much higher. 

Yet only $5.8 trillion in base money actually exists.

“It’s like a game of musical chairs with more than 20 kids for every chair,” Alden writes. “And the music can’t stop for long.”

The US plays a special role in this system. It imports more than it exports, while surplus countries funnel their dollar earnings back into American stocks, bonds, real estate, and private equity. For the $18 trillion in dollar liabilities held abroad, non-US entities hold roughly $61 trillion in US dollar assets. But when dollar liquidity tightens — when the music stops — foreign holders often have to sell those assets to service their debts, which, in turn, threatens US financial stability.

This happened in March 2020, when parts of the Treasury market froze during the peak panic stage of the COVID-19 pandemic. The Fed stepped in, quickly opening emergency swap lines with foreign central banks and printing trillions in base money to re-float the system. That solved the liquidity issue but unleashed inflation, hitting lower-income Americans the hardest.

Combined with decades of industrial decline and widening social gaps, this situation eventually created the political mandate for Donald Trump and his protectionist agenda. However, the tariff shock is unlikely to be successful, Alden argues. The current system implies that the US must run structural trade deficits to provide the global economy with enough dollars to keep the greenback’s dominance. The only way of rebalancing trade flows is through a weak dollar and a step back from monetary hegemony.

As Alden puts it,

“I view the United States and indeed the global financial system as likely beginning a very long-term transition.”

The Bitcoin to DXY relationship

Bitcoin (BTC) and DXY are inversely correlated. When the dollar strengthens, risk-on assets like BTC lose some of their appeal to investors. When the dollar weakens, BTC becomes more attractive not just as a speculative play, but as an alternative currency. In a system where fiat must effectively lose value over time to function, Bitcoin’s fixed supply and monetary neutrality offer a compelling hedge.

Overlaying BTC and DXY charts reveals that major divergences between the two often align with Bitcoin trend reversals. In April 2018 and March 2022, such divergences signaled bear markets, while November 2020 marked the start of a bullish rally. 

In the 2023-2026 cycle, BTC caught up with the DXY in early 2024, and the two moved largely in sync until recently. A clear divergence began at the beginning of April 2025, with the DXY dropping below 100 for the first time in two years. 

If past patterns are any guide, this could signal the start of a new BTC rally. And if the US moves to strategically weaken the dollar in the long term, the impact could extend well beyond Bitcoin’s usual cyclical price action.

Related: How much Bitcoin can Berkshire Hathaway buy?

Where to invest in a post-dollar era?

Periods of monetary upheaval are notoriously difficult to navigate. While short-term tactics may differ, longer-term strategies point to neutral, high-quality reserve assets — especially those that stand to benefit structurally from de-dollarization.

Gold fits this bill. So does Bitcoin.

Several sovereign entities are already stockpiling Bitcoin. El Salvador and Bhutan are directly buying and mining BTC. Abu Dhabi’s Mubadala Investment Co. and the US state of Wisconsin’s pension fund have exposure via spot BTC ETFs. A dozen US states hold equity in Michael Saylor’s Strategy, as well as over 13,000 companies and institutions. Even Norway’s sovereign wealth fund, the world’s largest, has Bitcoin exposure through its holdings of Strategy, Mara Holdings, Coinbase, and Riot.

With the dollar retreating from the global financial arena, space will open for other currencies. There are more and more examples of international trade deals settled in yuan, dirham, or other national currencies. Reuters reports that cross-border yuan payments surged to a record in March. The euro is also on the rise, gaining 10% against the dollar since February. This is all the more impressive taking into account that the European Central Bank has been continuously cutting interest rates, which now stand at just 2.5%, far below the Fed’s 4.5%.

The much-debated “de-dollarization” is no longer hypothetical. It’s unfolding in real time. As nations and companies search for stable, neutral alternatives to settle trade and store value, Bitcoin’s borderless and politically neutral nature positions it as a serious contender. 

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.