Bitcoin Rises as the Dollar Falls

Bitcoin, once celebrated as “digital gold,” has taken on a new identity in the world of finance. According to recent research from NYDIG, bitcoin does not consistently serve as a hedge against inflation, as many investors have long believed. Instead, bitcoin seems to thrive when the U.S. dollar weakens, showing a closer link to liquidity than to inflation itself. Bitcoin, in this sense, has evolved into what researchers describe as a “liquidity barometer,” responding more to shifts in monetary policy and dollar strength than to inflationary pressures.

Greg Cipolaro, the global head of research at NYDIG, explained that while the bitcoin community often promotes bitcoin as protection from inflation, statistical data does not strongly support that argument. He emphasized that bitcoin’s correlation with inflationary measures is inconsistent and relatively weak. Even when looking at inflation expectations rather than actual inflation, the relationship with bitcoin remains uncertain. Bitcoin, therefore, behaves differently than traditional inflation hedges, challenging one of the most popular narratives in the crypto space.

Cipolaro noted that even gold — often considered the ultimate hedge against inflation — has not performed consistently in that role. In fact, gold sometimes moves inversely with inflation, meaning it may decline when inflation rises, which is contrary to expectations. Bitcoin, just like gold, seems to be influenced by other macroeconomic factors, particularly the U.S. dollar and monetary policy.

Bitcoin tends to rise when the dollar loses strength. This inverse correlation, though newer and slightly less stable than gold’s, has become more evident in recent years. As the U.S. dollar index falls — representing a weaker dollar compared to other major currencies — both gold and bitcoin often gain value. Cipolaro added that as bitcoin becomes more integrated into the traditional financial ecosystem, this inverse relationship with the dollar is likely to strengthen further.

According to NYDIG, while bitcoin and gold are affected by similar macroeconomic conditions, they do not move in perfect alignment with each other. Bitcoin behaves as an independent asset that reacts uniquely to shifts in global economic sentiment, liquidity, and central bank policies.

Cipolaro highlighted two key forces that have the most significant impact on bitcoin and gold: interest rates and money supply. Historically, gold tends to increase in value when interest rates drop and to fall when rates rise. Bitcoin appears to follow this same trend — as lower interest rates make liquidity more available, bitcoin prices tend to surge. Higher interest rates, on the other hand, often cool investor enthusiasm and slow down bitcoin’s upward momentum.

Additionally, the relationship between bitcoin and global monetary policy has remained consistently positive over the years. When central banks adopt looser policies — expanding money supply and reducing borrowing costs — bitcoin usually benefits, as liquidity increases across markets. Bitcoin’s response to these macroeconomic trends shows how deeply it has become integrated into the world’s broader financial and monetary systems.

Cipolaro concluded by emphasizing that while gold still functions as a hedge against real interest rate fluctuations, bitcoin has evolved into a more dynamic tool — one that mirrors the world’s liquidity conditions. This transformation reinforces bitcoin’s position as a key modern asset, reflecting global confidence, liquidity movements, and economic uncertainty. Bitcoin, it seems, has transcended its early narrative and now operates as a sophisticated indicator of financial sentiment — a role that continues to grow as the traditional and digital worlds of finance merge more closely.