Key Points:
Relying solely on a weak dollar may not be enough to bring Bitcoin back to $120,000.
Ongoing global trade tensions add uncertainty to Bitcoin's short-term price outlook.
Bitcoin (BTC) has historically shown an inverse relationship with the Dollar Index (DXY), which measures the strength of the dollar against a basket of major foreign currencies.
Although this correlation can change over time, last Friday, when Bitcoin fell below $114,000, the DXY climbed to its highest point in two months.
Traders are currently watching to see if Bitcoin can break through the $120,000 mark again as the dollar begins to weaken.
Last Wednesday, the DXY fell to 98.5 and failed to return to the 100 mark last Friday. Bloomberg reported that the U.S. employment report for July fell short of expectations, prompting traders to increase bets on multiple rate cuts by the Federal Reserve, which weakened the dollar's yield advantage.
Reuters also noted that as the U.S. imposes new import tariffs on dozens of trading partners, inflation concerns are rising, which could drive up domestic prices and further increase pressure on monetary policy.
A weaker dollar typically benefits Bitcoin prices, but if investors anticipate an economic slowdown or shift to risk aversion for any reason, the situation could be the opposite.
For example, from June to September 2024, the DXY fell from 106 to 101, but Bitcoin repeatedly failed to hold above $67,000 and dropped to $53,000 in early September.
One way analysts gauge market sentiment is by tracking the ICE BofA high-yield option-adjusted spread, which measures the extra compensation investors require for holding low-rated corporate bonds.
This spread includes credit and liquidity risks, making it widely used as a proxy for risk appetite. Higher readings indicate a more cautious market, while lower readings suggest investors are more willing to take risks.
From August to September 2024, the spread briefly surged, coinciding with a weaker dollar and falling Bitcoin prices. Recently, the spread significantly dropped to 2.85 in late July 2025, down from an April peak of 4.60. This decline corresponds with Bitcoin's rebound from a low of $74,500 on April 7, highlighting the supportive role of improved credit sentiment for risk assets.
According to SIFMA Research, the total assets of the U.S. corporate bond market amount to $11.4 trillion, which has a significant impact on the economy.
A higher spread means companies face higher costs when refinancing existing debt or issuing new bonds. Increased capital costs may lower profit expectations, potentially triggering a negative feedback loop for investor sentiment and equity valuations.
If the ICE BofA high-yield option-adjusted spread rises significantly, traders may shift funds to short-term U.S. Treasuries or seek higher yields overseas, both of which could weaken the dollar.
Currently, the spread is close to 3, maintaining around the 200-day moving average, indicating that market sentiment remains neutral.
At this point, it seems premature to view the recent decline in the DXY as a clear signal that Bitcoin will soon return to $120,000. The uncertainty surrounding the U.S. labor market and the impact of global trade tensions, particularly the tech industry's reliance on imported AI data processing units, continue to exert pressure on the short-term outlook.
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Original: “Dollar Weakness Boosts Bitcoin (BTC) Hopes, but Macro Risks Could Delay $120K Target”
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