The US dollar (DXY) is seeing a decline, potentially marking a shift in the financial landscape. Analyst Lyn Alden suggests this weaker dollar may be vital for stability, with Bitcoin and gold poised to gain from a de-dollarized world. Nations and sovereign funds are increasingly looking towards Bitcoin amidst this trend.
Summary: The decline of the US dollar (DXY) raises questions about the future of the financial system. Analyst Lyn Alden suggests a weaker dollar may be necessary for stability, potentially benefiting Bitcoin and gold as alternatives. Sovereign wealth funds already seem to be increasing Bitcoin holdings, hinting at a shift towards so-called de-dollarization as the dollar’s dominance wanes.
The US dollar isn’t just sliding; it’s becoming a backdrop for a larger narrative—that of a longer-term transformation in the US financial landscape. Since the beginning of 2025, the DXY has fallen by 11%, reaching lows we haven’t seen since April 2022. The markets seem unfazed at this point. In times of major restructuring, one could argue that some weakness in the dollar is almost to be expected.
So, why should we care? Well, this could be more than just a temporary hiccup. The diminishing dollar might point to a far-reaching change in both the US economy and the global monetary system. In her newsletter from May 4, Lyn Alden posited that for stabilising an increasingly shaky system, a controlled retreat from dollar dominance might be essential. If the US steps back from its central role, other assets like Bitcoin and gold could become essential alternatives.
This so-called long-term transition hinges largely on fractional reserve banking. Essentially, this system enables banks to create money by issuing loans—each loan inflates the supply of money without necessarily matching that with adequate real cash. Currently, the US sits atop about $102 trillion in dollar-denominated debt, plus another $18 trillion abroad, while just $5.8 trillion exists as real base money. It’s a bit like thousands of kids trying to find seats at a game of musical chairs, and there aren’t quite enough for everyone when the music stops.
In this setup, the US has a unique role; it imports more than it exports. Surplus nations recycle their dollar earnings back into US investments. However, when liquidity tightens in the dollar, foreign holders often have to sell off US assets to satisfy their debts, which then poses risks for financial stability stateside. We saw this unfold during the March 2020 crisis when the Fed had to step in with vast liquidity, managing to stave off immediate disaster but allowing inflation pressures to bubble up, affecting those at the bottom hardest.
The situation creates a political landscape that has, for better or worse, influenced protectionist agendas, as we saw with Donald Trump. But Alden argues that merely imposing tariffs won’t fix things, as America needs these structural trade deficits to supply global demand for dollars. Ultimately, a weaker dollar seems like the only answer, leading to the US relinquishing some of its monetary control.
On the cryptocurrency front, Bitcoin’s relationship with the DXY demonstrates a clear inverse correlation. When the dollar is strong, investors shy away from high-risk assets like BTC. In contrast, when the dollar falters, Bitcoin often garners interest as both a speculative asset and currency alternative. Historical data has shown this phenomenon—significant divergences between BTC and DXY often signal trend changes.
Currently, Bitcoin displayed symmetry with the dollar index but diverged in April 2025 when DXY dipped below 100 for the first time in two years. Historically, such patterns could herald a new rally for Bitcoin. If weakening the dollar becomes a strategy for the US, the ramifications could ripple throughout the market.
Navigating through these changes poses challenges, but staying focused on quality reserve assets appears prudent. Gold and Bitcoin stand out in this environment. Already, several countries like El Salvador and Bhutan are ramping up their Bitcoin investments. Other players like the US state of Wisconsin’s pension fund are leveraging spot Bitcoin ETFs, alongside major investments by numerous corporations.
Moreover, the notion of de-dollarization isn’t confined to speculation any longer. Countries are striking trade deals using alternative currencies, like China’s yuan. Recent reports indicate a surge in yuan-based cross-border payments, while the euro has also made noticeable gains against the dollar. These occurrences hint that the shift away from a US dollar-dominated financial world is effectively underway.
As companies and nations look for more stable trading options and stores of value, the borderless nature of Bitcoin makes it an increasingly viable candidate for future transactions. Of course, all of this is subject to the usual risks of investment; caution and thorough research remain necessary.
No investment advice is given here. Always consider the risks involved in trading.
