Stronger Dollar Weighs on Bitcoin Despite Stock Market Gains

Bitcoin’s price has declined since late January 2026, marking a sharp selloff that has raised concerns about its volatility. The selloff coincided with a shift in investor positioning against the US dollar, now at a 12-year low. This has contributed to new volatility risks for Bitcoin and the broader crypto market.

European crypto ETFs, however, have demonstrated resilience amid the recent selloff. Despite brief outflows in early January, inflows have resumed in the last two weeks of February 2026. This suggests European investors are less deterred by Bitcoin's price swings compared to their US counterparts.

The correlation between Bitcoin and the US Dollar Index (DXY) has now turned positive. In 2025, the correlation coefficient reached 0.60, indicating a strong positive relationship. This marks a significant shift from the traditional inverse correlation and introduces new complexities for risk management.

Why Did This Happen?

Macroeconomic uncertainty is a primary driver of the recent crypto selloff. Stephen Dover of Franklin Templeton Institute notes that concerns about interest rates, global liquidity, and geopolitical developments are weighing on risk assets. Institutions have been adjusting their risk exposure, prioritizing liquidity and quality.

The selloff in Bitcoin has also been influenced by broader shifts in the financial markets. Eamonn Sheridan of InvestingLive highlights that record short positioning in the dollar increases the potential for heightened volatility in major currency pairs. This volatility can indirectly impact crypto markets through interconnected asset classes.

How Did Markets Respond?

Stablecoin markets have continued to grow, now serving as foundational financial infrastructure. By 2026, the stablecoin market has a $312 billion market cap and $33 trillion in annual transaction volumes. This growth is driven by institutional adoption and expanding use cases in cross-border payments and lending.

Institutional adoption of digital assets has also accelerated. Digital asset investment products and corporate treasuries absorbed nearly $130 billion in cumulative inflows in 2025. JPMorgan expects this trend to continue in 2026, with a shift in buyer composition from retail-led ETF activity to broader institutional investors.

What Are Analysts Watching Next?

Market participants are closely monitoring the evolving relationship between Bitcoin and the US dollar. The positive correlation has created new volatility patterns and challenges for traditional hedging strategies. Investors are advised to base decisions on current correlation data to preserve capital.

Regulatory developments are also shaping market behavior. The implementation of regulations like Basel III and MiCA has influenced correlation patterns and investor sentiment. These changes will likely continue to impact how traditional and digital asset markets interact.

Stablecoin growth is expected to further support the liquidity needed for the projected institutional inflows. Tokenized real-world assets and increased corporate adoption of crypto are also contributing to the evolving financial landscape.