What treasury yield strength and dollar weakness mean for Bitcoin

Something strange is happening in the markets and Bitcoin might just be quietly loving it.

For years, the US dollar and Treasury yields moved in sync like well-trained dance partners. When yields rose, so did the dollar. That’s how it’s supposed to work. Higher yields signal economic strength, attract foreign capital, and boost the greenback. Textbook stuff.

But not at the moment.

Since early April, the 10-year Treasury yield has climbed from 4.16% to 4.43%. Meanwhile, the US Dollar Index (DXY) has fallen over 5%, pushing it towards levels not seen in nearly three years. 

Meanwhile, the US Dollar Index (DXY) has fallen over 5%, reaching levels not seen in nearly three years. 

That’s a serious decoupling - the two haven’t moved so independently in this way in years.

It’s not just a quirky blip on the charts. This correlation breakdown points to something deeper: a growing unease with US assets, driven by political interference, fiscal instability, and rising doubts about central bank independence. And in that uncertainty, Bitcoin may find an unlikely tailwind.

A break in the market correlation macro matrix

To understand why this matters, we need to look at the core issue: investor trust.

Under normal circumstances, rising US yields are bullish for the dollar. They reflect strong growth or expected Fed tightening, both of which attract foreign inflows. But in this case, yields are rising for the wrong reasons. Investors are demanding more compensation to hold US debt because they perceive more risk - not more resilience.

Why the shift?

• Trump’s recent tariff threats and erratic fiscal stance have added to fears that policymaking is becoming dangerously unpredictable.
  
  
• A Moody’s downgrade and growing US deficit concerns are fuelling speculation about the sustainability of America’s borrowing binge.
  
  
• And perhaps most worryingly, President Trump’s public attacks on Fed Chair Jerome Powell have cast a long shadow over the central bank’s perceived independence.
  
  

All of this adds up to something investors hate: uncertainty about the rules of the game.

As Shahab Jalinoos of UBS put it, “If yields are going up because US debt is more risky… at the same time the dollar can weaken.” In other words, the US is starting to resemble the kind of market where higher yields don’t inspire confidence - they inspire caution. That’s more common in emerging markets than in the world’s leading reserve currency.

Could this mean lasting change in the dollar yield relationship? 

The effects of this shift go well beyond the bond and FX markets. As Goldman Sachs analysts pointed out, the breakdown in the dollar-yields relationship has “posed a challenge to both of the common portfolio hedges.” If both the dollar and bonds are under pressure at the same time, traditional diversification strategies start to fall apart.

And when portfolios lose their stabilisers, investors look for alternatives.

Gold has historically played that role - and it’s been rallying. But Bitcoin is now appearing in the same breath, especially for those who see the erosion of institutional trust as the bigger issue. As Michael de Pass of Citadel Securities said, the strength of the US dollar depends on "institutional integrity… rule of law… predictable policy." 

Strip those away, and the foundations start to crack.

Enter Bitcoin.

Bitcoin market analysis: Where BTC fits in?

Bitcoin is often described as an inflation hedge or digital gold - but in practice, it behaves much more like a high-beta risk asset. That means it rises when investors feel confident and flush with liquidity and falls when they run for the exits.

So why is it rising now, even as yields climb? Because not all yield spikes are created equal.

When yields rise on the back of economic growth or tech optimism, like AI-fuelled productivity booms, Bitcoin and equities can climb together. But when yields rise due to policy dysfunction or fears about the US’s creditworthiness, the narrative flips.

In the current environment, crypto isn’t just benefiting from speculation. It’s benefiting from doubt - specifically, doubt in systems that were once considered unshakeable. Bitcoin was built in response to a loss of trust in traditional finance. When that trust erodes again, it’s no surprise to see BTC catch a bid.

Bitcoin performance thrives in chaos… sometimes

That said, let’s not pretend Bitcoin is a perfect hedge. It’s volatile, emotional, and still finding its footing in institutional portfolios.

But its strength lies in its neutrality. It’s not tied to any one government. It doesn’t rely on central bank credibility. And when traditional safe havens start to look shaky, as both the dollar and Treasuries are doing now, Bitcoin becomes a kind of philosophical hedge, if not a perfectly reliable one.

What’s more, as capital managers look to hedge dollar exposure or rebalance away from US-centric assets, there’s a growing trend of shorting the dollar or buying alternatives like gold, yen, Swiss francs - and yes, crypto.

Bitcoin technical outlook: What this means for traders

For traders, this correlation breakdown isn’t just an academic curiosity - it’s a signal that the market may be underestimating risk.

When yields rise, the dollar falls, and Bitcoin rallies, all at once, something is off-script. Add to that the fact that the VIX, Wall Street’s fear gauge, has been trending lower, and you’ve got a market that’s acting calm on the surface while the foundations quietly shift underneath.

This kind of divergence can create complacency-driven volatility, where sharp moves come not because fear is high but because no one sees them coming. For nimble traders, this opens the door to sudden breakouts, fakeouts, and reversion plays.

At the time of writing, Bitcoin sees some downward pressure within a sell zone, hinting that an uptick could materialise soon. However, the past few days have seen equal sell and buy pressure with the last few bars showing strong sell pressure building. This suggests we could see significant drawdown before a surge. 

‍

If prices slump further, they could find support at the $102,800, $93,400, and $82,800 price levels. If the upmove resumes, prices could be held at the all-time high.

Are you tracking Bitcoin’s price action? You can speculate on BTCUSD with a Deriv MT5 account.