Bitcoin’s Price Driven by Dollar Strength, Not Inflation

According to comprehensive research from NYDIG, Bitcoin’s price movements are driven more by the strength of the US dollar and broad liquidity conditions than by direct ties to inflation. Greg Cipolaro, NYDIG’s global head of research, emphasized that the data show weak and inconsistent links between inflation measures and Bitcoin, fundamentally challenging the traditional narrative that positioned Bitcoin primarily as an inflation hedge. This shift in understanding represents a significant evolution in how institutional investors and traders should approach Bitcoin allocation and risk management.

The research reveals that Bitcoin and gold both tend to gain when the US dollar weakens, establishing a clear inverse relationship. While gold’s opposite movement to the dollar has been long established in traditional finance, Bitcoin’s correlation with dollar strength is newer but increasingly visible. As Bitcoin becomes more integrated with mainstream finance through platforms like Gemini and trading tools from TradingView, NYDIG expects this inverse relationship with the dollar will likely strengthen over time. This dynamic makes intuitive sense to traders who price everything in dollars and seek alternative assets when the greenback loses purchasing power.

Cipolaro’s analysis indicates that expectations for inflation serve as a slightly better signal than headline inflation readings, but still not a tight predictor of Bitcoin’s price performance. Instead, the research highlights interest rates and money supply as the two major macro levers that move both gold and Bitcoin. Lower interest rates and looser monetary policy have consistently supported higher prices for these assets, suggesting that Bitcoin behaves more as a liquidity gauge than a traditional inflation hedge.

The NYDIG note frames gold as more of a real-rate hedge, while Bitcoin is described as acting like a barometer of market liquidity—a subtle but crucial distinction for investors building diversified portfolios. When borrowing costs drop and liquidity increases in the financial system, Bitcoin often benefits, reflecting its sensitivity to broader monetary conditions rather than direct inflation metrics. This understanding helps explain why Bitcoin has sometimes failed to perform during periods of high inflation when the Federal Reserve was simultaneously tightening monetary policy.

Current on-chain data from Glassnode reveals concerning trends that could pressure Bitcoin prices in the near term. Illiquid Bitcoin—coins held in long-dormant wallets—fell from 14.38 million earlier in October to 14.300 million on October 23rd. This change means approximately 62,000 BTC, worth about $6.8 billion at recent prices, moved back into circulation, potentially creating significant selling pressure as these coins become available for trading.

Historical patterns suggest such large inflows have exerted downward price pressure in the past. In January 2024, a substantial sum of coins becoming available caused price momentum to soften significantly. The current data shows consistent selloff activity from wallets holding between 0.1 to 100 BTC, while first-time buyer supply has contracted down to approximately 213,000 BTC. This combination of increased available supply and reduced demand from new market participants creates a challenging environment for price appreciation.

The overall assessment from both macro perspective and on-chain metrics appears unfavorable. Demand from new buyers appears lighter, momentum traders have stepped aside, and more coins are now available to trade. This confluence of factors can blunt rallies or deepen pullbacks until liquidity conditions improve or the US dollar weakens substantially. For traders monitoring these developments through platforms like TradingView, the current setup suggests caution may be warranted until clearer bullish signals emerge in either macro conditions or on-chain behavior.