Dollar bearish positioning hits highest since 2012.

Investors Bet Against the Dollar at Record Levels—Could This Spark Bitcoin Volatility?

In a striking turn of events, investors have taken the most bearish stance on the U.S. dollar in over a decade, according to Bank of America’s (BofA) latest survey. This extreme positioning could set the stage for significant volatility in the cryptocurrency market, particularly for bitcoin, but not in the way crypto enthusiasts might expect.

BofA’s February survey reveals that investor exposure to the U.S. dollar has plummeted to its most negative level since at least early 2012, with net exposure at a record underweight. This shift is primarily driven by growing concerns over the U.S. labor market’s potential deterioration, which could prompt the Federal Reserve to cut interest rates.

Historically, bitcoin has moved inversely to the U.S. Dollar Index, rising when the greenback weakens and falling when it strengthens. This relationship makes sense for two key reasons: as a dollar-denominated asset, a weaker dollar makes bitcoin cheaper to purchase, and a strong dollar tightens global financial conditions, negatively impacting risk assets like bitcoin.

Given this historical pattern, the record bearish positioning on the dollar could be seen as a bullish tailwind for bitcoin. However, there’s a twist. Since early 2025, bitcoin has developed an unusual positive correlation with the dollar. The DXY index plunged over 9% last year and another 1% this year, yet bitcoin dropped 6% in 2025 and is down 21% year-to-date. Their 90-day correlation hit 0.60 on Monday, the highest since April 2025, according to data from TradingView.

If this correlation persists, a deeper slide in the dollar index may not bode well for bitcoin. Conversely, a dollar bounce fueled by a short squeeze could drag bitcoin higher with it.

When investors take extreme bearish positions, any unexpected price bounce forces them to buy back en masse to limit losses, creating a short squeeze. This frantic covering propels the asset price higher, amplifying volatility skyward.

“Record short positioning raises the risk of volatility in major USD pairs; downside may extend on weak US data, but crowded trade dynamics increase potential for sharp short-covering rallies,” said Eamonn Sheridan, Chief Asia-Pacific Currency Analyst at InvestingLive, in a market update.

At the time of writing, the dollar index was up 0.25% on the day at 97.13, and bitcoin was trading at $68,150, down 1%, according to CoinDesk data.

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