Dollar ‘short squeeze’ could start Bitcoin rally
Last Updated on 18 February 2026 by CryptoTips.eu
Historically, a weak dollar used to be good news for Bitcoin. That’s because the largest digital currency is quoted in dollar terms. A weak dollar was also good news for oil prices and other dollar-denominated assets. However, this all changed for Bitcoin last year. That’s because the currency market is experiencing unprecedented turbulence.
Global investors are displaying record pessimism towards the US dollar, which has fallen sharply against the euro and other major fiat currencies. Ever since the beginning of 2025, the dollar index (DXY) and Bitcoin have moved in tandem (whereas before they moved in opposite directions). While the DXY fell by more than 9% last year, Bitcoin fell by 6% over the same period.
Short Squeeze
At the start of 2026, the trend strengthened with a 21% drop for Bitcoin, while the dollar also continued to fall (albeit less fast). This new correlation suggests that, unlike previous cycles, a sustained decline in the dollar could paradoxically depress Bitcoin’s price rather than propel it to new highs.
However, the enormous concentration of short positions on the dollar is already leading analysts to speak of a potential “short squeeze.” A rapid dollar recovery (for example, if President Trump’s would state that he wants a stronger dollar) would force investors to buy back their positions en masse to limit their losses, triggering a sharp and volatile dollar rally.
In the current context, such a dollar rally could be the sole factor driving Bitcoin sharply higher.
