Bitcoin (BTC) historical inverse relationship with the US dollar collapsed in January 2026 as the Dollar Index fell 11% year-over-year while the cryptocurrency declined 30% from October highs.
Gold reached record levels above $5,600 per ounce on January 29, gaining up to 20% in January alone.
Bitcoin traded around $87,000, surrendering all gains for the year and remaining 30% below its October peak near $126,000.
The divergence challenges Bitcoin's reputation as "digital gold" and reveals market treatment of the asset as liquidity-sensitive risk exposure rather than reliable dollar hedge.
What Happened
The Dollar Index (DXY) dropped to 95.55 on January 28, its lowest level since February 2022. Historically, dollar weakness has coincided with Bitcoin rallies as investors seek alternatives to devaluing fiat currency.
JPMorgan strategists attributed the dollar decline to short-term flows and sentiment rather than fundamental shifts in growth or monetary policy expectations. US interest rate differentials moved in the dollar's favor since the start of 2026.
"It's crucial to note that the recent dollar slide isn't about shifts in growth or monetary policy expectations," Yuxuan Tang, JPMorgan Private Bank's head of macro strategy in Asia, wrote in analysis shared with media outlets.
Markets appear unconvinced the dollar weakness represents durable macro transition. Bitcoin holders liquidated $600 million in long positions over 24 hours ending January 26, with nearly 200,000 traders forced out of leveraged bets.
Read also: Coinbase Launches Kalshi Prediction Markets As Partner Faces Lawsuits In Nine States
Why Markets Diverged
Gold absorbed capital flows seeking protection from global risks and currency debasement. Central banks maintained purchasing averaging 60 tonnes monthly, sustaining demand independent of speculative positioning.
Bitcoin's integration into derivatives markets through ETFs, futures, and options created mechanical de-risking dynamics during volatility spikes. Professional traders reduce exposure systematically when markets become unstable, regardless of conviction about underlying fundamentals.
The cryptocurrency also faces pressure from supply dynamics. Short-term holder cost basis sits near $98,000, leaving recent buyers underwater and vulnerable to capitulation. Futures volumes remained compressed with leverage dampened across major venues.
Without clear shifts in monetary policy expectations driving dollar movements, traditional safe-haven assets captured diversification flows. Gold gained 83% over the past year while Bitcoin declined 17% over the same period.
JPMorgan's framework suggests Bitcoin may continue lagging behind traditional macro hedges until growth or rate dynamics replace flows and sentiment as primary currency market drivers. The bank expects dollar stabilization as the US economy strengthens throughout 2026.
Read next: Bitcoin Holds Critical Support As 22% Of Supply Trades Underwater