Bitcoin – How USD’s strength, low stablecoin supply could dictate price action

• U.S dollar index has surged to 109, marking its highest level since November 2022
• A strong dollar could weaken the demand for risk assets such as Bitcoin, which could limit the crypto’s uptrend 

Bitcoin (BTC) fell below $100,000 in mid-December. Since then, the king coin has struggled to regain its momentum on the charts. At press time, BTC was trading at $96,789 following gains of 1.5% in 24 hours, with the crypto still just over 10% shy of its ATH.

While Bitcoin could stage a recovery later this month thanks to Donald Trump’s inauguration as U.S President, two key factors could continue to weigh on the price. 

U.S dollar index soars to two-year highs

The U.S dollar index (DXY), which measures the performance of the U.S dollar against major currencies, has surged to 109 – its highest level since November 2022. What this hike indicates is that the U.S dollar has been gaining strength lately.

(Source: MarketWatch)

The DXY is inversely correlated with Bitcoin’s price, meaning that a hike limits the coin’s upside potential. Additionally, a stronger dollar tends to weaken the demand for risk assets such as cryptocurrencies. 

In fact, the fall in demand is already evident in the exchange-traded fund (ETF) market. On the first day of trading in 2025, the BlackRock iShares Bitcoin Trust (IBIT) ETF recorded $332M in outflows, marking its highest outflows in history. The total outflows from all 11 Bitcoin ETFs hit $242M, as per SoSoValue.  

If these outflows persist, it could fuel a surge in sell-side pressure. This will, in turn, fuel a downtrend for BTC on the charts. 

Rising stablecoin supply ratio

The weakened demand seemed not only evident among institutional investors, but also in the retail market. For instance – According to CryptoQuant, Bitcoin’s Stablecoin Supply Ratio (SSR) surged to 17 – Its highest level in seven days.

(Source: CryptoQuant)

A higher ratio means that the supply of stablecoins is low, compared to BTC’s market cap. This results in low buying pressure that could exert downward pressure on the price. 

Bitcoin’s fear and greed index is still bullish

Despite market factors pointing to reducing demand and buying pressure, the Fear and Greed Index, which measures the market sentiment, revealed that traders are still bullish. 

This index had a value of 74 at press time, suggesting that most traders are optimistic about BTC’s price movement. Since the index climbed from 65 earlier this week, it could be good news for BTC if traders start buying.

However, if the buy-side pressure is not enough to absorb the sold coins, it could limit the gains on the charts.