Why is the crypto market falling even as the US Dollar Index drops below 99?

The US Dollar Index DXY broke below 99, with an intraday decline of 0.05%. This appears to be a minor fluctuation. However, against the backdrop of escalating global trade tensions, this break could signify larger asset reallocation happening. Especially when the dollar weakens, we usually expect the crypto markets to benefit. But the reality is, Bitcoin has fallen 1-2% in the past 24 hours, Ethereum down 2-3%, and the total crypto market cap has retreated 1-2%. Behind this seemingly contradictory phenomenon lies the true logic of the current global financial markets.

Why did the dollar break below 99? Trump’s tariff threats stir global markets

According to the latest news, the US Dollar Index is currently fluctuating between 99.03 and 99.39. The direct trigger for breaking below 99 was Trump’s threat to impose new tariffs on several European countries (including Denmark), related to the Greenland issue. This threat triggered a sell-off in global risk assets.

The Dollar Index reflects the dollar’s strength relative to a basket of G10 currencies. When the US adopts trade protectionism, it can actually weaken the dollar’s appeal because:

• Tariff policies can dampen US economic growth expectations
• Escalating trade tensions prompt global investors to reassess the value of dollar assets
• Allies in Europe and elsewhere may seek alternatives, reducing demand for the dollar

Therefore, the decline in the dollar index actually reflects investors’ concerns over the “Trump trade war.”

Weak dollar, why are crypto assets not rising but falling?

This is the key question. Theoretically, a weakening dollar should benefit dollar-denominated assets like Bitcoin. But in reality, a different situation is unfolding:

The key point is that the current market is facing “deteriorating risk sentiment” rather than simply “dollar depreciation.” The escalation of trade tensions means uncertain global economic growth prospects, which triggers risk aversion among investors. In this context:

• Risk assets (including cryptocurrencies) are being sold off
• Safe-haven assets (gold, yen) are being sought after

Gold rose 1.5% in the past 24 hours, reaching a new high (around $4,660–$4,670 per ounce), which is evidence of a surge in risk aversion. The crypto market, being broadly viewed as a “risk asset,” is under pressure.

What are global funds doing? The transmission chain of reallocation

This process can be understood as follows:

1. Trump’s tariff threats → escalation of trade war expectations
2. Global risk appetite declines → investors start selling risk assets
3. Crypto markets, as high-risk assets → are among the first to be sold
4. Funds flow into safe-haven assets → gold, yen, Swiss franc favored
5. Although the dollar is weak → the reason for its weakness is precisely increased risk

This explains why the dollar index falls while crypto markets also decline—a seemingly contradictory phenomenon.

Is this short-term volatility or a trend reversal?

Based on current analysis, several key uncertainties exist:

• The specific timing and magnitude of trade policy implementation remain unclear
• The new Fed chair (expected to be announced this week) could influence monetary policy expectations
• Data releases like the January 22 PCE and February 11 CPI could cause sharp fluctuations in the dollar index

This suggests that the current dollar weakness and crypto declines may be short-term market reactions rather than a trend reversal. If the trade war is eventually eased, the dollar could rebound, and crypto markets might also see a rebound opportunity. But if trade tensions continue to escalate, safe-haven sentiment could suppress risk assets for the long term.

Summary

The break below 99 in the dollar index reflects global concerns over trade war, not a deterioration of the dollar’s fundamentals. In this context, the decline in crypto markets is reasonable, as markets are reallocating assets from risk assets to safe havens. During this process, although the dollar is weakening, the reason for its weakness is precisely increased risk—this puts pressure on the crypto market.

Key points to watch moving forward: how trade policies evolve, what signals the new Fed chair will send, and whether inflation data will again alter market expectations for the dollar. Until these uncertainties are resolved, crypto markets may continue to experience volatility.