Bitcoin has broken above $116,000 for the first time in two weeks, and the usual story of an inflation hedge has emerged.
But the data tells a different story. In this cycle, Bitcoin trades not as a consumer price shield, but as a real-time barometer of dollar liquidity and discount rates.
The question is not whether Bitcoin is hedging against inflation, but whether a weak dollar and falling real yields are driving Bitcoin now.
Is BTC≠CPI hedging anymore?
The inflation hedging theory isn’t wrong, it’s just the wrong timing. Data shows that Bitcoin rose amid liquidity changes and currency pivots not because the Bureau of Labor Statistics printed 3.1% instead of 3%.
The CPI measures the price level on a lagged basis. Bitcoin trades forward-looking liquidity and discount rates in real time.
Throughout this cycle, the relationship between Bitcoin and headline inflation has weakened, and the correlation between the dollar index and real yields has tightened.
Looking at snapshots of directional relationships reveals changes.
| pair | typical signs | stability | what is reflected |
|---|---|---|---|
| BTC × CPI (change from previous month or year) | near zero, unstable | weak, frequently reversing | There will be a delay in printing. Policy reactions, not CPI printing itself, drive BTC |
| BTC × DXY (log return) | reciprocal | Strengthens in dollar downtrend | Global dollar liquidity channels and cross-border risk appetite |
| BTC × 10-year real yield (DFII10, Δ) | reciprocal | Time changes depending on the system | Conditions become stricter as real interest rates rise. Lower real interest rates make finances easier |
The current 30-day Pearson correlation shows that Bitcoin/DXY is around -0.45 and Bitcoin/DFII10 is around -0.38, while Bitcoin/CPI is hovering around zero with frequent sign changes.
The 90-day window dampens the noise, but it confirms the pattern. Bitcoin responds not to the inflation rate itself, but to the Fed’s reaction function and dollar liquidity conditions.
Why is USD strength and real yield reflected in BTC?
The real yield represents the market price of a currency after inflation. Rising yields on 10-year Treasury inflation-protected securities typically strengthen the dollar, tighten global financial conditions and lower interest rates on long-term risk assets.
Bitcoin funding costs will be compressed, basis trading will shrink, and marginal buyers will exit. Conversely, when real yields roll over, the dollar weakens, cross-border USD scarcity eases, and the risk premium for cryptocurrencies shrinks.
The same plumbing appears in the fundamentals between stablecoin funding rates, market maker inventories, spot, futures, and perpetual swaps.
This transmission drives portfolio allocation decisions at scale. Institutional desks adjust risk exposure based on the opportunity cost of holding non-yielding assets.
As real yields rise, cash and short-term Treasuries will compete directly with Bitcoin. When real yields fall, competition weakens and capital is rotated towards growth and speculative allocation.
| Real yield change (bps) | Experience BTC Return (%) | Indicator BTC (intermediate) | Low range (±1σ) | Upper band (±1σ) |
|---|---|---|---|---|
| −25 | 1.42 | $231,263 | $217,731 | $244,795 |
| −50 | 1.35 | $231,096 | $217,564 | $244,628 |
| −75 | 1.28 | $230,928 | $217,396 | $244,460 |
Additionally, exchange-traded fund (ETF) flows act as amplifiers.
Spot Bitcoin ETF has turned macro signals into instant on-chain demand. Creation brings together licensed participants through institutional desks and OTC brokers to raise coins of size, and redemptions return inventory to the market.
This trend is occurring simultaneously with macro impulses. A weaker dollar and lower real yields typically coincide with loosening risk conditions, making creation more likely and redemptions more rare.
Flow extends the macro background rather than causing it. A 25 basis point decline in DFII10 and a 2% decline in DXY could trigger the creation of hundreds of millions of dollars worth of baskets as portfolio managers rebalance.
The opposite movement, consisting of a strong real and a strong dollar, will deplete liquidity through redemptions and force physical selling.
ETFs have transformed what was previously a time-consuming over-the-counter process into an instant feedback loop between traditional financial investor positioning and the crypto spot market.
when and what changed
Three standard flip zones define regime changes. First, when everything sells at once, the risk-off dollar soars. The inverse correlation between Bitcoin and DXY weakens towards zero as the correlation collapses into the safe haven of the US dollar.
Second, an early easing phase as markets price in lower real interest rates and a Fed rate cut will strengthen the inverse relationship and enhance Bitcoin’s macro-beta role.
Third is the policy message whipsaw. Around FOMC meetings or CPI announcements that change the odds of a rate cut, rolling correlations can oscillate for weeks before settling into a new regime.
The most recent inflection point occurred in mid-October, when real yields spiked and DXY rebounded through a key resistance line while core inflation data remained stubborn.
The 30-day correlation between Bitcoin and DXY flipped from -0.50 to almost zero as both sold together. By late October, softening employment and a new dovish message from the Fed reversed this movement, with real yields falling 15 basis points, DXY retreating, and the negative correlation re-established at -0.45.
This two-week period suggests that policy expectations, rather than inflation, are at play.
Relationship between ETF and US dollar and real yield
Weekly spot ETF net flows track movements in the dollar and real yields with minimal lag. Weeks with extreme creations of over $500 million usually coincide with a decline in DXY and an ease in DFII10.
A simple simultaneous regression confirms the relationship. Bitcoin weekly returns return to positive for ETF net flows, and return to negative for changes in DXY and DFII10.
The adjusted R² hovers around 0.35, indicating that approximately one-third of Bitcoin’s weekly variance is directly tied to these three variables.
The coefficients vary depending on the regime. During the Fed’s easing cycle, the DXY beta strengthens as a weaker dollar signals easing of global liquidity.
During the tightening phase, the real yield beta becomes dominant as the opportunity cost of holding Bitcoin increases. Reestimating the regressions quarterly captures those changes and keeps the model aligned to current macro conditions.
CoinShares reported net inflows into digital asset products of $921 million in the past week, led by US autos, following cooling CPI data.
This reverses the risk-off trend seen in mid-October, when redemptions reached $400 million as DXY rebounded and real yields rose.
This swing shows how quickly capital flows react to macro pivots, and why monitoring the dollar and real yields provides a faster signal than waiting for capital flow announcements.
Scenarios up to 2026 and what to expect
Our base case is that slowing growth and stabilizing inflation will reduce real yields by 25 to 50 basis points, while DXY declines.
This means that due to year-end tax considerations and increased volatility surrounding ETF rebalancing, the confidence band will be wider than usual and Bitcoin’s carry will be slightly positive.
The path dependence on weekly flows is important because sustained creation pushes the range up, while stopped flows stay within Bitcoin’s range.
The upside scenario is that policy shifts accelerate or real yields fall more rapidly due to growth concerns, DXY breaks trend support, and ETF creation reaccelerates above $1 billion per week.
As financial conditions ease aggressively, Bitcoin’s beta rises to macro, spot momentum expands, and the market re-targets higher.
Conversely, the downside scenario: real yields stick around or rise due to stubborn core inflation, the dollar gets caught in its bid as a safe-haven asset, and ETF flows stall or turn negative. Bitcoin’s correlation structure collapses as range support breaks down, volatility rises, and risk-off prevails.
Signals to watch for are real yields holding above 2% and DXY recovering its 200-day moving average.
Additionally, the three dials are also worth tracking. First, we monitor the DXY trend: the 20-day moving average, the 50-day moving average, and the distance to the 200-day moving average. If the pair gains momentum and falls below $98, it will confirm that the weak dollar trade is maintained.
Second, DFII10 level and 30-day change: a decline below 1.8% indicates an easing of the situation. Spikes above 2.2% tighten the screws.
Third, daily or weekly spot ETF net flows: sustained creation of over $300 million daily suggests institutional conviction. Redemptions signal macro headwinds.
These dials work with a dated event calendar. The next FOMC decision is on December 18th, CPI release on December 11th, payroll release on December 6th, and large Treasury refunds and bid clusters that could move intraday real yields.
Will a weaker dollar boost Bitcoin now? This cycle is like that. But not through the inflation hedging narrative, but through the real yield channel and amplified by ETF flows.
Rather than a CPI hedge, Bitcoin trades more like the beta of its real yield versus the dollar. The data suggest that it is wise to maintain a focus on these three dials and treat correlations as regime-switching instruments rather than constants.
Bitcoin typically rises when the dollar weakens and real yields fall. When the opposite happens, risk is compressed and spot demand evaporates.
This is a potential strategy for positioning for the first quarter of next year.
(Tag Translation) Bitcoin
