Weakening U.S. Dollar, Not Inflation, Drives Bitcoin Price: NYDIG

Contrary to popular belief, inflation is not a major driver of Bitcoin price, according to a new report by NYDIG. Instead, the research suggests that a weakening U.S. dollar is a stronger factor pushing up BTC, much like its effect on gold.

In a research note released on Friday, Greg Cipolaro, NYDIG’s global head of research, challenged the widely held notion that Bitcoin serves as a reliable hedge against inflation. 

“The community likes to pitch Bitcoin as an inflation hedge, but unfortunately, here, the data is just not strongly supportive of that argument,” Cipolaro wrote. “The correlations with inflationary measures are neither consistent nor extremely high.”

He added that inflation expectations, rather than actual inflation figures, provide a slightly better signal for BTC price movements, though still not a close correlation.

Bitcoin’s Growing Ties to Traditional Finance

Bitcoin supporters have long described the cryptocurrency as “digital gold”, emphasizing its fixed supply and decentralized nature as protection against inflation. However, Cipolaro noted that BTC has become increasingly correlated with traditional financial markets, making it behave more like a risk asset than a hedge.

Interestingly, Cipolaro also pointed out that physical gold itself has not consistently acted as an inflation hedge, saying that its inverse correlation with inflation was “surprising for an inflation protection hedge.”

Dollar Weakness and Interest Rates Are Key Drivers

According to NYDIG, both gold and Bitcoin tend to rise when the U.S. dollar weakens. The dollar’s value has historically shown an inverse relationship with gold, a trend now increasingly seen in BTC as well.

“Bitcoin also has an inverse correlation to the U.S. dollar,” Cipolaro said. “While the relationship is a bit less consistent and newer than gold’s, the trend is there.” He added that NYDIG expects this link to strengthen over time as BTC becomes more integrated into the global financial system.

Cipolaro identified interest rates and money supply as the most influential macroeconomic factors affecting both BTC and gold. Lower interest rates and looser monetary policies typically boost their prices, while tighter policies have the opposite effect.

He concluded that Bitcoin’s similar behavior to gold under changing economic conditions reflects its “growing integration into the global monetary landscape.” Summing up his findings, Cipolaro wrote, “Gold serves as a real-rate hedge, whereas BTC has evolved into a liquidity barometer.”