Colorado has been allowing residents to pay state taxes in cryptocurrency since 2022, but the arrangement comes with an important detail. The coins must be converted into U.S. dollars before the money reaches the state. Few people used the option, but the setup has shown again a feature of the crypto market Bitcoin holders are very well aware of: Even when you pay with Bitcoin, the U.S. dollar remains the reference point for measuring its value.
The Relationship Between Bitcoin and the US Dollar
On any crypto trading platform, you will see Bitcoin price quoted in U.S. dollars or a stablecoin pegged to the dollar. So, movements in the dollar can affect how much Bitcoin costs in dollar terms.
Interest rates also link the two markets. When U.S. interest rates rise, cash deposits and Treasury securities can offer more attractive returns. In these periods, investors are less willing to put money into riskier assets like Bitcoin. Higher rates can also support the dollar by making U.S. assets more appealing to international investors.
The most common gauge is the U.S. Dollar Index, or DXY, which tracks the greenback against six major currencies. The Federal Reserve also publishes a broader trade-weighted index covering 26 economies. These measures help investors understand whether the dollar is strengthening or weakening, although neither can explain Bitcoin’s price movements on its own.
How the Dollar-Bitcoin Relationship Has Changed
The dollar’s movements did not always receive much attention from crypto investors, but a weaker dollar can sometimes support Bitcoin by making dollar-priced assets more affordable to buyers using other currencies. This could be observed when DXY fell 9.4% in 2025, causing its worst year since 2017. Bitcoin initially appeared to follow that pattern by rising above $126,000 in October. However, it later lost ground and ended the year lower, despite the dollar’s continued decline.
In 2026, the relationship looked a bit different. After falling to around 96 in late January, its lowest level in about four years, the DXY climbed to approximately 102 by early November. Bitcoin, meanwhile, has lost more than 15% of its value since the start of the year.
The opposite correlation was much easier to follow in April. CoinDesk reported that the 30-day correlation of Bitcoin and the dollar reached minus 0.90. This was its most extreme reading in nearly four years.
How Fed Rate Decisions Influence Bitcoin
The recovery of dollar has coincided with a change in the Federal Reserve’s interest rate policy. In September, the central bank raised rates for the first time since July 2023, lifting its target range to 3.75% to 4.00%. It held there in late October, though two of the twelve voting members wanted another increase. The Fed’s meeting calendar shows its next decision is due in December.
Recent data has nudged markets toward that hike. Employers added 165,000 jobs in October, far above forecasts of roughly 60,000 to 65,000. October consumer prices then rose 0.4%, more than expected. After that report, prediction markets put the odds of a December increase at about 85%, and Bitcoin briefly dropped to around $72,800 at the same time.
The growing role of institutional investors creates another link between Bitcoin and traditional financial markets. Exchange-traded funds let advisers and large investors hold Bitcoin next to stocks and bonds, tying it to the same rate news that moves those markets. U.S. spot Bitcoin funds saw about $1.28 billion in outflows during the first week of November. Glassnode also measured Bitcoin’s 30-session correlation with the S&P 500 at around 0.80 in early November.
The Dollar Cannot Predict Bitcoin’s Next Move
None of this makes the DXY a reliable forecasting tool. CoinDesk’s analysis puts the average 90-day correlation between Bitcoin and the DXY since 2020 at about minus 0.14. A 2023 study from S&P Global found no evidence that currency moves predict where Bitcoin goes next. Even this year the pattern was inconsistent. In March 2026, some measures showed the dollar and Bitcoin rising together before their movements changed direction in April. This is a reminder that a pattern observed over a few weeks does not prove anything.
The 2022 market downturn illustrates why it is important to consider other influences. As the Fed raised rates at its fastest pace in decades, the DXY hit 20-year highs above 114 in late September. Bitcoin had already fallen from a peak near $69,000 in late 2021 to below $20,000 by June 2022. At the same time, the collapse of several crypto lenders and exchanges damaged confidence across the market. A stronger dollar and higher interest rates added pressure, but they were not the only reasons Bitcoin fell.
What Northern Colorado Investors Should Watch
For local investors, the practical lesson is to read Bitcoin’s moves alongside the DXY. A sell-off that arrives with a jump in that index and in Treasury yields is likely a reaction to rate expectations, not a verdict on crypto itself.
Bitcoin trades around the clock, while currency and bond markets mostly close for the weekend, so a Friday data surprise can keep rippling through crypto until Monday. The Fed’s December meeting is the next major test, and the market’s reaction to it is worth watching closely.
Exchange rates do not set Bitcoin’s course on their own. Regulation, investor sentiment, and developments within the crypto industry can all influence prices. Still, with markets weighing the possibility of further U.S. rate increases, dollar movements remain an important part of the picture for anyone following Bitcoin.