BofA survey indicates that bearish positions on the dollar have reached a record high in over ten years. Implications for bitcoin are explored.

BofA’s February survey indicates that investor sentiment regarding the U.S. dollar has reached its most pessimistic level since at least early 2012.

Record dollar shorts could create BTC volatility. (TheDigitalArtist/Pixabay)

What to know:

• Investor sentiment towards the U.S. dollar is more bearish than ever, a stance that has historically served as a bullish driver for bitcoin, as a depreciating dollar typically benefits risk assets.
• Since early 2025, bitcoin has formed an unusual positive correlation with the dollar, with their 90-day correlation reaching 0.60, despite declines in both the dollar index and BTC.
• If this emerging relationship persists, a continued decline in the dollar could negatively impact bitcoin, while a swift dollar short squeeze and recovery might elevate BTC instead.

According to Bank of America’s (BofA) latest survey, investors harbor the most bearish outlook on the dollar in over ten years, and this extreme positioning could lead to bitcoin BTC$68,266.99 volatility, though not in the manner that crypto proponents have come to expect.

BofA’s February survey reveals that investor positioning in the U.S. dollar has dropped to its most negative (bearish) level since at least early 2012, with net exposure at a historic underweight. This trend is driven by worries about potential worsening in the U.S. labor market, which could lead the Federal Reserve to reduce interest rates.

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Historically, bitcoin has generally moved inversely to the U.S. Dollar Index, increasing when the dollar weakens and decreasing when it strengthens. This trend is attributed to two significant factors: as a dollar-denominated asset, a declining dollar makes BTC more affordable, and conversely, a robust dollar tightens global financial conditions, adversely affecting risk assets like bitcoin, and the opposite occurs when the dollar weakens.

Thus, if past patterns are any indication, the unprecedented bearish dollar positioning, indicating that investors are positioned for a weaker dollar, could be viewed as a classic bullish catalyst for bitcoin.

However, there is a complication. Since early 2025, and particularly recently, bitcoin has exhibited an unexpected positive correlation with the dollar. The DXY fell over 9% last year and dropped another 1% this year. Meanwhile, BTC decreased by 6% in 2025 and has fallen 21% year-to-date. Their 90-day correlation reached 0.60 on Monday, the highest since April 2025, based on data from TradingView.

If this correlation persists, a further decline in the dollar index may not bode well for bitcoin. Conversely, a rebound in the dollar, potentially triggered by a short squeeze, could boost BTC alongside it.

When investors accumulate extreme bearish positions, any unforeseen price rebound compels them to buy back significantly to mitigate losses, resulting in a short squeeze. This urgent covering drives the asset price higher, increasing volatility considerably.

“Record short positioning increases the likelihood of volatility in major USD pairs; downside may extend on weak US data, but crowded trade dynamics heighten the potential for sharp short-covering rallies,” stated Eamonn Sheridan, Chief Asia-Pacific Currency Analyst at InvestingLive, in a market update.

As of press time, the dollar index was up 0.25% for the day at 97.13, while bitcoin was trading at $68,150, down 1%, according to CoinDesk data.