22 DECEMBER 2025
For a quick take on global financial conditions, look no further than how the US dollar and Bitcoin are trading.
They are two of the most liquidity-sensitive assets, albeit for very different reasons.
The blue line (left axis) shows the Bitcoin price over the past 12 months. It had been rallying for most of the year, but has fallen sharply (from a record price around U$125k) ever since liquidity conditions began deteriorating in early October.
Similarly, the US dollar (red line, right axis) has seen a sharp trend reversal over the past few months. The trade-weighted DXY index has bounced 4% from its September low, again reflecting tighter liquidity and the increased risk aversion.
It is no coincidence that both trends have stabilised since mid-November. This tallies with the Fed’s surprise U-turn, which signalled the end of quantitative tightening and a tentative return to buying securities.
This marks a pronounced move towards more monetary easing which, in theory, should see the DXY resume its downtrend and risk assets (including Bitcoin) start to recover.
The fact that both assets have shown a muted response to the Fed volte-face is a little concerning. It suggests investors are concerned the fresh liquidity flows will be too modest to spark a big “risk on” move.
As a first step, however, it looks like a big enough policy change to make a major market downturn less likely.
The content of this communication is for information purposes only. Bentley Reid believes that, at the time of publication the views expressed and opinions given are correct but cannot guarantee this and readers intending to take action based upon the content of this communication should first consult with the professional who advises them on their financial affairs. Any companies cited in this report are used to support the view of the authors, and should not be construed as recommendations to purchase or sell the underlying securities. Neither the publisher nor any of its subsidiaries or connected parties accepts responsibility of any direct or indirect or consequential loss suffered by a reader or any related person as a result of any action taken, or not taken in reliance upon the content of this communication.
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