When investors or analysts proclaim, “The dollar is strong,” the statement sounds definitive, but it raises an important question: strong compared to what? Currency strength is inherently relative, typically measured against other fiat currencies. However, if we broaden the lens and measure the U.S. dollar against assets like Bitcoin, a very different story emerges—one that calls into question the long-term purchasing power of the dollar.
How Dollar Strength is Measured: The DXY
The most common benchmark for assessing the strength of the dollar is the U.S. Dollar Index (DXY). The DXY measures the dollar’s performance relative to a basket of major fiat currencies, including the euro, yen, pound, and others. When the index rises, it means the dollar is appreciating against those currencies, often driven by factors like:
- Rising interest rates in the U.S., attracting foreign capital.
- Economic stability compared to other regions.
- Geopolitical uncertainty, leading to demand for the dollar as a “safe-haven” asset.
For instance, during times of global turmoil, investors often flock to the dollar, strengthening its position on the DXY.
But here’s the catch: when comparing the dollar to other fiat currencies, we’re comparing one depreciating asset to others. Over the long term, all fiat currencies lose purchasing power due to inflation and monetary policies. So, while the dollar might be “strong” in the short term relative to the yen or the euro, its real-world purchasing power is another story.
Measuring the Dollar Against Bitcoin
If we measure the dollar against Bitcoin, the narrative changes dramatically. Bitcoin, often referred to as “digital gold,” has been a deflationary asset since its inception in 2009. With a hard cap of 21 million coins, Bitcoin is designed to resist inflation, unlike fiat currencies that can be printed indefinitely.
Consider the following:
- In 2013, Bitcoin was worth $100. With $1, you could buy 0.01 BTC.
- In 2024, Bitcoin is trading around $65,000. With $1, you can now buy only 0.000015 BTC.
The Decline of the Dollar Against Bitcoin
From 2013 to 2024, the dollar has lost approximately 99.85% of its purchasing power relative to Bitcoin. To quantify further:
- In 2013, $1 bought you 10,000 times more Bitcoin than it does today.
- The dollar has depreciated 650x relative to Bitcoin in just over a decade.
Why Does This Matter?
The contrast between the dollar’s “strength” on the DXY and its collapse relative to Bitcoin highlights two important points:
- Short-Term Strength vs. Long-Term Value
The DXY might tell us that the dollar is “strong” relative to other fiat currencies, but that’s like saying a sinking boat is better than the others because it’s sinking more slowly. Against scarce, deflationary assets like Bitcoin, the dollar’s long-term weakness becomes glaring. - Store of Value
Over time, Bitcoin has proven (so far) to be an effective hedge against monetary debasement. While the dollar has depreciated, Bitcoin’s finite supply has led to massive appreciation, preserving and growing purchasing power for early adopters.
The Bigger Picture: Inflation and Fiat Erosion
It’s not just Bitcoin that exposes the dollar’s decline. The purchasing power of the dollar has been eroding steadily due to inflation. For example:
- $1 in 1920 is worth only $0.04 today.
- Over 100 years, inflation has devalued the dollar by over 96%.
Bitcoin amplifies this trend by providing a clear, quantifiable benchmark. If we think of Bitcoin as a hard asset akin to gold—only digital and far scarcer—then the dollar’s decline makes perfect sense.
Conclusion: Rethinking Dollar Strength
When investors say, “The dollar is strong,” they are often measuring it against other fiat currencies. But a broader perspective challenges this narrative:
- Relative to Bitcoin, the dollar has lost 99.9% of its value in the last 11 years.
- Bitcoin highlights the dollar’s structural weakness as a store of value in an era of inflationary monetary policies.
So, is the dollar really strong? It depends on what you’re measuring it against. In the short term, the dollar might dominate the DXY. But in the long term—when measured against scarce assets like Bitcoin—its purchasing power continues to decline. For investors and savers, this is a reminder to think critically about where they store their wealth.
Final Thought
The dollar may still hold its crown in the global economy, but when measured against Bitcoin, it becomes clear: Strength is relative, but purchasing power is absolute.