The Dollar’s Power, Emerging Markets’ Struggles, and Bitcoin’s Rise

The U.S. dollar’s strength often spells trouble for emerging markets (EM). As it rises, currencies like the Indian Rupee and Brazilian Real weaken, hitting the 4.1 billion people in these economies hard. But there’s a twist: Bitcoin is stepping in as a potential lifeline. Here’s a quick look at the trends and why they matter.

The Dollar’s Dominance Hurts Emerging Markets

A strong dollar drains cash from EM economies. When China’s imports drop—like the 34.9% plunge in 2022-2023—fewer dollars flow globally, and EM currencies tank. Data from the Macrowise FX Monitor shows the Colombian Peso sliding from 2,000 to 5,000 per USD and the Brazilian Real from 2 to 6. It’s a pattern: a mighty dollar means weaker local money.

Recent events underscore this dynamic. Beyond any political noise, the highly publicized White House meeting between President Trump, Vice President JD Vance, and Ukrainian President Zelensky stands as a clear signal that the world is accelerating from globalism to localism. What began as a discussion on a minerals deal and peace negotiations devolved into a heated exchange, with Trump and Vance questioning the value of continued U.S. support for Ukraine. This public confrontation marks a shift away from the U.S. as a global stabilizer, prioritizing domestic interests over international alliances. The global model, once dominant, is no longer viable.

A key pillar of that model has been the carry trade—the most profitable play in recent decades—where money borrowed cheaply in developed markets financed growth in emerging markets. This flow of offshore dollars fueled economies like India, Brazil, and Mexico. But that lifeline is now compromised. As the U.S. tightens its monetary policy and trade tensions rise, this dollar stream is drying up. Tariffs, too, are set to decelerate the flow of dollars through the trade balance channel, tightening the squeeze. Emerging markets are entering a regime of offshore dollar deficits, setting the stage for a crisis. The FX Macrowise Monitor already shows stark signals: the Indian Rupee has slumped from 40 to 80 against the dollar, the Brazilian Real from 2 to 6, and the Mexican Peso from 10 to 20. These aren’t just fluctuations—they’re red flags of a looming crisis in emerging markets.

Bitcoin Shines When Markets Shake

While EM currencies struggle, Bitcoin thrives in chaos. The BTC vs. EM Index vs. VIX chart reveals this: during the 2020 crisis, the VIX (volatility index) hit 100, and Bitcoin crashed to $4,000—then rocketed to $69,000 by 2021. Unlike traditional currencies, Bitcoin isn’t tied to any government or bank. Its fixed supply of 21 million coins makes it a hedge against inflation and devaluation.

A Simple Solution for a Complex Problem

Bitcoin’s appeal is straightforward: it’s decentralized, borderless, and accessible with just a smartphone. For people in places like Venezuela or Nigeria, where local currencies collapse, it’s more than an investment—it’s a way to fight back against a strong dollar’s chaos.

What’s Next?

The dollar won’t lose its grip soon, and Bitcoin has risks like volatility. But the data points to a shift: as EM currencies weaken, Bitcoin gains ground. Could it be the shield millions need in the next crisis? Time—and the markets—will tell.

Three revolutions are underway: AI, the democratization of money, and technology-empowered governments ensuring transparency.

Thanks for reading,

Guillermo Valencia A.

Cofounder Macrowise

March 3, 2025