Bitcoin (BTC) traded tentatively below $118,000 after better-than-expected U.S. growth data pushed the dollar index to a five-week high.

The dollar index (DXY), which gauges the greenback's value against major currencies, rose to 99.34, the highest since June 23, according to data source TradingView.

The dollar found a bid from the better-than-expected U.S. gross domestic product (GDP) data, which showed the economy expanded at a 3% annualized pace in the second quarter.

A sharp drop in imports drove the GDP higher. Meanwhile, consumer spending climbed 1.4% following first quarter's 0.5% in a sign of recovering domestic demand. Meanwhile, the gross domestic purchases price index rose 1.9%, down from 3.4% in Q1.

The upbeat GDP data likely reinforced expectations that the Fed will keep interest rates steady later Wednesday.

The DXY has stabilized in recent weeks, ending a sharp downtrend from January highs above 110.00. Some observers are worried that the stability could shake out dollar shorts, adding to the upside momentum in the global reserve currency and downward pressure in the crypto market.

"We see potential near-term risks emerging from overcrowded positioning in USD shorts. The consensus narrative for much of 2025 has revolved around a weaker Dollar, catalyzed by the ongoing Tariff War, but with the Dollar already down 10% year-to-date, we question how much further it can fall," Singapore-based QCP Capital's Market Insights team said.

"CFTC data shows traders extremely short USDJPY, a position that is not only consensus but also expensive to fund over time. In our view, the market is increasingly vulnerable to a short squeeze in the Dollar, which could force risk-off unwinds across equities, EM, and crypto alike," the team added.