The DXY measures how strong the US dollar is compared with a basket of other major currencies, like the euro and the Japanese yen. When the DXY goes up, the dollar is getting stronger; when it falls, the dollar is getting weaker.
Here is why crypto traders keep an eye on it: the dollar and risky assets like Bitcoin and gold tend to behave like opposite ends of a see-saw. A rising dollar usually acts as a weight pressing down on crypto, while a falling dollar lifts that weight off and lets it float up more easily.
Part of the reason is refreshingly simple: almost everything in the world is priced in dollars. So when the dollar is expensive, everything measured against it feels a little cheaper — and when the dollar weakens, those same things feel more expensive, which shows up as higher prices.