Godbole: Bitcoin, Once Seen as a Crypto Safe Haven, Is Now a Key Risk Barometer

Bitcoin Evolves from Digital Gold to Risk Gauge Amid Trade War Uncertainty

Rather than living up to its reputation as “digital gold,” Bitcoin has increasingly become a barometer for market risk, confirming the views of foreign exchange market participants who use it to track investor sentiment.

The ongoing trade war sparked by President Donald Trump has introduced significant volatility into the global financial landscape since March. In response, investors have sought out assets they believe can provide protection amid this heightened uncertainty.

However, Bitcoin (BTC) has not lived up to the expectations of bullish investors who viewed it as a store of value or a safe-haven asset. Instead, since the onset of the trade war, Bitcoin has shown a strong correlation with the Australian dollar-Japanese yen (AUD/JPY) pair, which is widely regarded as a risk indicator in the foreign exchange market.

Data from TradingView reveals that the 90-day correlation between Bitcoin and AUD/JPY flipped positive in late February and has since reached its highest level since November 2021. This shift coincided with the escalation of trade tariffs, which have resulted in a cumulative 245% levy on Chinese imports to the U.S. In response, Federal Reserve Chairman Jerome Powell reiterated concerns about stagflation risks, further unsettling market sentiment.

A correlation of 0.80—close to the maximum value of 1—suggests a strong relationship between Bitcoin and the AUD/JPY pair, indicating that both assets are moving in tandem as market sentiment shifts.

In contrast, Bitcoin’s 90-day correlation with gold has flipped negative since late February, now standing at -0.80, just above the extreme of -1. This negative correlation shows that while Bitcoin and gold were once seen as complementary in terms of their price movements, they are now moving in opposite directions.

Bitcoin as a Risk Sentiment Proxy

The Australian dollar is considered a risk-sensitive currency due to its ties to global commodity demand and its connection to China’s economic activity. Meanwhile, the Japanese yen is viewed as a safe-haven asset, benefiting from Japan’s position as a net creditor nation with low interest rates.

When market sentiment is positive and global demand for commodities rises, the AUD typically appreciates, signaling a higher risk appetite among investors, while the yen weakens. Conversely, during periods of market pessimism, the AUD falls, and the yen strengthens.

Traders closely monitor the AUD/JPY pair as an indicator of risk sentiment, interpreting uptrends as signals of optimism and a greater willingness to invest in riskier assets like stocks. Bitcoin, with its increasing correlation to this pair, has solidified its role as a key proxy for market sentiment, moving in sync with risk-on behavior.

About The Author

ctleditor

See author's posts