Bitcoin Shifts from Digital Safe Haven to Risk Indicator Amid Trade War Chaos
Rather than functioning as the “digital gold” many investors had hoped for, Bitcoin has increasingly become a reflection of market risk, aligning with the perspectives of foreign exchange traders who track it as a measure of speculative sentiment.
Since President Donald Trump’s trade war began in March, global financial markets have faced heightened volatility, pushing investors to search for assets that offer protection in these turbulent times.
Yet, Bitcoin (BTC) has not met these expectations, much to the disappointment of those who viewed the cryptocurrency as a safe-haven asset or a store of value. Instead, since the start of the trade war, Bitcoin has shown a growing correlation with the Australian dollar-Japanese yen (AUD/JPY) pair, which serves as a key risk barometer in the forex market.
Trading data from TradingView reveals that the 90-day correlation coefficient between Bitcoin and AUD/JPY flipped positive in late February and has since surged to its highest level since November 2021. This shift came as the trade war ramped up, resulting in a 245% cumulative tariff on Chinese imports to the U.S. On Wednesday, Federal Reserve Chairman Jerome Powell expressed concerns over stagflation risks, adding to the market’s uncertainty.
With a correlation of 0.80—just below the maximum value of 1—this strong correlation suggests that Bitcoin and AUD/JPY are now closely aligned, both reflecting shifts in investor sentiment.
In contrast, Bitcoin’s 90-day correlation with gold turned negative in late February and has since dropped to -0.80, just above the lowest possible value of -1. This negative correlation means that, unlike before, Bitcoin and gold now move in opposite directions.
Bitcoin’s New Role as a Risk Sentiment Indicator
The Australian dollar, which is sensitive to commodity demand and economic conditions in China, is often considered a risk-sensitive currency. On the other hand, the Japanese yen is a traditional safe haven, benefiting from Japan’s status as a net creditor and its low interest rates.
When global markets are optimistic and commodity prices rise, the AUD typically strengthens, indicating a higher risk appetite, while the yen weakens. Conversely, in times of market risk aversion, the AUD tends to decline, and the yen appreciates.
Traders use the AUD/JPY pair as a gauge of market sentiment, interpreting upward movements as signs of investor confidence and a preference for riskier assets like stocks. With Bitcoin now mirroring the movements of AUD/JPY, it has solidified its position as a proxy for risk sentiment in the market.
