President Donald Trump’s trade war has introduced significant volatility to financial markets since March, prompting investors to chase assets they believe provide a hedge in this turbulent environment.
What’s clear: Bitcoin (BTC) is not one of them, much to the dismay of bullish investors who have long thought of the largest cryptocurrency as digital gold either as a store of value or a haven investment. The reality is that since the onset of the trade war, bitcoin has become more closely correlated with the Aussie dollar-yen pair (AUD/JPY), the foreign exchange market’s risk barometer.
Data from TradingView show the 90-day correlation coefficient between bitcoin and the AUD/JPY pair flipped positive in late February and has since hit the highest since November 2021. The tit-for-tat tariff war between the two nations has led to a staggering 245% cumulative levy on Chinese imports to the U.S., leading to Federal Reserve Chairman Jerome Powell reiterating stagflation risks on Wednesday.
The correlation of 0.80 — the maximum value is 1 — is considered strong, implying that the two variables, BTC and AUD/JPY, are closely related in their movements in the same direction.
In contrast, bitcoin’s 90-day correlation with gold flipped negative in late February and has since dropped to -0.80, just above the minimum -1. It means the two are closely related in their movements, but in opposite directions.
The Australian dollar, being China-sensitive and the home currency of a commodity-exporting nation, is seen as a risk currency. The yen is a safe haven because Japan has been a net international creditor for decades with near-zero interest rates.
When global markets are optimistic and commodity demand rises, the AUD typically appreciates, reflecting a higher risk appetite among investors and the yen drops. The opposite holds true when they become risk-averse.
Traders, therefore, monitor AUD/JPY as a risk indicator, viewing uptrends as positive signs for risk assets like stocks, and vice versa. Bitcoin, which was already emerging in a comparable role, has strengthened its position. The correlation data indicates that BTC is now as much a proxy for risk sentiment as AUD/JPY.
Read MoreCoinDesk: Bitcoin, Ethereum, Crypto News and Price Data[#item_full_content]
The Casascius coins were designed as offline cold storage with embedded private keys, but the…
In a not-so-surprising turn of events, the bearish orientation of the Bitcoin price has continued…
Two long-dormant Casascius coins, each loaded with 1,000 Bitcoin, were activated on Friday, unlocking more…
As the gap between spot bitcoin price and the power law widens, investors are left…
Shares in the company fell more than 50% this week as the merger approval went…
The Bitcoin price has had a mixed performance over the past week, with both sides…