Bitcoin News: Bitcoin Drops Below $80K as $1 Trillion ‘Basis Trade’ Risk Looms, Echoing 2020 COVID Crash

As Bitcoin (BTC) slips below the $80,000 mark amid heightened macroeconomic stress, analysts are warning that a potential blowup in the $1 trillion U.S. Treasury basis trade could trigger a widespread liquidity crisis—similar to the March 2020 COVID crash, which sent BTC plunging nearly 40% in a single day.Bitcoin’s Resilience Wavers Amid Tariff TurmoilUntil recently, Bitcoin had shown surprising strength despite market turbulence. The Nasdaq Composite has fallen over 11% following President Donald Trump’s April 2 tariff escalation on 180 countries. Retaliatory measures from China followed swiftly, spooking global markets, compressing gold, and sending risk assets tumbling.Bitcoin, meanwhile, hovered above $82,000 earlier in the week, prompting speculation that the asset was finally maturing into a macroeconomic hedge. But that narrative is now being tested as BTC slips to $79,400 at the time of writing.“Bitcoin’s relative strength was impressive earlier in the week, but this slip below $80K reveals how fragile sentiment still is,” said David Hernandez, crypto investment specialist at 21Shares.“If volatility worsens, BTC could get dragged down like everything else.”The Hidden Threat: Treasury Basis Trade BlowupThe Treasury basis trade is a leveraged strategy used by hedge funds to exploit small price differences between U.S. Treasury bonds and their futures. As of March 2025, the total exposure in this strategy has ballooned to over $1 trillion—double its size at the time of the 2020 crash.“When volatility spikes — as it is now — it exposes carry trades with extreme leverage,” warned Robin Brooks, chief economist at the Institute of International Finance.“The risk of a forced unwind triggering a ‘dash for cash’ across all asset classes is very real.”A repeat of the March 2020 COVID shock—when BTC plummeted nearly 40% in a single day as the basis trade imploded—remains a lurking danger.Volatility Indicator Flashes RedThe MOVE Index, a key measure of expected Treasury market volatility, surged 12% to 125.70 on Friday, the highest level since November 2024. Rising volatility in Treasury yields could force basis trade participants to rapidly unwind their positions, triggering a wave of asset sales—including crypto—to meet margin calls and raise cash.According to ZeroHedge, a one basis point move in Treasury yields could cause a $600 million swing in the valuation of hedge fund positions. If multiple points shift in a short time frame, the cascade effect could resemble March 2020’s global sell-off.Brookings Warns Fed May Need to InterveneA Brookings Institution report has urged the U.S. Federal Reserve to prepare for targeted interventions in the Treasury market to stabilize conditions and prevent a systemic liquidity crisis. The report emphasized the importance of supporting hedge funds involved in basis trades during periods of extreme volatility, according to CoinDesk.Bottom LineBitcoin's recent behavior has sparked optimism about its potential as a safe-haven asset—but macro risks could still shatter that narrative. If the Treasury basis trade collapses, it could spark a "sell everything" panic, dragging Bitcoin and other risk assets into a sharp correction.The question is no longer whether Bitcoin can decouple from stocks—but whether it can survive the next liquidity crunch intact.