A historic turning point: Bitcoin is becoming a safe-haven asset

This week, U.S. Treasuries suffered their biggest weekly drop since the 2019 repo crisis, with volatility even exceeding levels seen during the coronavirus pandemic in March 2020. What is more worrying is that the violent fluctuations in the U.S. bond market have put basis arbitrage funds at risk of large-scale liquidation. This scene is very similar to the situation when the liquidity crisis broke out in March 2020: At that time, a large number of hedge funds were forced to sell other assets to raise liquidity, triggering the freezing of the repo market and multiple circuit breakers in the U.S. stock market. So, is the abnormal volatility of U.S. bonds a further release of the risks of Trump's tariff war or the beginning of a major crisis?

From a trading perspective,the current fluctuations in US Treasury bonds are still within the scope of regular risk release. There are three main bases:

First, the liquidation pressure caused by the widening of term spreads is still confined to the basis strategy field, and has not yet spread to systemic strategies such as CTA trend tracking or risk parity funds;

Second, the money market remains stable - the balance of nearly US$500 billion of the Federal Reserve's reverse repurchase facility (RRP) constitutes a liquidity buffer, and the spread between the overnight repurchase rate and SOFR continues to be in the normal range of less than 10 basis points;

Third, the 10-year yield fluctuates in the range of 4.25%-4.5%, and there is still a safety margin from the 4.8% critical point that triggers MBS investors' duration hedging. Based on these phenomena, the Federal Reserve still characterizes the current volatility as "the normal operation of the market's self-regulatory mechanism."

As long as there is no outbreak of systemic risks, Bitcoin's benefit in the second phase of the trade war is almost a foregone conclusion.

First, Trump's tariff policy will significantly weaken the dollar's dominant position in global trade settlement and accelerate the diversification of the international payment system. With the deepening of de-dollarization, the proportion of settlement in local currencies such as RMB and ruble will continue to increase, and gold and Bitcoin will become important value stabilization anchors. For example, in 2022, Russia's foreign exchange reserves were frozen by the West. In order to ease the depreciation pressure of the ruble, the Russian Central Bank implemented a fixed price gold purchase policy (5,000 rubles/gram) from March 28 to June 30, which not only successfully stabilized the ruble exchange rate, but also increased its gold reserves by 300 tons.

It is worth noting that during the same period, the volume of Bitcoin transactions in Russia increased by 17 times,forming a dual-track value storage system of "official gold + private Bitcoin". As the United States gradually reduces or even stops the output of US dollar deficits, this new architecture may become an important supplement in the process of de-dollarization.

Secondly, the Trump administration may follow the operating model of the 1985 Plaza Accord and force major trading partners to accept the devaluation of the US dollar through tariff leverage. Although this policy combination of "high tariffs + weak dollar" can enhance the competitiveness of the US manufacturing industry, it will inevitably erode the credit foundation of the US dollar.

Historical experience shows that when the market forms a persistent expectation of dollar depreciation, hard currencies with "super-sovereign" attributes tend to perform well. During the period from 1985 to 1987 after the Plaza Accord was signed, the dollar depreciated by 50% and 47% against the yen and the German mark respectively, and the price of gold rose from about $300 per ounce to about $500, an increase of about 66%. This process has led to trillions of dollars in asset reallocation. In the past decade, Bitcoin has always shown a clear negative correlation with the US dollar index, so Bitcoin is likely to strengthen in the downward cycle of the US dollar.

From historical experience, high-quality safe-haven assets need to meet two core criteria: significant positive risk premium and controllable price volatility. In the past decade, gold is the only asset that has consistently met these two requirements, while Bitcoin has long been excluded from the ranks of safe-haven assets due to its excessive volatility in extreme market conditions (such as a single-day fluctuation of 37% in March 2020). However, this traditional perception is being challenged by new market data. During the period of market turmoil caused by Trump's tariff policy, the performance of various assets showed important changes.

During the period from April 2 to April 8, Bitcoin's risk-adjusted return rate was -0.24, which was not only far higher than the S&P's -0.98, but also higher than gold's -0.29. This shift shows that Bitcoin is developing a unique "crisis alpha" attribute-although its absolute volatility is still higher than that of gold, its relative performance in systemic risk events has begun to surpass traditional safe-haven assets. In addition, although the VIX index soared to its highest point in nearly three years (60), the one-month implied volatility of Bitcoin has only risen slightly, and it is still far from its historical high. At the same time, there is no obvious correlation between the price of Bitcoin and the implied volatility of its at-the-money options. This shows that the market generally believes that the sharp drop in U.S. stocks has limited potential impact on Bitcoin, and options investors have not used this event to go long on volatility, which breaks the market's general view in the past that Bitcoin is a leverage for U.S. stocks. Looking back, the timing of Trump's establishment of a strategic Bitcoin reserve is by no means accidental - this is not only a forward-looking layout to hedge the credit risk of the US dollar, but also a strategic move to maintain global monetary dominance. However, when the US strategic intentions were gradually seen by the market, US capital had quietly accumulated nearly 30% of the circulating chips of Bitcoin.