Bitcoin Shifts from Safe Haven to Risk Indicator Amid Trade War Turmoil

Rather than acting as the “digital gold” that many crypto bulls hoped for, Bitcoin has increasingly become a gauge of market risk, reinforcing the views of foreign exchange traders who track it as a measure of speculative sentiment.

The ongoing trade war between the U.S. and China, ignited by President Donald Trump, has introduced significant volatility into financial markets since March. As a result, investors have been scrambling to find assets that could act as a hedge in the face of rising uncertainty.

However, Bitcoin (BTC) has not fulfilled this role, much to the frustration of those who once viewed it as a store of value or safe-haven asset. In fact, since the trade war began, Bitcoin has shown a stronger correlation with the Australian dollar-Japanese yen (AUD/JPY) currency pair, often used in the foreign exchange market as a key risk barometer.

According to TradingView data, the 90-day correlation between Bitcoin and AUD/JPY turned positive in late February and has since reached its highest level since November 2021. This shift coincides with the ramping up of trade tariffs, which have led to a staggering 245% cumulative levy on Chinese imports to the U.S. Federal Reserve Chairman Jerome Powell recently reiterated concerns about stagflation risks, further fueling market anxiety.

A correlation of 0.80 between Bitcoin and AUD/JPY—where 1 represents perfect correlation—indicates a strong relationship, suggesting that Bitcoin’s price movements now reflect similar sentiment to the AUD/JPY pair, which is considered a barometer of global risk.

Meanwhile, Bitcoin’s correlation with gold has gone in the opposite direction. Since late February, Bitcoin’s 90-day correlation with the precious metal has flipped negative, now standing at -0.80, just above the extreme of -1. This negative correlation shows that while Bitcoin and gold were once seen as moving in the same direction, they now trend in opposite ways.

Bitcoin Becomes a Risk Sentiment Proxy

The Australian dollar, sensitive to global commodity prices and economic trends in China, is often seen as a risk-sensitive currency. Conversely, the Japanese yen is a traditional safe haven, benefiting from Japan’s status as a creditor nation with low interest rates.

When markets are bullish and demand for commodities rises, the AUD generally appreciates, signaling a higher risk appetite among investors, while the yen tends to weaken. In contrast, when markets become risk-averse, the AUD tends to fall, and the yen strengthens.

Traders closely watch the AUD/JPY pair as a key risk indicator, interpreting upward movements as a sign of increased investor confidence in riskier assets like stocks. Bitcoin has increasingly mirrored these trends, strengthening its position as a risk sentiment proxy alongside the AUD/JPY pair.