As global markets convulse under the weight of renewed trade tensions, bitcoin (BTC) has so far managed to stand tall. But behind its apparent strength lies a brewing risk from the traditional financial system — one that eerily echoes the liquidity crisis that unraveled markets in March 2020.

Following President Donald Trump’s announcement of sweeping tariffs on 180 countries, the Nasdaq has plunged 11%, with global equities and risk currencies tumbling in tandem. Yet bitcoin has remained largely unfazed, trading above $80,000 and earning praise as a possible macro hedge in volatile times.

“The contrast is striking,” said David Hernandez, a crypto strategist at 21Shares. “As equities reel from geopolitical stress, bitcoin has rebounded from brief dips, signaling a growing role as a flight-to-safety asset.”

Online sentiment and institutional analysis increasingly view BTC as a hedge not just against inflation, but also against geopolitical isolation and systemic dislocation — what some analysts on X have dubbed the “U.S. isolation hedge.”

But the Bond Market Tells a Cautionary Tale

Despite this optimism, a lurking threat could challenge the very narrative of bitcoin’s newfound stability: the $1 trillion Treasury basis trade.

This complex, leveraged arbitrage strategy — where hedge funds exploit tiny pricing gaps between U.S. Treasury bonds and futures — is back in focus. During the COVID crash, this very trade collapsed under pressure, triggering mass liquidations across markets, including a near 40% drop in bitcoin on March 12, 2020.

That trade is now not only back — it’s bigger. Current estimates suggest over $1 trillion is tied up in basis trades, with some funds leveraging positions 50-to-1. A mere one basis point move in yields could shake these portfolios by $600 million, according to ZeroHedge.

“The issue isn’t whether these trades are profitable. It’s how fragile they are under stress,” warned Robin Brooks, Chief Economist at the Institute of International Finance. “When volatility spikes — like we’re seeing now — these carry trades are exposed to rapid unwind risk.”

A Liquidity Crunch Could Drag Bitcoin Down Too

If basis trades unravel again, a familiar pattern could emerge: a rush for dollar liquidity that forces the liquidation of even safe-haven assets, bitcoin included.

The MOVE Index — Wall Street’s fear gauge for the Treasury market — surged 12% on Friday to 125.70, marking its highest level in five months. It’s a flashing red light that the calm in bitcoin may be more fragile than it appears.

Further, a recent Brookings Institution report called for the Fed to prepare targeted interventions to support this corner of the Treasury market — a sign that policymakers are aware of the latent instability basis trades represent.

For now, bitcoin continues to attract macro-minded investors seeking alternatives to traditional hedges. But should another “dash for cash” scenario erupt, BTC may once again be pulled into the storm.

The week ahead could be telling: will bitcoin cement its reputation as a digital safe haven, or will it prove vulnerable to the same systemic risks that shook it just five years ago?