President Donald Trump’s trade war has introduced significant volatility for the financial markets since March, which prompted investors to pursue assets which, according to them, provide coverage in this turbulent environment.
What is clear: Bitcoin (BTC) is not one of them, to the great dismay of bullish investors who have long thought of the greatest cryptocurrency as a digital organ is as a value store or an investment paradis. The reality is that since the start of the trade war, Bitcoin has become more closely correlated with the Australian dollar pair (AUD / JPY), the risk barometer of the foreign exchange market.
TradingView data show that the 90-day correlation coefficient between Bitcoin and the Aud / JPY pair has overturned positive at the end of February and has since struck the most of November 2021. The tariff war in tit-form between the two nations has led to a 245% cumulative levy on Chinese imports in the United States, leading the President of the Federal Reserve Jerometer Powell reiterating risks stagflation.
The correlation of 0.80 – The maximum value is 1 – is considered strong, which implies that the two variables, BTC and Aud / JPY, are closely linked in their movements in the same direction.
On the other hand, the correlation of 90 days of Bitcoin with gold overturned the negative at the end of February and has since fallen at -0.80, just above the minimum -1. This means that the two are closely linked in their movements, but in opposite directions.
BTC, a proxy for the risk
The Australian dollar, being sensitive to China and the native currency of a nation expressing raw materials, is considered a risk currency. The yen is a refuge because Japan has been a net international creditor for decades with almost zero interest rates.
When the global markets are optimistic and the demand for basic products increases, the AUD generally appreciates, reflecting a higher risk appetite among investors and yen declines. The reverse is true when they become opposite to risk.
Merchants therefore monitor Aud / JPY as a risk indicator, considering high trends as positive signs for risk assets such as actions, and vice versa. Bitcoin, who was already emerging in a comparable role, has strengthened his position. The correlation data indicates that BTC is now as much an indirect indicator of the feeling of risk as the AUD / JPY.
