A look at how the tariff news has affected bitcoin as well as traditional asset classes
We examine some of the reasons why bitcoin’s volatility may have remained subdued as traditional assets spike to the highs
Precious metals markets may be echoing similar sentiments as crypto markets
Tariffs Roil Markets, Bitcoin Holds Up
Tariff news was again front and center this week as President Donald Trump’s on-again, off-again actions continued to introduce volatility to financial markets. The rollout of “reciprocal tariffs” on “Liberation Day,” April 2nd, has caused significant dislocations in financial markets. Nearly every traditional asset class has fallen in the wake of the announcement, including stocks, bonds, gold, oil, and the US dollar. Even though Trump has now put a 90-day pause on many of the initial tariffs, many asset classes have yet to recover to their pre-Liberation-Day levels. Bitcoin hasn’t been immune to market volatility, but at current prices has fared far better than many other asset classes.
Volatility Leaps Across the Board
With the rollout of tariffs, volatility in major traditional asset classes, including stocks, bonds (interest rates), and foreign exchange, is on the rise. The Cboe Volatility Index (VIX), a measure of US equities volatility, broke 60 on Monday, a level it hadn’t reached since August 4, 2024, which was the largest one-day spike in the index’s history. Outside of the August spike, Monday’s level has only been reached by the VIX twice before, during the Global Financial Crisis of 2008 and COVID-induced crash of 2020. In addition, volatility in bonds (MOVE Index) and foreign exchange (CVIX – Deutsche Bank Currency Volatility Index), while not setting records, registered large gains.
Bitcoin Volatility Subdued
Although bitcoin has been impacted by the tariff news, its volatility has remained surprisingly subdued. Unlike traditional assets, bitcoin’s volatility hasn't experienced a spike to historic levels. At-the-money implied volatility has edged up in the wake of Liberation Day, but only marginally. The VIX's surge to 60 briefly surpassed bitcoin's volatility.
Given the broader rise in global asset volatility, one might have expected bitcoin to be more reactive. Instead, its volatility this year could be better described as a secular decline. Despite reaching a price peak in mid-January and navigating the geopolitical turbulence of the Trump presidency, bitcoin has been relatively stable. Perhaps investors are increasingly searching for stores of value not tied to sovereign countries and thus not affected by the trade turmoil. In that case, an asset like bitcoin fits the bill.
Declining Volatility Could Be a Self-Reinforcing Cycle
In light of the administration’s economic and geopolitical actions, it’s reasonable to expect structurally elevated volatility across asset classes to persist. While it is impossible to determine how prevalent bitcoin allocations are within risk parity portfolios, the narrowing of the gap between bitcoin’s volatility and other assets, like equities, makes bitcoin increasingly more appealing as an asset for these funds. Risk parity funds allocating to bitcoin can help dampen its volatility—making the asset more attractive and potentially reinforcing a virtuous cycle of increased adoption and stability. While risk parity portfolios and investors in general are likely reducing risk, perhaps some reallocation of asset mix to bitcoin is one of the reasons it has been more buoyant than one would expect of a 50 - 60 vol asset.
Crypto Markets Have Been Orderly
Despite the carnage in traditional financial markets, the crypto markets have been relatively orderly. Perpetual swap rates have been persistently positive. Liquidations spiked on Sunday and Monday, but the 2-day total of $480M was well below other notable liquidation events. The basis on on-shore and off-shore futures has remained positive. Finally, the price of USDT, while below $1.00, has not experienced a sharp decline. Historically, in broad risk-off moves, we tend to see stresses show up in crypto markets. We have yet to see that.
Flight to Quality as Dominance Rises
Not all cryptocurrencies have fared as well as bitcoin, though. The ETH-BTC cross continues to plumb levels not seen since 2019, for example, and many other cryptocurrencies have yet to find their footing in this volatile environment. In a world of global uncertainty and a loss in faith of fiat currencies and sovereign nations, there does not appear to be a second best option to fiat debasement.
Precious Metals and Crypto
Precious metals markets appear to be echoing a similar pattern seen in crypto markets. Gold has been a standout performer in recent years and has held up well during recent market volatility. In contrast, other potential "store of value" metals—silver, palladium, and platinum—have not followed suit. Since April 2nd, gold has risen slightly, while the others have all declined. As with crypto, it may be that in the world of precious metals, there is no second best.
Market Update
Bitcoin fell 2.9% amidst the tariff-induced market volatility. Against that backdrop, stocks, bonds, and oil all fell. The drop in US Treasuries (rise in yields) even as stocks dropped was one of the more problematic signs of the week, an indication that investors may no longer consider the US the haven it once was. Gold continues to prove its mettle in this environment, however, up 1.9% on the week and now up 19.5% on the year. A weaker-than-expected CPI print was of little help to markets, although the receding inflation may give the Fed more room to maneuver with interest rate cuts. A press conference by Fed chief Jerome Powell last Friday, however, doused cold water on the idea that the Fed would immediately come to the rescue. The next FOMC interest rate decision isn’t until May 7th.
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