Since April 2025, global financial markets have experienced significant volatility. Traditional safe-haven assets, such as U.S. Treasuries have declined, while gold and Bitcoin have shown relative resilience. As Bitcoin and crypto markets mature into a recognised asset class, their correlation with traditional financial markets has strengthened. Hence, a thorough understanding of how stress in the bond market transmits to the crypto market becomes important.
This report examines the correlation patterns and evolution between these two markets, identifies and analyses potential transmission mechanisms, assesses current market conditions, and projects possible future market trajectories and impacts through scenario analysis.
The core findings are:
The bond market affects the crypto market through multiple channels: including risk appetite, liquidity, opportunity cost, and macroeconomic linkages. Although the crypto market, particularly Bitcoin, may exhibit unique characteristics under specific stress conditions, its overall performance is increasingly influenced by the broader macroeconomic environment, especially interest rates and liquidity conditions.
Historical Correlations Show Dynamic Patterns: Bitcoin's correlation with 10-year yields fluctuates (positive in 2021-2022, negative in 2022-2023). Historically, Bitcoin tended to perform better after extreme drops in Treasury yields compared to extreme spikes. Widening yield curve spreads (e.g., 10Y-2Y) historically correlated positively with Bitcoin, while widening credit spreads (HY OAS) showed a stable negative correlation.
Bitcoin's Potential Crisis Resilience: While typically correlated with risk assets during systemic stress (e.g., March 2020), Bitcoin showed signs of resilience during traditional banking system crisis (e.g., March 2023).
Complex Drivers of 2025 Turmoil: Current bond volatility is driven by tariff uncertainty (pushing the U.S. Trade Policy Uncertainty Index to record highs), sticky inflation (U.S. Core PCE rebounding YoY), government debt issuance (US$31T projected for 2025), and potential liquidity drains from TGA replenishment amid low Fed ON RRP balances.
Future Scenarios Hinge on Macro Resolution: Crypto's path may partly depend on bond market stabilization and macro outcomes. Persistent uncertainty suggests range-bound trading, while a "soft landing" could fuel a rally. A severe crisis scenario could trigger deep sell-offs and crypto market deleveraging.
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