#BitcoinDunyamiz The trade war initiated by President Donald Trump has caused significant fluctuations in financial markets since March, prompting investors to chase assets they believe provide a hedge in this turbulent environment, known as safe havens. These are dominated by the reputation of gold and silver and some other traditional currencies such as the Swiss franc and the Japanese yen.
What is clear is that Bitcoin
BTCUSD #BitcoinETFs
not one of them, much to the chagrin of optimistic investors who have long considered the largest cryptocurrency as digital gold, either as a store of value or a safe investment. The truth is that since the beginning of the trade war, Bitcoin has become more correlated with the AUD/JPY pair; a measure of foreign exchange market risk.
Data from TradingView shows that the 90-day correlation between Bitcoin and the AUD/JPY pair turned positive in late February and has since reached its highest level since November 2021. The tariff war between the two countries has imposed a staggering cumulative tariff of 245% on Chinese imports to the U.S., prompting Federal Reserve Chairman Jerome Powell to emphasize the risks of stagflation on Wednesday.
Bitcoin is correlated with the AUD/JPY pair, not with gold #GOLD_UPDATE
The correlation coefficient of 0.80 - with a maximum value of 1 - is strong, indicating that the two variables, BTC and AUD/JPY, are closely related in their movements in the same direction.
In contrast, Bitcoin's 90-day correlation with gold turned negative in late February and has since fallen to -0.80, just above the minimum of -1. This means that the two are closely related in their movements, but in opposite directions.
Bitcoin is a risk proxy in financial markets.
The Australian dollar, being sensitive to China and the local currency of a commodity-exporting nation, is viewed as a risk currency. The yen is a safe haven as Japan has been a net international creditor for decades with interest rates near zero.
Read also: Everything you need to know about U.S. financial bonds
When global markets are optimistic and demand for commodities rises, the Australian dollar typically rises, reflecting an increased risk appetite among investors, while the yen declines. The opposite is true when they become risk-averse.
Therefore, traders monitor the AUD/JPY pair as a risk indicator, viewing upward trends as positive signs for risk assets like stocks, and vice versa. Bitcoin, which has already been showing a similar role, has strengthened its position. Correlation data indicates that BTC has now become a proxy for risk sentiment as much as the AUD/JPY pair.
