This week, the U.S. Treasury market encountered the most severe single-week volatility since the 2019 repo market turmoil, with fluctuations even exceeding the levels observed during the outbreak of the COVID-19 pandemic in March 2020. Particularly noteworthy is that the severe volatility in the Treasury market has posed large-scale clearing risks for basis arbitrage strategies, a scenario reminiscent of the liquidity crisis in March 2020: at that time, numerous hedge funds were forced to sell other assets to raise liquidity, leading to a freeze in the repo market and multiple circuit breakers in U.S. stocks. So, is this abnormal volatility in the Treasury market a further manifestation of the risks posed by Trump's tariff policy, or does it herald the prelude to a larger-scale crisis?
From a trading perspective, the current volatility in the U.S. Treasury market can still be viewed as a regular risk release. Specifically, there are several bases for this conclusion:
First, the clearing pressure caused by the widening term spread is mainly confined to the basis strategy area and has not yet spread to systematic investment strategies such as CTA trend-following or risk parity funds.
Secondly, the money market remains robust—the balance of the Federal Reserve's reverse repurchase tool is nearly $500 billion, providing ample liquidity support to the market, with the overnight repo rate and the SOFR spread continuing to stay within a normal range of 10 basis points.
Once again, the 10-year U.S. Treasury yield fluctuates in the range of 4.25% to 4.5%, still having a certain buffer space from the critical point of 4.8% that triggers duration hedging for MBS investors. Based on these phenomena, the Federal Reserve characterizes the current market volatility as the 'normal operation of the market's self-regulation mechanism.'
As long as systemic risks do not erupt, Bitcoin is likely to benefit from the second phase of the trade war.
First, Trump's tariff policy will significantly weaken the dollar's dominant position in global trade settlements and accelerate the diversification of the international payment system. As the trend of de-dollarization deepens, the share of local currency settlements like the yuan and ruble will continue to increase, with gold and Bitcoin becoming important value anchoring tools. For instance, after the freezing of Russia's foreign exchange reserves by the West in 2022, to alleviate the pressure of ruble depreciation, the Central Bank of Russia implemented a fixed gold purchase price policy (5000 rubles/gram) from March 28 to June 30, which not only successfully stabilized the ruble exchange rate but also significantly increased its gold reserves by 300 tons.
It is noteworthy that during the same period, Russia's Bitcoin trading volume surged 17-fold, forming a dual-track value storage system of 'official gold + private Bitcoin.' Against the backdrop of the U.S. gradually reducing or even stopping the deficit-driven outflow of dollars, this new structure is expected to become an important complement in the de-dollarization process.
Secondly, the Trump administration may reference the operational model of the 1985 'Plaza Accord,' using tariff leverage to force major trading partners to accept arrangements for dollar depreciation. This policy combination of 'high tariffs + weak dollar' may enhance the competitiveness of U.S. manufacturing, but it will inevitably erode the dollar's credit foundation.
Historical experience shows that when the market forms a persistent expectation of dollar depreciation, hard currencies with 'supra-sovereign' attributes often perform well. During the period from 1985 to 1987 after the signing of the 'Plaza Accord,' the dollar depreciated by 50% against the yen and 47% against the German mark, while the price of gold rose from about $300 per ounce to around $500, an increase of approximately 66%. This process facilitated the reallocation of trillions of dollars in assets. Over the past decade, Bitcoin has shown a significant negative correlation with the dollar index, suggesting that Bitcoin is likely to strengthen during the dollar downcycle.
Historically, high-quality safe-haven assets must meet two core criteria: significant positive risk premium and controllable price volatility. Over the past decade, gold has been the only asset that consistently meets these two requirements, while Bitcoin has long been excluded from the safe-haven asset category due to its extreme volatility in harsh market conditions (e.g., a single-day fluctuation of 37% in March 2020). However, this traditional perception is being challenged by new market data. During the market turmoil triggered by Trump's tariff policy, the performance of various assets showed significant changes.
From April 2 to April 8, Bitcoin's risk-adjusted return rate was -0.24, which not only far exceeded the S&P's -0.98 but was also higher than gold's -0.29. This shift indicates that Bitcoin is developing a unique 'crisis alpha' property—despite its absolute volatility still being higher than gold, its relative performance during systemic risk events has begun to surpass traditional safe-haven assets.
Moreover, although the VIX index surged to its highest point in nearly three years (60), Bitcoin's one-month implied volatility only increased slightly, remaining at a significant distance from historical highs. At the same time, there was no significant correlation between Bitcoin prices and the implied volatility of its at-the-money options. This suggests that the market generally believes the potential impact of a significant drop in U.S. stocks on Bitcoin is limited, and options investors have not taken large positions to increase volatility based on this event, breaking the past market consensus that Bitcoin acts as leverage for U.S. stocks.
Looking back in history, Trump's establishment of a Bitcoin strategic reserve was no coincidence—this was both a forward-looking layout to hedge against dollar credit risk and a strategic move to maintain global currency dominance. However, as the U.S. strategic intentions gradually become clear to the market, U.S. capital has quietly accumulated nearly 30% of the circulating Bitcoin chips.
