IN TODAY'S ISSUE:
- With bitcoin starting to outperform in “US-risk-off” environments, it seems that investors are just starting to appreciate it for what it really is.
- With the effects of the US administration’s actions still unfolding and constantly shifting, the one thing investors can be certain of is structurally higher volatility.
- Despite bitcoin’s recent gains, there are few signs of the market overheating.
Bitcoin Decouples, Tentatively
Bitcoin felt noticeably different this week. We've been observing subtle shifts in its behavior over the past few weeks, something we've pointed out in recent research. It all came to a head on Monday as the “US hegemony unwind trade” intensified—the S&P 500, US dollar, and 10y Treasuries all fell again, and against this backdrop, bitcoin surged higher.
Geopolitical tensions, including tariffs, remain topical (despite Trump walking back many of them), but political pressure from Trump on Fed Chair Powell, and even speculation about his potential dismissal that added to market unease. In many ways, this is exactly the kind of environment where bitcoin should shine.
The decoupling from traditional risk assets is still very early and fragile, but for those watching crypto markets 24/7 (guilty), the shift is palpable. That said, we haven’t yet seen confirmation in the data. Our preferred correlation measure—a 90-day rolling window—currently shows rising correlations between bitcoin and US equities.
Grand Experimentation, Consequences Unknown
The recent bout of market instability caused by geopolitical turmoil and economic uncertainty stemming from the administration’s action has caused investors to question long-held beliefs about the US’s role in broad spheres of influence – geopolitics, financial markets, military defense, and foreign trade and role of the US dollar, to name a few.
At the core of investor concerns is the question: What if the US and the dollar aren't the benchmark for “risk-free” investing? While the answer may still be that “the US is still the best house on a bad block,” that answer is becoming increasingly uneasy for many investors. The US is undergoing some profound experimentation on several fronts simultaneously—trade, immigration, fiscal spending (DOGE), and deregulation—and the impacts, while we might have some guesses as to what they might be, have yet to be felt.
Investors Should Expect Structurally Higher Volatility
Complicating matters for investors has been the on-again, off-again approach to some of these policies, on top of the inherently difficult prediction of their outcomes. This makes the ability to make long-range planning decisions for businesses and individuals a challenge, and it makes market prognostications even harder. While we generally shy away from those types of things, we are certain that the next four years will be accompanied by structurally higher volatility. The data shows a recent jump in equity volatility (VIX index), foreign exchange rates (CVIX index), and interest rates/bonds (MOVE index), and while we expect them to recede from their recent highs, we do not expect them to return to pre-administration levels.
Investors Hunt for Haven Assets
Against this backdrop, it should come as no surprise that investors have been on the hunt for investment alternatives not impacted by the global machinations at play, so-called “haven assets.” Historically, cash (the US dollar), bonds (US Treasuries), the Swiss Franc, and gold have fulfilled that role, with bitcoin edging in on some of that territory. Unfortunately, when one of the main sources of instability and risks comes from a shaking of faith in the US as an institution, it removes US Treasuries and the US dollar as potential options. This is what we have seen in the data, too. Since the election, inauguration, and the rollout of 'reciprocal tariffs' on 'Liberation Day,' both the US dollar and long-term US Treasuries have underperformed, as reflected in the data.
Gold and the Swiss Franc (CHF) have been the consistent winners (CHF shows strength against the EUR, GBP, CNY, and CAD as well) across all time frames. But what is interesting to us is that since “Liberation Day” on April 2nd, a new picture of haven assets is starting to emerge, one which includes bitcoin. Bitcoin has acted less like a liquid levered version of levered US equity beta and more like the non-sovereign issued store of value that it is.
Asset Performance Illustrative of Investor Exodus of US Exposure
A more comprehensive analysis of asset class returns since key political events since the election illustrates a stark takeaway – investor avoidance of procyclical and US-exposed assets. For equities, the styles that have fared well on a relative basis have either been non-US stocks (developed and emerging markets) and defensive US stock sectors (Consumer Staples, Utilities, Real Estate), or stocks that should benefit from deregulation (Financials), while “riskier” styles and procyclical industries have fared relatively poorly (Small Cap, Energy, Consumer Discretionary). Fixed income has generally fared better than stocks, no surprise, but classes like TIPS for their inflation protection, international bonds, and short-term US Treasuries stand out as relative winners. Munis and long-duration, US Long Term Treasuries generally fared poorly. In commodities, stores of value, notably gold, have outperformed energy and the general “commodities” buckets, which include energy, agriculture, as well as precious metals. In foreign exchange, the US dollar’s decline is notable, especially in comparison to the appreciation in the Swiss franc. Again, this all paints the picture that investors are seeking alternatives to the US hegemony, whether that is stocks, bonds, FX, or commodities.
Investors Have Few Non-Sovereign SoV Options
With investors on the hunt for stores of value, we thought it might be helpful to compare the size of some of these assets and asset classes. There was also reporting this week that Bitcoin had “surpassed Google in market cap,” which is not our favorite comparison, to put it mildly. Stock market caps represent the equity value of corporations, with employees, business operations, and financials. Bitcoin is more like a currency, one issued programmatically rather than by a sovereign nation, or a commodity, like gold, and unlike stocks, bonds, and other cash-flow investments, has no cash flow to discount to arrive at a theoretical value.
But for investors truly seeking to exit the global machinations of geopolitics and their associated economic impacts, there are shockingly few large and liquid options that are available. The following table shows some options with some important caveats. First, all fiat currencies are tied to sovereigns, and even the Swiss Franc, long considered the haven currency of the world, has been at times subject to the whims of interventions of the Swiss National Bank (the 2015 intervention comes immediately to mind. Second, the size of silver is likely much smaller than the $1,870B market shown, as much of the silver mined over time has been lost or is irrecoverable during chemical and industrial processes. Finally, when it comes to crypto, bitcoin is the only top asset listed that solely focuses on monetary or store of value use cases, while the others are better described as the fuel for decentralized application platforms. Use of other cryptocurrencies as stores of value would be akin to the difference between gold and an industrial (and economically sensitive) metal, like copper, and likely result in unexpected and unwanted results.
Putting it all Together
Growing uncertainty in the geopolitical and economic landscape, particularly around the future role of the United States, is shaking long-held beliefs about safety and stores of value. With few globally accessible, large, and liquid alternatives outside the traditional financial and banking systems available, investors seem to be increasingly turning to bitcoin. Though the connection is still tentative, bitcoin appears to be fulfilling its original promise as a non-sovereign store of value, designed to thrive in times like these.
It feels like we are only at the beginning of this recognition among traditional market participants—an understanding that Bitcoiners have long championed. In that sense, this trade still seems early. Much like recent bout of inflation and regional banking crisis of 2023, western investors are now being forced to grapple with macroeconomic and political risks they’ve rarely had to consider before, raising a critical question: What if the U.S. itself is no longer the "risk-free" investment the world has long assumed it to be?
Market Update
Bitcoin rallied this week, finishing up 10.3%. It felt, particularly on Monday when the "US-risk-off trade" was in effect and bitcoin surged, that bitcoin was finally being recognized for what it is—a non-sovereign store of value. US equities also rallied on the week, but only after President Trump eased concerns that he might try to remove Fed Chair Powell. With the immediate "Powell risk" seemingly off the table, although Trump still wants rates lower, and tariffs appearing more narrow and less punitive, it’s no surprise that U.S. stocks breathed a sigh of relief.
Gold ended the week higher as well, though only marginally, as some investors appeared to use the recent rally as an opportunity to take profits. Oil, meanwhile, continued to struggle, pressured by both demand-side economic concerns and persistent supply growth.
Despite bitcoin’s recent gains, there are few signs of the market overheating. The onshore basis for CME futures rose gradually across the curve, and offshore perpetual swap funding rates, often negative through April, turned slightly positive, suggesting traders have pulled back from their most bearish positioning but have yet to turn meaningfully bullish. Options markets tell a similar story: with more call overwriting than upside call buying, sentiment points to a recovery that, if it continues, is still in its early stages.
Important News This Week
Investing:
Sovereign Wealth Funds Bought Bitcoin as Retail Pulled Back: Coinbase Exec - Decrypt
Trump Media, Crypto.com, and Yorkville America Digital Finalize Agreement for ETF Launch - Trump Media & Technology Group
CME Group to Expand Crypto Derivatives Suite with Launch of XRP Futures - Source
Regulation and Taxation:
Federal Reserve Board Announces the Withdrawal of Guidance for Banks Related to Their Crypto-Asset and Dollar Token Activities and Related Changes to Its Expectations for These Activities - Federal Reserve Board
Incoming SEC Chair to Weigh More Than 70 Crypto ETF Filings—Including Solana and XRP - Decrypt
Commission Livid as ECB Warns of Crypto Apocalypse Under Trump - Politico
Companies and Industry:
Tether, SoftBank Group, and Jack Mallers Launch Twenty One, a Bitcoin-native Company, Through a Business Combination with Cantor Equity Partners - Cantor Equity Partners
Over $380M Worth of Crypto Stolen During Bybit's $1.4B Hack Has Gone Dark - CoinDesk
How Some Bitcoin Mining Firms Try to Game U.S. Customs Controls - CoinDesk
North Korean Cyber Spies Created U.S. Firms to Dupe Crypto Developers - Reuters
Upcoming Events
May 7 - FOMC interest rate decision
May 13 - April CPI data
May 27 - Bitcoin 2025 conference
Jul 2 - Final SEC deadline for decision on GDLC ETF conversion
Jul 8 - 90-day tariff suspension ends
Jul 22 - EO Working Group report deadline
