Preface

The landscape of investment markets is undergoing a remarkable transformation. The once steady U.S. markets, led by the S&P 500, are exhibiting unprecedented volatility. Meanwhile, bitcoin (BTC), long criticized for its fluctuations, appears to be stabilizing in comparison. This article explores the reasons behind this dramatic shift, including the impact of aggressive trade policies initiated during President Donald Trump's administration. We will delve into how these policies are redefining the relationship between traditional equities and cryptocurrencies, thus altering investor strategies in an increasingly volatile economic environment.

Lazy bag

Bitcoin's volatility is currently lower than the S&P 500's, challenging traditional investment assumptions. Investors now face critical decisions on trust and risk management.

Main Body

In recent years, Wall Street has regularly criticized bitcoin for its notorious fluctuations. However, the tables have turned in the wake of President Donald Trump's proactive trade measures. Such policies have significantly impacted the appeal of U.S. based assets, most notably those tracked by the S&P 500—a benchmark for the stock market.

Following the announcement of tariffs on April 2, often referred to as 'Liberation Day', the realized seven-day volatility of the S&P 500 surged dramatically from an annualized 50% to a staggering 169%, according to TradingView. This volatility level has eclipsed any since the coronavirus-induced market turmoil in 2020. In stark contrast, the realized seven-day volatility for bitcoin doubled to 83%, yet remains substantially below the S&P 500, suggesting its potential evolution as a low-beta hedge against equities.

Bitcoin's volatility is not only lower on a shorter scale but also appears less volatile than the S&P 500 on a 30-day basis. This intriguing dynamic led James Butterfill, Head of Research at CoinShares, to question investors' trust toward assets heavily influenced by political dynamics versus the mathematical resilience of bitcoin’s framework.

The escalation in equity market volatility has had a tangible impact. The S&P 500 declined by 14% in under two months, mirroring fears surrounding trade conflicts that are now materializing. Equally affected are the Nasdaq and Dow Jones Industrial Average, with global equity markets experiencing similar escalations.

Typically, when markets show such risk aversion trends, investors seek refuge in Treasury notes, considered the bedrock of the global financial system, alongside the U.S. dollar, the global reserve currency. However, recent activity since last Friday indicates a shift; investors have been offloading Treasury notes rapidly, causing bond yields to rise significantly and pushing the dollar index down.

This market behavior is somewhat abnormal for the U.S. Normally, rising bond yields coincide with currency appreciation, unless market concerns over national debt become predominant, leading investors to pull funds from bond markets. The resulting fluctuations in yields and depreciating currency played out similarly in the Global South in 2018.

As Evercore ISI noted, similar patterns were evident in the UK during the 'Truss debacle', yet it's rare for the U.S. This trend marks only the fifth occurrence over the past three decades where the dollar depreciated beyond 1.5% while the 30-year yield rose more than 10 basis points. This highlights declining confidence in U.S. growth prospects and decreasing the allure of dollar assets as a global reserve amid erratic decision-making.

Key Insights Table