Bitcoin’s Emerging Role as a Risk Indicator Rather Than Digital Gold

Bitcoin has increasingly behaved like a risk barometer, correlated strongly with the AUD/JPY exchange rate. Its correlation with gold has turned negative, signalling a shift in investor sentiment. The effects of the U.S.-China trade war contribute to this dynamic, positioning Bitcoin similarly to AUD/JPY as a measure of market risk appetite.

Bitcoin, often envisioned as digital gold, has increasingly shown characteristics more aligned with a risk barometer, particularly in relation to the Australian dollar-yen (AUD/JPY) exchange rate. As tensions from the U.S.-China trade war escalate, Bitcoin exhibits a strong correlation with AUD/JPY, validating its role among foreign exchange market participants as a measure of speculative sentiment.

Currently, Bitcoin’s correlation with the AUD/JPY rate is robust, especially amidst escalating trade tensions. Since late February, this correlation has increased significantly, reaching a high not observed since November 2021. Conversely, its relationship with gold has turned negative, evidencing that Bitcoin and gold are now moving in opposite directions.

The ongoing trade war, which has resulted in substantial tariffs on Chinese imports to the U.S., has significantly influenced financial market volatility. Investors are seeking refuge in traditionally stable assets, but Bitcoin has failed to serve this purpose, disappointing those who have promoted it as a safe-haven asset. Instead, Bitcoin has now assumed a role comparable to that of AUD/JPY, an indicator of market risk sentiment.

To clarify this relationship, the Australian dollar is considered a risk currency due to its ties to commodity exportation and sensitivity to Chinese demand. Conversely, the yen acts as a safe haven, benefiting from low interest rates and Japan’s status as a net international creditor. AUD/JPY, therefore, functions as a litmus test for risk appetite; Bitcoin has similarly become an indicator of market sentiment, with its movements increasingly paralleling that of AUD/JPY.

Omkar Godbole, the Co-Managing Editor of CoinDesk’s Markets team, emphasises that the dynamics observed reflect a fundamental shift in Bitcoin’s market perception. With his background in finance and market analysis, he asserts that Bitcoin has solidified its status as a proxy for risk sentiment rather than a digital equivalent of gold.