Bitcoin turns less volatile than stocks as tariffs wreak havoc
Unlike many of the companies whose shares make up major US equity indexes, digital tokens are not impacted materially by the tariffs
[NEW YORK] US President Donald Trump’s onslaught of tariffs on US trading partners has triggered the stock market to swing more wildly than the oldest cryptocurrency, a rare reversal of historical volatility trends.
The divergence is a departure from the long-time correlation between Bitcoin and stocks, in which the digital asset typically experiences larger price swings. Unlike many of the companies whose shares make up major US equity indexes, digital tokens are not impacted materially by the tariffs.
A moderate level of leverage coupled with tailwinds from increasingly crypto-friendly regulations in the US has been seen by market observers as contributing to the resilience in Bitcoin, with low premiums over the Bitcoin futures and a muted uptick in options to ramp up short-term protection.
“This week’s most remarkable feat is that BTC has not crashed harder,” Vetle Lunde, head of research at K33. “BTC has strengthened against equity indices since the Apr 2 tariff announcements, a highly unusual observation considering the immense de-risking occurring over the past six days.”
Bitcoin’s realised volatility over the past 10 trading sessions has been 43.86, less than the reading of 47.29 for the S&P 500 and 51.26 for the Nasdaq 100 Index. While crypto options market has seen an increase in short-term volatility, traders still remain bullish in the long term.
“Overall, implied volatility has moved higher as short-term repricing influences have taken hold, with significant shifts in risk reversals pointing to heightened downside protection demand,” said Nikolay Karpenko, senior client relationship manager at crypto market maker B2C2. “Despite the more significant increases in short-dated vols, the longer-dated structure remains relatively stable, with the focus on managing tail risk through protective positions.”
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That is due in part to the low leverage in the crypto derivatives market. Digital assets plummeted in the previous months as some investors began rotating out of the risk-on assets. Bitcoin along with other tokens, saw its largest liquidation across the market this year, according to data from Coinglass.
“BTC has performed well in relation to the equities market, in part due to less leverage in BTC going into liberation day after having experienced multiple violent sell-offs over the past month,” said Ravi Doshi, co-head of markets at prime broker FalconX. “Last week the basis was below Fed funds.”
The basis, which is the difference between the price of a futures contract and spot, has remained low with the premiums at 6.3 per cent, reflecting cautious positioning while open interest remains flat at 11-month lows, according to K33. The basis trade has been popular among the US investors who can profit from the price gap between the Bitcoin futures on the CME and shares of Bitcoin-backed exchange-traded funds.
Trump announced the US plans to impose hefty tariffs on imports from some of its largest trading partners, such as the European Union and China, which in return has unveiled countermeasures, including retaliatory tariffs. The move has sent shock waves across the global markets, with the S&P 500 and Nasdaq 100 seeing the worst losses since March 2020.
“Bitcoin bulls should be inspired by the performance,” Matt Hougan, chief investment officer at Bitwise Asset Management, said Once market volatility stabilises, Hougan predicted that Bitcoin will return to all-time highs.
The largest cryptocurrency was down about 2 per cent to US$77,500 on Tuesday (Apr 8). It reached a record of around US$109,000 on Jan 20, the day Trump was inaugurated for a second term. BLOOMBERG
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