Bitcoin’s recent outperformance amid an equity market sell-off has sparked fresh debate about its role as a potential safe-haven asset. But while BTC holds firm above $80,000, underlying risks in the bond market — particularly in the complex world of Treasury basis trades — may soon put that resilience to the test.
The Nasdaq has plunged 11% since President Donald Trump unveiled sweeping reciprocal tariffs targeting 180 countries, triggering a global wave of risk-off sentiment and retaliatory action from China. As tech stocks and traditional safe-haven assets like gold retreat, bitcoin’s steady footing is drawing institutional attention.
“Despite mounting macro pressure, bitcoin has held up impressively,” said David Hernandez, crypto investment strategist at 21Shares. “It dipped below $82,000 briefly, but rebounded quickly — reinforcing the growing view of BTC as a macro hedge. If volatility continues, institutional flows may only grow.”
That sentiment is gaining traction, with some analysts arguing BTC could emerge as a long-term haven asset if this perceived resilience turns into a self-fulfilling narrative. But beneath the surface, a familiar systemic threat may be brewing — one that echoes the March 2020 COVID crash.
A Flashback to the COVID Crash?
The source of concern lies in the $1 trillion Treasury basis trade, a highly leveraged arbitrage strategy used by hedge funds to exploit price differences between Treasury futures and cash bonds. These trades — reportedly leveraged up to 50-to-1 — contributed to the market chaos of March 2020, when a sudden “dash for cash” led to widespread liquidations across asset classes, including a 40% drop in bitcoin on March 12 of that year.
Now, with market volatility surging, fears are resurfacing.
“When volatility spikes, leveraged carry trades like the basis trade become highly vulnerable,” noted Robin Brooks, chief economist at the Institute of International Finance. “We saw this in March 2020, and the risk of a similar blowup is elevated today.”
That risk is amplified by the sheer size of the current basis trade. As of the end of March, the trade’s notional value had ballooned to $1 trillion — double its size during the 2020 crash. According to ZeroHedge, even a one basis point move in yields could result in a $600 million shift in the value of these positions.
If a sharp move in Treasury yields occurs, it could trigger forced unwinds and broad-based asset sales, including in crypto markets, as funds rush to secure dollar liquidity — just like during the COVID panic.
Volatility Spikes and Fed Watch
The MOVE Index — a key gauge of expected volatility in the U.S. Treasury market — surged 12% on Friday to 125.70, its highest level since November 2024. The spike signals growing investor anxiety around bond market dislocations.
In response to these risks, a recent paper from the Brookings Institution has recommended that the Federal Reserve consider targeted interventions in the Treasury market, specifically to support hedge funds engaged in basis trading during moments of severe stress.
As the bond market wobbles under the pressure of global trade tensions and rising volatility, all eyes will be on how risk assets — including bitcoin — hold up in the days ahead. The coming week may prove pivotal in determining whether BTC can truly withstand the same systemic shocks that once brought it to its knees.
