Bitcoin Shifts from Digital Gold to Risk Proxy as Market Sentiment Aligns with AUD/JPY
Rather than acting as the digital gold many bullish investors hoped for, Bitcoin has increasingly become a proxy for risk, confirming the views of FX market participants who track it as a measure of speculative sentiment.
The ongoing trade war initiated by President Donald Trump has introduced significant volatility to financial markets since March, driving investors to seek assets they believe can hedge against the uncertainty.
However, Bitcoin (BTC) has not served as one of these safe havens, much to the disappointment of those who have long viewed the cryptocurrency as a store of value or a refuge in times of market turbulence. In fact, since the trade war began, Bitcoin’s correlation with the Australian dollar-Japanese yen (AUD/JPY) pair—a key risk barometer in the foreign exchange market—has strengthened.
Trading data from TradingView reveals that the 90-day correlation coefficient between Bitcoin and AUD/JPY turned positive in late February and has since reached its highest level since November 2021. This shift coincided with a trade dispute that saw tariffs between China and the U.S. escalate, imposing a cumulative 245% levy on Chinese imports to the U.S. As a result, Federal Reserve Chairman Jerome Powell reiterated concerns over the risks of stagflation this week.
A correlation of 0.80—close to the maximum value of 1—indicates a strong relationship between Bitcoin and the AUD/JPY pair, showing they tend to move in the same direction.
In contrast, Bitcoin’s 90-day correlation with gold flipped negative in late February and has since fallen to -0.80, just above the extreme of -1. This negative correlation suggests that while Bitcoin and gold once moved together, they are now closely tied in opposite directions.
Bitcoin as a Risk Indicator
The Australian dollar, being sensitive to China’s economic activity and linked to a commodity-exporting economy, is considered a risk currency. Meanwhile, the Japanese yen is a traditional safe haven, as Japan has maintained its status as a net international creditor for years, with ultra-low interest rates.
When global markets are optimistic and commodity demand rises, the AUD tends to appreciate, signaling a higher risk appetite, while the yen typically weakens. Conversely, during periods of risk aversion, the AUD tends to fall, and the yen strengthens.
Traders have long used the AUD/JPY pair as a barometer for market sentiment, interpreting upward movements as signals of risk-on behavior, which benefits riskier assets like stocks. Bitcoin, which had already been showing a similar trend, has now solidified its role as a risk indicator. The latest correlation data shows that Bitcoin is now as much a proxy for market sentiment as the AUD/JPY pair.
