Bitcoin (BTC) Has Become a Risk Asset, Tracking the Aussie Dollar-Yen (AUD/JPY) Pair

President Donald Trump's trade war has introduced significant volatility to financial markets since March, prompting investors to chase assets they believe

President Donald Trump's trade war has brought significant volatility to financial markets since March, prompting investors to seek out assets that they believe provide an hedge in this turbulent environment.

What’s clear: Bitcoin (BTC) is not one of them, much to the dismay of bullish investors who have been touting the largest cryptocurrency as digital gold either as a store of value or a haven investment. The reality is that since the onset of the trade war, bitcoin has become more closely correlated with the Aussie dollar-yen pair (AUD/JPY), the foreign exchange market’s risk barometer.

According to data from TradingView, the 90-day correlation coefficient between bitcoin and the AUD/JPY pair flipped positive in late February and has since hit the highest since November 2021. The tit-for-tat tariff war between the two nations has seen a staggering 245% cumulative levy on Chinese imports to the U.S., leading to Federal Reserve Chairman Jerome Powell highlighting stagflation risks on Wednesday.

The correlation of 0.80 - the maximum value is 1 - is deemed strong, implying that the two variables, BTC and AUD/JPY, are closely related in their movements in the same direction.

In contrast, bitcoin’s 90-day correlation with gold flipped negative in late February and has since dropped to -0.80, just above the minimum -1. It means the two are closely related in their movements, but in opposite directions.

BTC, a proxy for risk

The Australian dollar, being China-sensitive and the home currency of a commodity-exporting nation, is considered a risk currency. The yen is a safe haven as Japan has been a net international creditor for decades with nearly-zero interest rates.

When global markets are optimistic and commodity demand increases, the AUD typically appreciates, which reflects a higher risk appetite among investors and the yen drops. The opposite holds true when they become risk-averse.

Traders, therefore, monitor AUD/JPY as a risk indicator, with uptrends viewed as positive signs for risk assets like stocks, and vice versa. Bitcoin, which was already emerging in a comparable role, has seen its position strengthen. The correlation data shows that BTC is now as much a proxy for risk sentiment as AUD/JPY.