Bitcoin’s Price Stability Faces Threat from Potential $1 Trillion Bond Market Blowup
The cryptocurrency’s safe-haven status could be tested if bond market turbulence sparks a global rush for cash.
Published: April 6, 2025 | Updated: April 6, 2025
Key Takeaways:
- Bitcoin (BTC) has shown remarkable stability despite market turmoil triggered by new tariffs.
- However, risks in the bond market—particularly a $1 trillion Treasury “basis trade”—could lead to a sudden crash.
- A similar event occurred in March 2020, when Bitcoin lost nearly 40% during a global liquidity crunch.
Bitcoin’s resilience during recent Nasdaq volatility has fueled speculation that the digital asset may be maturing into a reliable hedge during times of economic stress. Even as global markets have struggled, BTC has remained relatively stable, hovering above $80,000.
But storm clouds are gathering in the U.S. bond market—and the fallout could extend to crypto.
What Is the Basis Trade?
At the heart of the concern is the Treasury basis trade—a highly leveraged strategy where hedge funds exploit tiny price gaps between Treasury securities and futures. According to analysts, many of these funds are operating with leverage ratios as high as 50-to-1.
In March 2020, during the early days of the COVID-19 pandemic, a similar basis trade collapsed. Investors rushed to sell virtually all assets to raise cash—Bitcoin included. On March 12, 2020, BTC plunged nearly 40%.
Fast forward to today: the size of the basis trade has doubled, now sitting at $1 trillion. A shift of just one basis point in Treasury yields could result in a $600 million swing in the value of these leveraged positions.
Could It Happen Again?
Analysts are sounding the alarm.
“When market volatility spikes—as it is now—it exposes over-leveraged trades to collapse,” said Robin Brooks, Chief Economist at the Institute of International Finance. “The risk of a major blowup in basis trades is high.”
Such an event could trigger another “dash for cash”—a global selloff where even traditionally safe or stable assets are dumped for liquidity. That includes Bitcoin.
On Friday, the MOVE Index—a key indicator of expected volatility in the Treasury market—jumped 12% to 125.70, the highest level since November 2024.
Bitcoin’s Safe-Haven Narrative in Question
Despite the risks, some remain bullish on Bitcoin’s evolving role as a macro hedge.
“Bitcoin has shown impressive resilience,” said David Hernandez, crypto specialist at 21Shares. “Its relative strength may attract more institutional investors, especially if traditional markets remain volatile.”
Still, the stability of BTC could be short-lived if a bond market disruption forces large-scale liquidations.
A recent Brookings Institution paper even urged the Federal Reserve to consider targeted interventions to stabilize the Treasury market—especially to protect funds involved in basis trading—during periods of extreme stress.
Bottom Line
Bitcoin’s moment as a financial safe haven may be put to the test. As bond market risks mount, crypto investors should be prepared for potential volatility—even if BTC appears calm for now.
Disclaimer:
This article is for informational purposes only and does not constitute financial advice. Cryptocurrency investments are highly volatile and carry significant risk. Always do your own research and consult with a licensed financial advisor before making investment decisions.
