Bitcoin (BTC) forms new pattern of movement, detaching from risk assets

A recent report by the New York Digital Investment Group (NYDIG) revealed a significant shift in Bitcoin's market behavior.

A recent report by the New York Digital Investment Group (NYDIG) has highlighted a significant shift in Bitcoin's market behavior, forming a new pattern of movement that is not in line with risk assets.

The report, titled "The Fabric of Financial Value: Decoding a New Macro Regime," delves into the broader market trends and their implications for Bitcoin. At a time when the S&P 500 index was showing declines and traditional safe-haven assets, such as the U.S. dollar and 10-year Treasury bonds, were also losing ground, Bitcoin displayed strong gains.

"Since ‘Liberation Day’ on April 2, a new picture of defensive assets has begun to emerge that includes Bitcoin," the report stated. "The first cryptocurrency has begun to behave more like the non-sovereign store of value that it inherently is, while other assets that were previously perceived as defensive, such as the U.S. dollar and 10-year Treasury bonds, have shown weakness."

The New York Digital Investment Group's analysis shows a general trend - investors avoided pro-cyclical and U.S.-related assets. Among equities, either non-U.S. equities (developed and emerging markets) or defensive sectors of the U.S. equity market performed relatively well. Meanwhile, fixed income instruments performed better than equities, and gold outperformed commodity baskets, including energy and agriculture.

"There are surprisingly few large and liquid options for investors who wish to avoid the impact of these geopolitical factors," the report noted. "All fiat currencies are ultimately linked to sovereign states, and even the Swiss franc has at times been subject to intervention by the Swiss National Bank."

The report's authors further explained that several cryptocurrencies are serving distinct functions in this evolving landscape. Among the major cryptocurrencies, only Bitcoin is focusing entirely on monetary or stored value functions, while other cryptocurrencies are better described as fuel for decentralized application platforms.

"The next four years will be accompanied by structurally higher volatility," the analysts stated. "Data shows a jump in volatility in equities (VIX index), currencies (CVIX index), and interest rates/bonds (MOVE index), and it is unlikely that these indicators will return to previous low levels."

This heightened volatility, a direct consequence of the war in Ukraine and the subsequent economic uncertainty, has caused investors to question the reliability of the US dollar as a benchmark for "risk-free" investing.

The U.S. is currently engaged in a grand experiment with several initiatives unfolding simultaneously - in trade, immigration, fiscal spending, and deregulation - the results of which are yet to be determined.

"The common denominator among these initiatives is an attempt to alter the fundamental economic and political equilibrium in order to generate new solutions to pressing issues such as income inequality, low interest rates, and a perceived decline in U.S. hegemony," the New York Digital Investment Group analysts explained.

"However, despite the urgency, it is unclear whether these measures will succeed in the long term, and their short-term impact has been minimal. In fact, several of these initiatives have stalled or faced setbacks."

These endeavors are part of a broader theme in which established systems and institutions are being questioned and new paradigms are emerging in response to both perceived and real crises. This theme is also evident in the cryptocurrency sector, which is spurring innovation in decentralized finance and blockchain technology.

The report highlights the shifting roles of traditional and crypto assets in a turbulent market, presenting a unique perspective on the evolving fabric of financial value in the post-pandemic, war-torn world.