President Donald Trump’s trade war has introduced significant volatility to financial markets since March, prompting investors to chase assets they believe provide a hedge in this turbulent environment.

What’s clear: Bitcoin (BTC) is not one of them, much to the dismay of bullish investors who have long thought of 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.

Data from TradingView show 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 led to a staggering 245% cumulative levy on Chinese imports to the U.S., leading to Federal Reserve Chairman Jerome Powell reiterating stagflation risks on Wednesday.

The correlation of 0.80 — the maximum value is 1 — is considered 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.

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

When global markets are optimistic and commodity demand rises, the AUD typically appreciates, reflecting 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, viewing uptrends as positive signs for risk assets like stocks, and vice versa. Bitcoin, which was already emerging in a comparable role, has strengthened its position. The correlation data indicates that BTC is now as much a proxy for risk sentiment as AUD/JPY.