Another "Covid Crash" Risk for Bitcoin: Price Under Threat! - Coin Bulletin

Increasing market volatility and high leveraged transactions in the Treasury market raise the risk of a new "Covid crash" for Bitcoin (BTC) and other assets.

The recent increase in market volatility poses serious risks to Bitcoin and cryptocurrencies. In particular, the risks associated with the "basis trade" in the US Treasury market may lead to a new collapse in the cryptocurrency market.

Hedge funds that evaluate the small price differences between treasury futures and securities and trade with high leverage ratios like 50 to 1 are at significant risk. This trading had exploded severely at the onset of the pandemic in March 2020, and during that time, BTC had lost around 40% of its value. Currently, a similar increase in volatility could trigger these leveraged trades again.

Robin Brooks, chief economist of the International Finance Institute, stated, "When market volatility increases, highly leveraged carry trades become vulnerable to large market movements. The Treasury market collapse in 2020 is a close example of this. Such risks remain high."

As of the end of March, the base trading volume in the Treasury market has reached 1 trillion dollars. This size means that a one basis point movement in Treasury yields leads to a loss of 600 million dollars. This also indicates that interest rate hikes and volatility movements could trigger a new wave of selling in risky assets like Bitcoin.

On Friday, the MOVE index, which shows the expected 30-day volatility in the Treasury market, rose by 12% to a level of 125.70. This level is the highest value seen since November 2024. Highlighting the seriousness of the situation, the Brookings Institution advised the FED to make targeted interventions in the Treasury market.