Risk of a ‘Basis Trade Blowup’ Looms Over Bitcoin, Echoing the Market Collapse of 2020

Bitcoin (BTC) has maintained an impressive level of stability above $80,000, even as equity markets reel from a fresh wave of tariff-driven volatility. But beneath that calm, a growing threat from the bond market could soon rattle the entire financial system — and bitcoin may not be immune.

While the Nasdaq has plunged 11% since President Donald Trump announced sweeping tariffs on 180 nations, BTC has held its ground, dipping briefly below $82,000 before bouncing back. Its relative strength has fueled renewed optimism about its role as a hedge during periods of macroeconomic stress.

“The S&P 500 has tumbled roughly 5% this week alone,” said David Hernandez of 21Shares. “Meanwhile, bitcoin’s quick rebound highlights its increasing appeal as a macro hedge. If volatility continues, we expect institutional interest to grow.”

Online sentiment reflects that enthusiasm. Market watchers on platforms like X (formerly Twitter) have pointed to BTC’s resilience as the start of a broader shift toward its use as a long-term haven asset. But this narrative could be challenged if market stress escalates in one specific corner: Treasury basis trades.

A Familiar Fault Line Re-Emerges

The basis trade — a leveraged strategy where hedge funds bet on tiny price differences between Treasury futures and cash bonds — is once again in the spotlight. The same type of trade triggered market turmoil in March 2020, when a wave of liquidations swept across global markets during the onset of COVID-19, causing bitcoin to plunge nearly 40% in a single day.

Those trades are back — and larger than ever. As of March, the total size of the basis trade was estimated at $1 trillion, twice what it was before the COVID crash. Some funds are reportedly using leverage as high as 50-to-1, making them especially vulnerable to sharp swings in bond yields.

Robin Brooks, Chief Economist at the Institute of International Finance, sounded the alarm:
“Spikes in volatility tend to reveal hidden leverage. That’s exactly what happened in March 2020. We’re seeing similar conditions forming now.”

Even a modest one basis point shift in Treasury yields could produce a $600 million swing in these positions, according to ZeroHedge. A disorderly unwind would likely lead to forced selling across multiple asset classes — bitcoin included — as investors scramble for liquidity.

Rising Volatility Signals Mounting Pressure

That risk is becoming more apparent. On Friday, the MOVE Index — which tracks expected volatility in the U.S. Treasury market — jumped 12% to 125.70, reaching its highest level since November 2024.

The situation is serious enough that a Brookings Institution paper recently recommended targeted support from the Federal Reserve to stabilize the Treasury market and prevent a repeat of 2020-style dislocations.

For now, BTC continues to ride a wave of investor confidence. But with systemic risks quietly building, traders and institutions alike would be wise to monitor the bond market closely. The coming weeks may determine whether bitcoin’s new role as a macro hedge holds — or whether history is about to repeat itself.