From Bitcoin to Bonds: Why Is Smart Money Leaving Risky Assets

They were two of the hottest investments of 2024, expected to soar during Donald Trump’s presidency. This optimism sent Bitcoin soaring above $100,000, and the price of gold towards historical highs of $3,000 per ounce, as investors rushed to gain exposure.

However, this week the market is shaken as the momentum behind the so-called “Trump trades” suddenly reverses due to concerns that both assets have appreciated too quickly. The world’s largest cryptocurrency fell by 8.5% overnight and is now down over 20% from its record high of $109,134.79, entering a bear market. On Wednesday, BTC was trading just above $89,000.

Gold prices are also declining, down 2.1% below $2,900 per ounce, marking a sharp reversal from a record high of $2,956.19 earlier in the week. On Wednesday, prices saw a slight uptick.

“This correction doesn’t necessarily mean the end of the bull market, but it is a reality check,” said Charlie Shery, head of finance at Australian crypto exchange BTC Markets, commenting on Bitcoin.

Trump’s decisive electoral victory pushed both assets to new heights, but for different reasons. BTC benefits from Trump’s pro-crypto policies, including plans to build a national reserve, while gold solidifies its position as a safe haven amid fears that tariffs threaten global growth.

While analysts remain generally optimistic about gold, they are more uncertain about the prospects for crypto following a series of blows to investor confidence. Among them is the largest crypto hack in history, targeting the Bybit exchange, and a scandal involving memecoins related to Argentina’s President Javier Milei.

This has led to liquidations worth $1.6 billion in crypto markets over the past 24 hours, rivaling the $2 billion sell-off that followed Trump’s tariffs on China earlier this month, despite hopes for their postponement.

“Confidence has been shaken, and market volatility is a reminder that everything can evaporate in an instant,” says Shery.

The online trading platform IG predicts that Bitcoin will return to its 200-day moving average of $81,000, as traders watch to see if the decline continues. Moving averages are widely used in the market as trading benchmarks that help determine the trend direction of an asset.

The Collapse of Memecoins

While Bitcoin loses nearly 8% over the past week, memecoins are hit even harder following the turmoil in crypto markets from the scandal involving the Argentine president. Milei promoted a token called Libra on X, which led to a fourfold increase in its value before crashing. Libra collapsed 84% from its peak last Tuesday.

The saga adds to heavy losses for investors in Trump’s token, which is down 82% from its January record. Melania Trump’s coin, launched a few days after the president’s, has collapsed 93% from its peak.

The loss of confidence in memecoins is illustrated by a 15% drop over the past week in the Solana token—a network that became popular among memecoin developers due to its low fees and fast transactions.

The sell-off in the crypto sector reflects a broader withdrawal from risk assets, triggered by a series of disappointing economic data in the U.S. This has led to the largest four-day drop in the Nasdaq 100 since September and raised the CBOE volatility index (known as the “fear index”) to its highest level in a month.

Investors are flocking to bond markets, resulting in five consecutive days of declines in yields on 10-year Treasury bonds. However, this shift to safer assets is not translating to gold, which typically appreciates when bond yields fall.

This has prompted Citi to take profits on half of its long positions in the precious metal—one of the bank’s most successful investments of 2023—citing several troubling signals in the sector.

“The combination of good news (falling bond yields), bad prices, market oversaturation, and overly bullish sentiment warrants some caution,” warned Citi analyst Dirk Weller in a note to clients.

Despite this caution, gold has still risen over 12% this year, extending its 27% increase from 2024 as traders buy the metal in response to Trump’s aggressive trade policies that threaten to reignite inflation and slow economic growth.

Citi stated that despite its caution, it still favors gold, given the sustained buying from central banks in emerging markets diversifying their currency reserves and moving away from the U.S. dollar.

Last week, Goldman Sachs raised its price forecast for gold to $3,100 per ounce. State Street Global Advisors, one of the largest investors in the world, also stated that prices could reach that level this year.