When gold is no longer a safe haven, and Bitcoin continues to panic

Author: Zhou, ChainCatcher

In chaotic times, buying gold has been one of the deeply ingrained logics in every investor's understanding over the past few decades. However, this logic has completely failed in the past few weeks.

Spot gold has fallen for nine consecutive trading days, recording the largest weekly decline since 1981 last week, and has now erased all gains made this year.

At the same time, global stock markets have declined, the cryptocurrency market is still in panic, and industrial metals like copper, aluminum, and zinc have not been spared.

Almost all assets are being indiscriminately sold off, with only crude oil rising.

When the valuation logic of various assets collapses simultaneously, the boundary between safe-haven assets and risk assets disappears.

1. From Inflation to Recession: What the Market is Pricing

It has been nearly four weeks since the outbreak of the US-Iran war, and the market's pricing logic for this conflict is undergoing a fundamental shift.

In the early stages of the conflict, the mainstream expectation was: oil prices would rise, inflation would come under pressure, but the war would end quickly, and the economic fundamentals would not be fundamentally shaken. Following this logic, some assets maintained resilience in the early stages of the conflict.

However, the blockade of the Strait of Hormuz has continued to this day, and this expectation has begun to waver.

Under normal circumstances, this strait sees about 20 million barrels of crude oil pass through daily, but actual flow has plummeted by over 97% since the blockade. International oil prices have surged nearly 50% in just over a month, with Brent crude returning above $110 per barrel.

Investment bank Macquarie stated that if the Strait of Hormuz remains closed until the end of April, Brent crude prices could still reach $150 per barrel.

"Even in the event of a potential easing of tensions (referring specifically to Trump's statement on Monday), it is still expected that oil prices will bottom out between $85 and $90 per barrel and will quickly rebound to the $110 range until the Strait of Hormuz fully reopens."

Persistently high oil prices are transforming a geopolitical conflict into a systemic economic threat.

At the March interest rate meeting, the Federal Reserve announced that the policy rate would remain unchanged, and the dot plot indicated only one rate cut by 2026, with seven officials believing there is no room for rate cuts this year. Powell clearly stated that the room for rate cuts is very limited, and the committee even discussed the possibility of rate hikes.

According to the CME FedWatch Tool, the market predicts that the probability of a rate hike by the Federal Reserve by the end of 2026 has exceeded 30%, while the probability of a rate cut is only 6.1%. A few months ago, the market generally believed there would be at least two rate cuts this year. The European Central Bank and the Bank of England have also successively signaled the possibility of rate hikes as early as April.

Goldman Sachs in its latest report warned that the current global assets have only fully priced in the "inflation shock," while completely ignoring the devastating impact of high energy costs on global economic growth.

Once the market's blind optimism about a "short-term end to the war" is falsified, "growth downturn (recession)" will become the second shoe to drop, and global asset pricing will face an extremely violent reversal.

This is precisely the core narrative shift in the market over the past week: from "trading inflation" to "trading recession."

When growth itself is threatened, all asset classes will be repriced, which is the fundamental reason for the bloodbath in copper, aluminum, and zinc, and for emerging market indices hitting new lows for the year.

On the evening of March 21, Trump issued a 48-hour ultimatum, demanding that Iran open the Strait of Hormuz by the deadline, or it would strike and destroy all its power plants.

However, before the deadline expired, Trump posted on social media that the US and Iran had engaged in "very good and productive" dialogue over the past two days.

Iran, on the other hand, firmly denied this, stating that there had been no direct or indirect contact with the US, and that Iran's position on the Strait of Hormuz had not changed.

Iranian state media characterized Trump's statement as "psychological warfare," claiming its purpose was to manipulate financial and oil markets.

Meanwhile, the Iranian Revolutionary Guard continued to launch a new round of missile and drone strikes against Israeli and US military bases in the Middle East on the early morning of March 24. The Pentagon is also evaluating plans to deploy ground troops to the Iranian oil export hub of Khark Island.

In the capital markets, influenced by Trump's statement, US stocks rebounded last night, oil prices briefly plummeted over 10%, and gold experienced a sharp fluctuation, first falling and then rebounding.

However, Iran's denial returned market sentiment to chaos, and the capital markets briefly experienced a technical rebound, but the core contradictions remained unresolved.

2. Gold: When Safe-Haven Properties Encounter Rate Backlash

Gold's performance in this round of sell-off is the most perplexing part for the market.

According to traditional logic, geopolitical shocks should drive funds into gold. However, this time, gold not only failed to maintain its gains after the outbreak of war, but last week’s single-week decline also set a record since 1981, erasing all gains made this year.

The safe-haven property of gold has a premise that is often overlooked: monetary easing, or at least a downward trend in interest rates.

This time, the transmission chain is exactly the opposite. The war has pushed up oil prices, oil prices have pushed up inflation, and inflation has forced global central banks to turn hawkish, leading to an upward expectation of real interest rates, causing the opportunity cost of holding non-yielding gold to soar. Funds no longer need gold; they can comfortably rest in US Treasuries yielding 4.39%. The safe-haven logic of gold has been short-circuited by the logic of interest rates.

At the same time, leveraged long positions accumulated at high levels concentrated on closing positions after the expectation reversal, further accelerating the decline.

Another factor is that the market has begun to speculate that sovereign wealth funds from Gulf countries may also be participating in the sell-off, although this has not been confirmed, it is not a baseless assumption. Behind the 20% weekly plunge in gold in 1983 was the large-scale liquidation of gold reserves by oil-producing countries in the Middle East. At that time, falling oil prices led to a sharp reduction in income, forcing them to sell gold for cash.

Although the current situation is different, with high oil prices but the blockade of Hormuz preventing crude oil from being exported, Gulf countries are also facing a sudden drop in income, while also bearing the costs of defense spending and infrastructure reconstruction due to the war. But the motivation to liquidate assets is similar.

CICC's research report shows that in fact, there are many factors affecting gold prices, gold is highly volatile and is not necessarily a safe asset.

However, it is not to say that gold's long-term logic has been destroyed.

Shaokai Fan, global central bank head at the World Gold Council, stated that gold, as a tool to hedge against de-dollarization and geopolitical risks, is expected to prompt central banks that have previously been absent from the market to buy this precious metal this year.

At the same time, most institutions still maintain a high target price for gold this year, analyzing from the perspectives of the US dollar, US Treasuries, and changes in funds, some analysts expect that there will still be rebound demand for London gold in the second quarter.

However, in the current interest rate environment, gold is primarily a highly interest-sensitive asset, and only secondarily a safe-haven tool.

In a liquidity-constrained environment, this ranking is crucial.

3. Bitcoin: The Narrative of Digital Gold is Being Rewritten by Institutionalization

Bitcoin has also not become a safe haven; it has fallen alongside gold.

For cryptocurrency investors, this round of decline carries a more significant signal that deserves attention.

Bitcoin once had its own independent logic. Early supporters positioned it as "digital gold"—limited in supply, decentralized, and not subject to central bank monetary policy interference, capable of moving independently of other assets during turmoil in the traditional financial system.

This narrative was indeed partially valid in the early days of the cryptocurrency market, with Bitcoin's correlation with US stocks remaining low for a long time. However, over the past two years, the foundation of this logic has quietly shifted.

The approval of spot Bitcoin ETFs and the inclusion of BTC in the balance sheets of corporate treasuries and sovereign funds have brought institutional capital into the cryptocurrency market on an unprecedented scale. This initially drove prices up and allowed the entire industry to feel the benefits of institutionalization.

The problem is that as institutional capital enters, it also brings along the behavioral logic of traditional financial markets.

Institutions manage risk budgets, and when the macro environment deteriorates and risk appetite shrinks, their operating manual has only one rule: reduce exposure to high-volatility assets. Bitcoin happens to be among the most volatile.

In this round of decline, Bitcoin ETFs have seen continuous net outflows, with a significant increase in correlation with the Nasdaq.

Even the most steadfast Bitcoin bulls saw a 95% drop in buying amounts last week, although they increased their holdings by 1,031 BTC for a total of 762,099 BTC, the reduction in buying pace compared to before is substantial, and other DAT companies have nearly halted their accumulation pace.

At the most liquidity-constrained moments, even strategic holders are clearly exercising restraint.

Since the historical high in October last year, Bitcoin's maximum drawdown was nearly halved, and it has recently been fluctuating around $70,000. It is becoming a high beta version of the Nasdaq—rising more sharply in times of ample liquidity and falling deeper in times of liquidity contraction.

The narrative of "digital gold" may not have completely disappeared, but under a market structure dominated by institutional pricing, Bitcoin is primarily a risk asset; it must first pass the liquidity test.

Conclusion

Overall, the uniqueness of this round of asset sell-off lies in the fact that the forces triggering it act on the pricing system at the very bottom, tying almost all assets together.

The actual degree of navigation recovery in the Strait of Hormuz is upstream of all issues. Only when the oil supply gap is filled can oil prices have room to fall, inflation pressures can ease, and the hawkish stance of central banks may marginally soften. Whether Trump's negotiations with Iran make substantive progress is the most critical observation window in the near term.

The Federal Reserve's statements are the second key signal. If the situation tends to ease and the Strait of Hormuz reopens, the Fed may cut rates again within the year. If the conflict prolongs, the Fed will likely prioritize stabilizing inflation, and any marginal changes in policy narrative will directly impact the valuation logic of all risk assets.

For cryptocurrency investors, the weekly fund flows of Bitcoin spot ETFs are key indicators worth closely tracking, as positive fund flows often lead price stabilization. The trend of the US dollar index is a direct window to observe whether the global liquidity environment is improving.

Market fears are never without reason. In the current situation, understanding what it fears is more meaningful than guessing when it will stop fearing.