Rising credit spreads could signal trouble for bitcoin and risk assets

From Yahoo Finance: 2025-04-06 09:00:00

Credit spreads have widened to their highest levels since August 2024, a period when bitcoin dropped 33% during the yen carry trade unwind. The IEI/HYG ratio, a proxy for credit spreads, is spiking sharply, historically signaling falls in bitcoin and risk assets during spread expansions.

The surge in credit spreads raises the question of whether it has peaked or if more downside is ahead. Rising spreads reflect increasing risk aversion and tightening financial conditions, potentially causing trouble for risk-on positioning in financial markets.

Credit spreads represent the yield difference between safe government bonds and riskier corporate bonds. Widening spreads indicate growing risk aversion and tighter financial conditions, impacting various asset classes including bitcoin and equities.

Recent market action suggests bitcoin may be decoupling from traditional markets, outperforming equities. Some analysts even refer to it as the new “U.S. isolation hedge,” potentially acting as a safe haven or digital gold for TradFi investors amidst financial market stress.

Read more: Bond Market Could Be Bitcoin’s ‘Canary in the Coal Mine’ Signal