Crypto News: The Hidden Driver Behind Crisis Hedges

Since the pandemic investors have experienced three mini crises and each time, they took refuge in a different corner of the market to offset losses in risk assets. Choosing an effective hedge depends on understanding the nature of the shock — particularly how it reshapes inflation expectations.

The US regional bank crisis in March 2023 raised deflationary risks, favoring Treasuries.
Donald Trump's reciprocal tariffs shocked markets in April 2025, sparking inflation fears. Treasuries tumbled while gold soared. The dollar and other US assets, usually a refuge in global crises, also suffered due to the prospect of retaliation.
The war on Iran shows that the dollar still has haven appeal while there are limits to gold as a hedge. US risk assets have outperformed their global peers, demonstrating all inflationary events aren't created equal.

Inflation versus deflation

The 2008 financial crisis provided perhaps the textbook case of how safe assets perform to mitigate losses. When the subprime mortgages triggered a house price crash across multiple countries and threatened the global banking system, investors flocked to the safety of Treasuries. The dollar also soared even though the crisis originated in the US.

A crisis that threatens to destabilize the financial system is implicitly deflationary. Banks, wounded by credit writedowns and shrinking capital buffers, restrict credit in a way that potentially creates financial distress, limits economic activity and in turn triggers more losses in a downward spiral. Ultimately, the economy suffers and heads into a recession. It's a scenario that favors most traditional havens, even gold.

Gold has no counterparty risk

We saw those same fears pop up again three years ago when Silicon Valley Bank collapsed in the biggest US bank failure since 2008. The lender's downfall threatened to engulf other financial institutions, echoing the 2008 playbook with Treasuries rallying.

What's interesting is that gold — typically an inflation hedge — was also the standout currency haven, rising as it did in 2008. The precious metal benefits from a decline in real interest rates as well as the fact that it's an asset that has no counterparty risk. The collapse of Credit Suisse just before risks in US regional banks flared up raised the specter of global contagion, turning gold into the ultimate hedge regardless of the inflation outlook.

The tariff shock created US-specific risk

When Trump unveiled shockingly steep global tariffs in April 2025, an entirely different set of factors came into play. There was no immediate risk of a credit event or financial contagion. The risks involved global supply constraints and rising costs, similar to what we saw in the early days of the pandemic. The prospect of retaliatory tariffs from US trading partners also raised for the first time US specific risks in what was labeled a 'Sell America' trade.

Given that US assets had higher valuation multiples, they were seen even more prone for a selloff. As they fell in tandem, the dollar and Treasuries suffered, too. Gold rallied.

Iran is a different inflationary story

The market's response to the Iran war has been quite different. Treasuries have performed poorly as inflation is again threatening to rise. But the dollar has reclaimed its haven status while gold has put in an uneven performance, losing value since hostilities began. Even US equities, while mired by uncertainties around artificial intelligence and signs of trouble in private credit, have performed better than their global peers.

What does this episode tell us about where to seek refuge then? I have three main conclusions.

Traditional havens like gold are attractive only insofar as a recession — or even just an earnings recession — is likely. The dollar benefits both from rising yields to combat inflation risk and the relative resilience of the US economy compared with global peers. That gives US assets, with the exception of Treasuries, an edge for now.
Treasuries have consistently shown they cannot act as a counterweight to equity losses if the risk is inflation. We know from the 1970s how devastating inflation can be, eroding the real value of both stocks and bonds. Avoid Treasuries if the risk is inflation.
If this crisis drags on, recession risks will increase, making gold the best counterweight to equities given Treasuries will lose value. The earnings recessions of the late 1970s and the soaring price of gold is a good example of why the precious metal looks more attractive if inflation persists and earnings get hit as a result.

One word on crypto. Bitcoin hasn't done poorly at all here. The cryptocurrency is higher now than before the war started. That's not because of haven appeal though. Bitcoin is simply tracking movements in the Nasdaq 100, mirroring moves in tech stocks. The fact that it has rallied in recent days owes more to its fall from over $125,000 in October than any haven bid.

If you're looking for safety during a crisis, weigh the risks on inflation and the relative impact across economies. When inflation is the big risk, you're much better off with the hard precious metal and possibly the dollar. In a deflationary scenario, US Treasuries are a bet that beats most. The 'Sell America' trade is alive only in a very narrow US-centric event, and these are few and far between.

Things on my radar

Positive reactions to Oracle's results and Amazon's latest debt binge show that both AI and Iran angst are fading.
That's not just because of signals from Trump, but a benign CPI report and the fact that Europe (and Asia) have more to contend with.
Private markets are where fears persist. Look at what Apollo and JPMorgan are doing.