In early April 2025, the U.S. imposed sweeping new tariffs on Chinese imports—some exceeding 100%—with Beijing swiftly retaliating. The result: a global market correction, evaporating investor confidence, and a breakdown of conventional “safe haven” behavior. Equities plummeted, the S&P 500 fell over 12% YTD, and tech stocks nosedived nearly 18%. But unlike previous crises, U.S. Treasurys and the dollar failed to offer refuge.
Historically, market stress triggers a flight to Treasurys. This time, however, Treasury yields spiked and prices plunged, signaling a loss of faith in America’s fiscal outlook. The dollar also weakened sharply, down roughly 9% YTD. Meanwhile, gold soared to new highs as the preferred safe-haven asset, and commodities diverged: industrial inputs sank on growth fears, but gold, seen as a hedge against inflation and uncertainty, surged.
The old playbook—sell stocks, buy Treasurys and the dollar—has broken down. The market is signaling that the U.S. is not a safe harbor in this storm. The next sections explore why.
Supply Chain Disruptions and the Resurgence of Cost-Push Inflation
Tariffs directly raise input costs for American companies reliant on Chinese imports. U.S. firms in automotive, electronics, and retail now face 25–100% cost increases on key materials. A Yale analysis estimates the effective consumer tariff rate has surged to 28%—the highest in over a century.
This shock resurrects cost-push inflation. March 2025 CPI was 2.4%, near the Fed’s target. But economists project CPI could spike to 4%+ by summer. Core inflation will likely lag but remain sticky. Input cost hikes are feeding through to producer and consumer prices, exacerbated by shipping delays, double-ordering, and strained supplier networks.
This is 2020’s supply chain crisis, reloaded—only this time it’s policy-induced. Semiconductor prices, for instance, jumped instantly after tariffs were announced, despite temporary exemptions.
Paradoxically, oil prices have fallen on global slowdown fears, which slightly offsets rising costs elsewhere. Still, the net effect is stagflationary: rising prices with weakening growth. The Federal Reserve now faces a tightrope walk, as explored next.
The Central Bank Dilemma: Stagflation Risk vs. Mandate Duality
The Federal Reserve is trapped. Its dual mandate—price stability and full employment—is under siege from both ends. Tariff-driven inflation is surging just as growth slows. GDP forecasts for 2025 have been slashed to 0–0.5%. Job growth is stalling, and unemployment is expected to rise.
Market-based inflation expectations have jumped, with 1-year breakevens nearing 3.4%. Cutting rates risks fueling inflation. But holding firm or hiking could deepen a downturn. Fed Chair Jerome Powell has opted for a cautious pause, signaling policy is already restrictive.
Politically, the situation is fraught. President Trump has called Powell a failure and is pressuring the Fed to cut. Simultaneously, foreign investors are growing wary of U.S. debt, as deficits widen and Treasury auctions struggle. Meanwhile, global central banks are diverging: China is easing; Europe is cautiously dovish; and Asia is pivoting to protect exports.
The Fed’s pause is precarious. A misstep could let inflation entrench or plunge the economy into recession. The market is already pricing in both outcomes—yields are surging at the long end, while short-term expectations hint at eventual cuts.
Treasuries Under Fire: Yield Surge and Price Collapse Explained
Treasurys have suffered their steepest price drop in a decade. The 10-year yield soared from below 3.5% in March to above 4.5% in April. Long-duration bonds saw double-digit losses. Why?
- Rising Inflation Expectations: Investors demand higher yields to offset inflation. Breakeven inflation rates surged, pushing real returns negative.
- Ballooning Supply: With deficits rising and the Fed out of the picture, Treasury issuance is spiking. More bonds, less demand = lower prices.
- Foreign Selling: China has reduced Treasury holdings for years, but speculation about a “warning shot” sale spooked markets. Even small sales have an outsized psychological effect.
- Loss of Faith: Treasurys failed to rally during the crisis. This breaks their historical role as hedges. The 60/40 portfolio model is under scrutiny. Demand for Treasurys has thinned, even from insurance and pension funds.
The curve is steepening—short rates anchored by Fed caution, long rates rising from inflation fears. Treasurys, once the safe choice, now look vulnerable.
Safe Haven Rethink: Gold’s Revival and Treasuries’ Fall from Grace
Gold has stolen the spotlight in 2025. Prices hit $3,343/oz in April—up ~27% YTD. Central banks are buying record amounts of gold. Investors are ditching bonds and the dollar for the yellow metal, as it regains status as the ultimate hedge.
This is a reversal. For decades, Treasurys and the dollar were the go-to safe havens. But as inflation erodes bond returns and political risk clouds the dollar, gold offers neutrality and scarcity. The U.S.’s weaponization of finance has spooked reserve managers. After sanctions on Russia and tariffs on China, diversification away from USD is accelerating.
Retail investors and ETFs are also flooding into gold. The yellow metal is outperforming equities, bonds, and even cash.
In this vacuum, some investors are eyeing a new contender: Bitcoin. Let’s explore how BTC is adapting to the macro moment.
Bitcoin’s Evolving Role: From Speculation to Systemic Hedge
Bitcoin has matured. In January 2025, it hit $109,000—an all-time high—fueled by the 2024 halving, ETF inflows, and rising adoption. After an April dip alongside risk assets, it rebounded to ~$90,000. The resilience has investors taking it seriously as a macro hedge.
Here’s why Bitcoin is gaining ground:
- Inflation Hedge: With a fixed 21M supply, Bitcoin is structurally disinflationary. As fiat loses purchasing power, BTC becomes more appealing, especially to digital-native investors.
- Distrust in Institutions: Bitcoin offers independence. Amid fiscal uncertainty and geopolitical risk, BTC appeals as a global, decentralized asset.
- Institutional Inflows: ETFs are driving adoption. Funds now hold ~$65B in BTC. Pension and endowment allocations are being explored. Even U.S. officials established a BTC reserve—an unprecedented nod of legitimacy.
- Technical Structure: The post-halving supply crunch, rising HODLer activity, and declining exchange balances suggest supply-side support. Analysts project upside targets of $120k–$150k in bullish scenarios.
- Correlation Shift: Bitcoin’s correlation with tech stocks is weakening, while its link to gold is rising. It’s not yet a full-fledged safe haven, but it’s moving in that direction.
If Treasury yields stay high, the dollar stays weak, and inflation runs hot, Bitcoin could break out again. The $100k mark is now a technical and psychological threshold. Breaking it could open the door to a new adoption wave.
