“That’s Our Two Satoshis” - Bitcoin’s Relative, Short-Lived Outperformance

Jeff Dorman, CFA
Apr 7, 2025

Thats Our 2 Satoshis Logo

Screenshot 2025-04-07 at 9.42.44 AM
Source: TradingView, CNBC, Bloomberg, Messari

 

Is Bitcoin Acting Rationally?
The S&P 500 fell 9% for the week and capped the worst two-day plunge since March 2020. The move in equities has shed about $6 trillion in value so far from equity investors, with losses now 2.5x the size of the entire digital assets market (plus another ugly Sunday night futures session indicating a lower open as I write this). The last time the market dropped 9.5% in two days, the Fed unleashed a multi-trillion bailout of the economy, including $500 billion in QE, $1 trillion in daily repo, and tens of billions in junk bond ETF purchases. The VIX spiked nearly 40% higher Thursday and ended the week at 45.3, among the highest weekly closes in history. These moves in the VIX and the S&P are historically great buying opportunities, but prognosticators are focused on what’s happening today, and today, things look bleak.  Just about every major bank, which all had new ATH price targets for equities at the start of the year, has lowered their targets. Goldman Sachs, for example, cut its S&P 500 target for a second time this month. Strategist David Kostin expects the index to end the year around 5,700, making his forecast among the lowest on Wall Street, with trading specialist Richard Privorotsky stating, “We simply were not taking this [tariff] threat seriously because it seemed somewhat illogical to attempt to inflict this amount of economic harm on your own economy”.   Needless to say, there is blood in the streets. 
 
Source: Zerohedge
 
The big story (or really only story) in digital assets was how well Bitcoin performed, relatively.  According to Coinbase, the events of last week triggered a 4.6 standard deviation down move in the S&P 500 relative to its 65-business day average, but only a 1.4 standard deviation move in Bitcoin.  
 
 
There are many plausible reasons for this stark outperformance by Bitcoin:
 
  1. Digital assets have already absorbed much of the pullback in risk appetite over the last two months, and expectations of return distributions in crypto have started to shift more positively.
  2. A large buyer like Michael Saylor, or Gamestop, is in the market buying, artificially inflating the price in the short-term.
  3. The drag on stock prices reflects the tariffs’ direct impact on corporate earnings, particularly for companies reliant on global supply chains, and none of this affects digital asset protocols. 
  4. No investors actually care about crypto when the assets that 99% of investors own (stocks/bonds/RE) get crushed.  Weeks like last week remind crypto investors how little this asset class makes up of total wealth. A -10% equity market drop is much more impactful to most investors’ portfolios than a -50% move in Bitcoin.
  5. Bitcoin is finally getting credit for being part of the solution to needless government and bank debacles.
  6. It is pointless even to write because BTC will retrace next week and catch up to the carnage elsewhere.
While #1 is probably at least partially true, and #2 is likely to be untrue, the rest are a little more subjective.  We’ve been arguing that #3 is true for years, but I don’t believe most investors think this way.  Longer-term, recessions and tariffs logically have no impact on the crypto market, but that’s fairly irrelevant when the market is in fear mode.
 
So let’s start with #4.  It’s no secret that crypto has become more sensitive to macro factors, and last week’s outperformance was a bit shocking.  I really don’t believe that crypto investors are all of a sudden the smartest macro investors on the planet, considering most didn’t even know what jobless claims and PPI were prior to 2022.  So it is far-fetched to believe that crypto markets front-ran this move lower a few months ago based entirely on the expectations of tariff wars and recession fears. And I definitely don’t believe the equity / macro world is watching crypto for a sign of what to do next, so it is equally unlikely that crypto investors are setting the tone for the global markets.  I do, however, believe that Bitcoin is now a much bigger vehicle for big macro funds to push around. This would explain why we get zero color from any crypto OTC desks (because they don’t have any anymore), and why crypto is all of a sudden a reliable leading indicator (like moving 5-15% lower Sunday morning long before equity futures opened later that evening).  So while most investors largely ignore BTC, there are a handful of large TradFi funds that realize they can dominate BTC trading in a way that no one has ever attempted before, causing a lot of volatility, but not necessarily consistent volatility.  For example, last week, when equities and bonds were blowing up, their attention rightfully shifted away from crypto until the TradFi markets closed over the weekend, and crypto was once again the only game in town.
 
As per #5, I’ve written this 100x, but it bears repeating once again. Bitcoin is NOT, and never has been, a market hedge.  It is a hedge for the lack of trust in local governments and banks.  This market selloff is largely due to a loss of trust in global governments, sparked by U.S. President Trump, and made worse by retaliation responses from other governments.   We wrote this the following 8 months ago, and it is still true: 
 
“I know I’ve written this same thing for five years, but I guess I must write it again.  Bitcoin goes up when people lose trust in their local governments or banks, not when markets tank on other risk factors. Bitcoin rose during the March 2023 regional banking crisis, the Canadian trucking standoff, the Cypress banking crisis, the 2019 Chinese tariffs, and every time Argentina or Turkey currencies debase.  There is a common theme here – Bitcoin rises like a credit default swap when the risk of governments or banks increases. 
 
But Bitcoin never goes up when there is a market dislocation or geopolitical risk. Bitcoin will not protect your portfolio in a good old-fashioned fear trade.  
 
And I would argue that being a hedge to local banks and governments stealing or harming your assets is a much better story than trying to pretend Bitcoin will protect your portfolio during a market crash.
 
Many are confused about what a “safe-haven” really is. A safe-haven investment is not an asset that never goes down; a safe-haven is an investment that is expected to retain or increase in value during times of market turbulence. More literally, “safe haven” is defined as “a place of refuge or security”.  U.S. Treasuries lose substantial value when rates rise, but few argue that U.S. Treasuries aren’t a safe haven. Similarly, protecting your assets against macro factors and corrupt, overleveraged governments is a form of safe haven as well.
 
If you define what we're fleeing, Bitcoin is a flight to quality assets. But as a market hedge, it will not protect your portfolio from market dislocations.”
So even though BTC will still get pushed around in after-hours trading sessions, and #6 is definitely still in play, the real long-term value proposition of BTC may be starting to play out.
 
 

And That’s Our Two Satoshis!
Thanks for reading everyone! Questions or comments, just let us know.

 
The Arca Portfolio Management Team
Jeff Dorman, CFA - Chief Investment Officer
Katie Talati - Director of Research
Sasha Fleyshman - Portfolio Manager
David Nage - Portfolio Manager
Wes Hansen - Director of Trading and Operations
Michal Benedykcinski - Senior Vice President, Research
Alex Woodard - Associate, Research
Christopher Macpherson - Research Analyst
Andrew Masotti - Associate, Trading and Operations
Joey Reinberg, Associate, Trading and Operations
 
 
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