The big shake-up in safe-haven space: Euro steps up, cryptocurrencies move in

Mint

2 days ago

The usually sedate world of safe assets is feeling the heat from global trade, geopolitical disruptions, and shifting investor priorities. At the top, gold has held firm. But further down the pecking order, a shake-up is underway.
The US dollar and Treasuries, long seen as the ultimate refuges, are wobbling under the weight of debt worries and political drift. Meanwhile, Europe is quietly strengthening its hand, and the euro, too, may finally be stepping into a more global role. Cryptocurrencies—once considered fringe—are entering the conversation as real, if risky, alternatives.
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The safe-haven hierarchy is being redrawn. Here's how—and why—it matters.
Dollar assets: Trend reversal
The US dollar and Treasury bonds have long been considered safe assets, typically showing weak or negative correlation with other assets during crises. In a classic flight to safety, investors flock to US Treasuries, driving bond prices up, yields down, and strengthening the dollar. But recent economic turmoil has upended this pattern, casting doubt on the dollar's safe-haven status.
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Between January and May 2025, the US dollar declined roughly 9%, while Treasury yields rose by 25 basis points. Yields on 30-year Treasuries breached the critical 5% threshold following the passage of the US Congress's sweeping 'Big, Beautiful Bill" tax cuts. If the budget is truly pro-growth, as its proponents claim, it should boost the dollar. Conversely, if its expanding deficits spark inflation, as critics argue, higher interest rates would be needed, which should also support the currency. Yet, the dollar weakened regardless, signalling market scepticism about both outcomes and growing concerns over US debt sustainability.
This worry is reflected in a sharp rise in US Credit Default Swap (CDS) spreads in recent months, indicating investors see higher credit risk in US sovereign debt. The increased probability of default relative to other developed economies points to a diminished safe-haven appeal for dollar assets. Contributing factors include Moody's downgrade of US debt from AAA to AA1, a fiscally expansive budget expected to increase national debt, and mounting policy uncertainty.
Euro assets: Going global?
German government bonds, or bunds, have long been Europe's benchmark asset, but never achieved global safe-haven status. One reason is limited supply: outstanding bund stock of 1.9 trillion euro is tiny compared to $28.6 trillion of US treasuries. As a result, the available pool of safe bonds in Europe is not as deep or liquid as in the US (Italian and French government bonds not included, as they are riskier).
But that is set to change in the coming years. Germany has increased fiscal spending limits and approved 1 trillion euro in new debt for infrastructure and defence investment, paving the way for a rapid increase in bund issuance. At the same time, German and US yields have been less correlated since Trump's election, making bunds a better portfolio diversifier and hedging asset than before.
In a recent speech, the president of the European Central Bank identified three links to a complete euro investing ecosystem. These include fiscal spending to stimulate growth and attract capital, supply of safe assets to hedge capital, and widespread use of the euro in international payments.
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The last link has been elusive so far: the dollar is far ahead of the euro in global payments. Believing that trade dominance is a key factor in currency use, the EU is actively pursuing new trade alliances.
It is also pushing to develop a digital euro—a Central Bank Digital Currency (CBDC)—to boost digital payments both within and beyond Europe. If successful, this could mark a 'global euro moment," with the common currency emerging as a credible alternative to the dollar ecosystem.
Crypto assets: Mainstreamed
Cryptocurrency assets have entered the mainstream, encouraged by US President Donald Trump, who wants America to be the crypto capital of the world.
Two developments have led to greater acceptance of crypto assets. First, legal clarity on the status of crypto assets has improved. The US is on track to establish a regulatory framework for stablecoins (via the GENIUS Act). An executive order has been signed to create a strategic Bitcoin reserve. US retirement funds are now permitted to invest in crypto assets.
Second, institutional adoption has enlarged the investible pool. In particular, the launch of spot crypto ETFs by industry stalwarts such as BlackRock and Fidelity has been a game changer. Fund inflows into crypto exchange-traded products have spiked in recent weeks, driven by investors diversifying from the risks of policy flip-flops and dollar weakness.
High price volatility makes crypto assets inherently risky. Yet, the asset class is being viewed as a hedge or portfolio diversifier, especially during crises of confidence in traditional currency systems. That is because, unlike fiat currencies, its value cannot be debased by quantitative easing or money printing.
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Also, it is non-sovereign, decentralized and safe from sanctions. For investors looking to protect their assets from sovereign actions, crypto assets could be an alternate, safe store of value.
The author is an independent writer in economics and finance.