US-China Tensions Are Raising Crypto Systemic Risk

Cryptocurrencies have long been seen by investors as a way to diversify their portfolios against risks that would otherwise affect more traditional equities. However, geopolitical crises might be an exception. For example, a recent study found that all crypto markets tend to converge (including DeFi and metaverse coins) during crises like the war in Ukraine.

Similarly, a new study by researchers at Zhejiang Yuexiu University (China), Lingnan University (China), the Hang Seng University of Hong Kong (China) and the University of Bradford revealed that US–China tensions may be a more useful warning signal for cryptocurrency contagion.

However, not all geopolitical crises had that effect. So investors need to learn when cryptos are exposed to contagion, and how the mechanisms for it work.

The study was published in International Review of Economics and Finance¹, under the title “Geopolitical risk, US–China tensions, and systemic risk in cryptocurrency markets: A regime-dependent analysis”.

Bitcoin From Niche Asset To Mainstream (Risk?)

Bitcoin (BTC ) evolved from a nascent digital asset into a dominant financial force during the 2015-2024 time period covered by this study.

This means that Bitcoin, alongside other major cryptocurrencies, has been increasingly a topic of study for economic science and a growing part of “mainstream” portfolios, especially since corporations and financial institutions could start accessing it with the creation of Bitcoin ETFs, futures, and options, despite its characteristic volatility.

However, compared to bonds and stocks, cryptocurrencies lack intrinsic valuation anchors and therefore are more similar to other forms of “hard money” like gold, where the attributed value is largely determined by money flows in the sector. In addition, cryptocurrencies still have their regulation remains fragmented and inconsistent across jurisdictions.

This has created concern among investors and regulators that the cross-market interconnectedness of digital assets can amplify global shocks. This could be especially concerning for geopolitical risks, which are already well documented in increasing volatility, depressing equity returns, raising risk premiums, and influencing safe-haven flows into gold and oil.

Crypto & Risks

Measuring Geopolitical Risks

On one hand, heightened geopolitical instability can trigger flight-to-safety behaviour, prompting investors to turn to Bitcoin as a hedge, making it “digital gold”.

On the other hand, cryptocurrencies’ speculative nature could amplify volatility and losses during crises. And the lack of institutional support means there are little to no stabilizing actions taken when contagion effects are spreading across the crypto ecosystem.

Geopolitical tensions can be followed by the GPR index, which offers a general measure of this issue.

“GPR shocks drive volatility spillovers among crude oil, natural gas, and U.S. Treasury yields, with oil markets serving as dominant transmitters and U.S. Treasury yields as absorbers. ”

Another metric can be the US–China tension (UCT), a newspaper-based methodology to capture the intensity of bilateral frictions across trade, technology, security, and ideology. UCT has been shown to exert significant influence across multiple markets; for example, rising UCT deters foreign direct investment in emerging markets.

“UCT shocks have a more substantial and persistent impact on gold price volatility than both GPR and economic policy uncertainty (EPU). UCT shocks exacerbate long-run volatility due to asymmetric responses in fossil fuel markets.”

Herd Behavior And Actual Bitcoin’s Hedge

Despite the reputation of “digital gold”, Bitcoin (and other cryptos) have often not displayed safe-haven features to geopolitical shocks. Instead, they have at times behaved more like high-beta speculative assets, responding negatively to threats and to realized geopolitical stress.

This is different from economic shocks, where, for example, Bitcoin outperformed gold in the short term during the collapse of Silicon Valley Bank.

In large part, this is due to the behavioural tendency of investors to follow market sentiment, which not only fuels bubbles and crashes but also amplifies systemic risk, since herd-driven liquidity shocks propagate across the ecosystem.

In addition, previous studies showed that contagion within digital assets is highly crisis-sensitive, with different results, for example between the COVID-19 pandemic and the Russia-Ukraine conflict.

This reinforces the need for context-dependent risk management when discussing crypto and geopolitical events.

Until this study, the impact of US–China tensions on cryptos was mostly unexplored by economic studies.

US-China Tensions & Cryptos

Gathering Trading And Economic Data

The researchers gathered monthly data from August 2015 to February 2024. A metric used was the Total Connectedness Index (TCI), with TCI_NEG during bearish (downside) conditions, and TCI_POS during bullish (upside) periods.

Crypto liquidity and trading intensity were measured with the natural logarithm of Bitcoin trading volume (LN_VOL_BTC) obtained from CoinGecko.

In addition to the GPR and UCT indexes, they also used the natural logarithm of the S&P 500 Index (LNSP500) as a proxy for global risk appetite and the Financial Stress Index (FSISI4) compiled by the Federal Reserve Bank of St. Louis, and the natural logarithm of a broad energy commodity index (LNENERGYM), based on Bloomberg data.

Shocks And Spillovers

One of the first results of the study is that connectedness intensifies substantially during downside conditions, with the TCI frequently exceeding 70% after 2018.

This is to be compared with systemic connectedness in upside markets, with values averaging between 40% and 60%, with some spikes during the late-2017 Bitcoin boom, the 2020–2021 rally associated with institutional adoption, and the 2024 valuation resurgence. So while upside markets are comparatively less fragile than downside markets, they are not immune to episodes of elevated systemic connectedness.

“Visible peaks occur during major stress episodes, including the 2018 crash, the onset of COVID-19 in 2020, and renewed geopolitical and macro-financial shocks in 2022–2023. ”

Then the researchers looked at the network of systemic connectedness among six major cryptocurrencies, Bitcoin (BTC), Ethereum (ETH ) (ETH), Litecoin (LTC ) (LTC), Ripple (XRP), Stellar Lumens (XLM ) (XLM), and Dogecoin (DOGE ) (DOGE), to determine which ones are transmitting external shocks to the crypto ecosystem.

Overall, DOGE and XLM appear as significant net contributors, transmitting shocks broadly across the network, while BTC and ETH act more as central hubs, absorbing spillovers and transferring them to secondary assets.

Source: International Review of Economics and Finance

US, China & Cryptos

The study finds that the threats component of GPR (LNGPRT) exerts a positive and statistically significant effect on systemic risk. In contrast, the total GPR index is only marginally significant to cryptos.

So it appears that cryptocurrency markets are more sensitive to geopolitical threats and escalatory rhetoric than to realised acts of conflict.

The amplifying impact of bilateral tensions on systemic risk is most pronounced but requires a longer gestation period of up to three months.

It suggests that immediate selling pressure temporarily reduces systemic interconnectedness, while subsequent liquidity surges amplify it, consistent with herding behaviour during speculative episodes. This pattern may reflect speculative sentiment temporarily suppressing negative geopolitical information, which subsequently manifests more forcefully after three months.

In parallel, the financial stress index and US economic policy uncertainty display negative lagged effects. It suggests that heightened stress and policy ambiguity drive capital away from digital assets toward more traditional safe havens.

Geopolitical Volatility Turns Into Crypto Volatility

Interestingly, positive (escalation) and negative (de-escalation) shocks to the UCT are significantly increasing systemic risk.

So it is uncertainty itself, rather than the directional change in bilateral relations, that drives persistent interconnectedness in digital asset markets.

“Any deviation from the status quo creates informational ambiguity regarding future trade policies, technology transfers, and regulatory environments. This, in turn, prompts cryptocurrency markets to increase cross-asset correlations and amplifies systemic vulnerability.”

Study’s Takeaways

For regulators and central banks, we show that the UCT, rather than general geopolitical risk, serves as the primary driver of systemic contagion in cryptocurrency markets.

For institutional portfolio managers, the findings support a shift from static allocation models toward event-driven, regime-aware strategies that account for the time-varying transmission of geopolitical shocks.

For investors, Bitcoin trading volume serves as a reliable one-month early-warning indicator, while the procyclical behaviour of cryptocurrencies during geopolitical stress challenges their use as static safe havens.

They should also be aware that Dogecoin and Stellar can act as major shock transmitters, while Bitcoin sometimes functions more as an absorber.

For institutional portfolio managers, the findings call for a shift from static allocation models toward event-driven, regime-aware strategies, and to consider that any sustained shift in US–China relations, whether escalation or de-escalation, elevates long-run systemic risk.

For private investors, the procyclical behaviour of cryptocurrencies during geopolitical stress challenges their use as reliable safe-haven assets.

“Given that traditional safe havens such as gold offer only partial and context-dependent protection, investors should move away from static diversification toward dynamic, regime-sensitive rebalancing that explicitly accounts for the time-varying sensitivity of crypto markets to US–China bilateral relations.”

Investing In Cryptocurrencies

CME Group

Despite their occasional vulnerability to external shocks, cryptocurrencies remain a widely popular form of diversification for both institutional and retail investors’ portfolios.

The systemic risk explained in this study also increases the relevance of derivatives, volatility products, index futures, and institutional hedging infrastructure. It is exactly the type of product that the CME Group directly provides to investors.

Upcoming tokenization of stocks and 24/7 trading through blockchain should further increase trading and investing activity, and maybe volatility.

Data to build and assess such a portfolio are also increasingly valuable. So platforms that can provide high-frequency data and actionable trading data are likely to benefit from such academic research. For example, CME revenues from market data have steadily grown by 5-20% every quarter since 2024.

Source: CME

CME is a massive marketplace active in all sorts of trading covering all commodities (agricultural, energy, metals), as well as carbon credits, treasuries, foreign exchanges, indexes, equities, cryptocurrencies, etc.

For cryptos in particular, CME is now the core marketplace of derivatives related to these markets, covering Bitcoin, of course, but also Ether, Solana (SOL ), XRP, Cardano (ADA ), Chainlink, Lumens, Avalanche (AVAX ), and Sui.

The company has quickly grown its revenue from around ~$3B in 2015 to ~7B expected in 2026.

Source: CME

It is also quickly internationalizing, with non-US activity growing at a 10% CAGR and a sales presence in 12 countries, covering ~13,000 clients worldwide.

This growth pattern can be expected to hold, and the company to benefit from many financial innovations, from blockchain to carbon trading and U.S. mortgage futures, as well as ever-growing adoption of ETFs in trading, including to get exposure to alternative forms of money like cryptos and precious metals.

Source: CME

CME keeps innovating and is now trading cryptocurrency futures and options 24/7, has announced single-stock futures in more than 50 top US stocks for July 27, 2026, Treasury Link for 4Q26, and compute futures in late 2026, turning compute capacities into a tradable item.

Overall, this should help CME support its growing dividend distribution, which has more than quadrupled between 2012 and 2026.

Latest CME Group (CME) Stock News and Developments

Study Referenced

^{1. Chi Keung Marco Lau, et al. Geopolitical risk, US–China tensions, and systemic risk in cryptocurrency markets: A regime-dependent analysis. International Review of Economics and Finance.September 2026. Article: 105574. Volume 110. 10.1016/j.iref.2026.105574}