2025 Investor Must-Read: How to Choose the Right Hedging Currency and Hedging Tools

Financial market variables are endless, and risks and opportunities often coexist. However, when economic shocks intensify and market declines far exceed expectations, wise investors tend to shift toward asset classes with protective functions. Looking back at major crises—from the COVID-19 pandemic to geopolitical conflicts—large amounts of capital have flowed into safe-haven assets to avoid losses. In this context, understanding the characteristics of safe-haven currencies becomes especially important.

What is a safe-haven currency?

A safe-haven currency is essentially a circulating currency that can maintain relative stability and strong anti-devaluation ability during market turbulence and economic instability. According to international financial market recognition, the main types of safe-haven currencies are threefold: the US dollar as the global reserve currency, the Japanese yen due to its low interest rate characteristics, and the Swiss franc because of its political neutrality.

Detailed explanation of the five major safe-haven currencies

US Dollar: The top choice for global safe-haven

As the world’s reserve currency, the US dollar possesses unparalleled liquidity and creditworthiness. During periods of intense market volatility, investors usually sell stocks and even government bonds to exchange for US dollar cash. Although the US capital market faces adjustments, the US dollar index often rises, fully demonstrating its safe-haven properties. From an investment portfolio perspective, the US dollar remains one of the essential assets to hold.

Swiss Franc: The most stable alternative

The reason why the Swiss franc is highly regarded lies in Switzerland’s stable political system and well-developed financial infrastructure. The Swiss government maintains a policy of permanent neutrality, effectively reducing geopolitical risks; its banking system is regulated, with relatively limited fluctuations in capital markets, low unemployment rates, and excellent trade balance data. Overall, the Swiss franc is one of the safest safe-haven currencies with minimal risk.

Japanese Yen: The natural target for carry trades

The Japanese yen has long been a leading safe-haven currency, mainly due to two characteristics. First, the yen’s extremely low interest rates make it an ideal borrowing currency for carry trades—investors borrow low-interest yen to buy high-yield currencies to earn the interest spread. Second, the yen has strong liquidity, allowing investors to cash out at any time to meet flexible capital allocation needs.

Euro: A high-level emerging safe-haven option

The euro ranks second in the global currency system, only after the US dollar. Considering the long-term depreciation pressure on the dollar, some investors may gradually shift to the euro as an alternative safe-haven tool to further diversify investment risks.

Thai Baht: The potential of an emerging safe-haven currency

Although the Thai Baht’s recognition as a safe-haven is not as high as the first four currencies, historical data shows that during periods of Federal Reserve rate cuts, intensified trade frictions, and regional currency fluctuations, the Thai Baht still demonstrates relative stability. This suggests that the Baht has certain safe-haven potential and, when liquidity in mainstream safe-haven currencies is saturated, it could serve as a supplementary option.

Overview of traditional safe-haven tools

Gold: The timeless safe-haven asset

Gold is renowned as the most classic safe-haven tool. Whenever markets shake, investors tend to turn to gold assets. Its safe-haven characteristics mainly include:

Gold is a physical asset, unlike paper money that can be printed and issued. Its value is not affected by government interest rate policies and naturally hedges against inflation risks. Gold prices are positively correlated with the US dollar; when the dollar depreciates, gold usually rises, and when the dollar appreciates, gold declines. This strong correlation ensures the stability of gold’s value. Throughout history, gold has been regarded by countries as a store of value, possessing cross-era monetary properties. During the global pandemic, gold prices fluctuated within a range, and in times of market panic, investors generally chose gold as a primary safe-haven asset.

VIX Index: Quantifying panic sentiment

The VIX index, also known as the fear index, is essentially the implied volatility index of the S&P 500. It measures investors’ fear level in the market. When the VIX rises, it is usually accompanied by a decline in stock markets, reflecting increased pessimism and decreased trading activity. During global economic crises, investor panic often persists for a long time. Including the VIX index in a portfolio can serve as a risk hedging tool.

Is Bitcoin a safe-haven or a speculative asset?

As the “digital gold,” Bitcoin’s extreme volatility has been questioned for weakening its safe-haven function. Professionals point out that the current Bitcoin market is still mainly driven by speculative psychology, lacking sufficient historical cases to prove its true safe-haven ability.

Liquidity and market cap constraints: Bitcoin’s all-time high total market cap is only about $350 billion, which is tiny compared to the vast stock market scale. Cryptocurrency trading liquidity is much lower than traditional stocks; large buy or sell orders can trigger significant price swings, and the market is easily influenced by large-capital investors.

Historical data and perception gaps: As an emerging product, Bitcoin lacks the long-standing historical record that gold or stocks have, making verification difficult. Public perception is also not comprehensive, and false information can easily mislead.

Complex influencing factors: Besides supply and demand, Bitcoin’s price is affected by multiple variables such as regulatory policies in various countries, mining costs, and the overall network hash rate, making its price trend relatively complex and unpredictable.

Comparison of safe-haven currencies and tools

Triggers of risk-averse sentiment

Market panic signals: VIX index surges, stock indices plummet, sovereign bond yields fall (capital flows into government bonds)

Geopolitical conflicts: War, trade friction, election uncertainties

Worsening economic data: Slowing GDP growth, rising unemployment, runaway inflation

Black swan events: Outbreaks of pandemics, natural disasters, financial institution crises

Ways to trade safe-haven assets

Investors can allocate safe-haven currencies and tools through various channels:

Foreign exchange spot: Direct buying and selling of related currency pairs for physical settlement

Futures and options: Hedging or leverage operations to manage positions flexibly

Exchange-Traded Funds (ETFs): Such as US dollar bull funds, offering convenient passive investment options

Contracts for Difference (CFDs): Trading the price difference of underlying assets without physical delivery, supporting two-way trading, with profit opportunities in both rising and falling markets

Safe-haven allocation suggestions for 2025

No single financial instrument can serve as a permanent safe harbor. As market conditions change, safe-haven tools are also evolving. Based on specific risk types faced, investors should flexibly adjust the allocation weights of safe-haven assets.

In the 2025 market environment, it is recommended to combine safe-haven currencies and tools to build a multi-layered risk buffer system. Basic allocations can consider a combination of USD and JPY, supplemented by gold as a physical asset anchor, while dynamically adjusting the weight of the VIX index according to market volatility. For investors with higher risk tolerance, exploring alternative safe-haven currencies such as Swiss Franc or Baht may achieve more refined risk management.