Analysts at multinational investment firm JPMorgan have drawn attention to the “debasement trade’s” increasing role in driving up the price of bitcoin and gold.
Geopolitical unpredictability, inflation, and declining faith in fiat money correlate with the increase in gold prices.
In the face of global economic uncertainty, institutional and retail investors alike see gold and bitcoin as safe havens. Geopolitical developments and fiscal policies will determine future trends in both assets.
JPMorgan Talks About How the “Debasement Trade” Is Driving Up Prices for Bitcoin and Gold
The “debasement trade” is driving advances in both gold and bitcoin, according to JPMorgan’s analysts. The analysts, led by global strategist Nikolaos Panigirtzoglou, pointed out that the increase in gold prices was more than justified due to changes in the real bond yield and the dollar.
Rather, they place the blame on a variety of issues, such as waning faith in fiat currencies, inflation worries, and geopolitical unpredictability.
In their explanation, they said that the term “debasement trade” refers to several factors that influence the demand for gold.
These factors, according to our client conversations, include concerns about “debt debasement” because of the major economies’ persistently high government deficits, waning confidence in fiat currencies in some emerging markets, and a broader diversification away from the dollar. Additionally, they mentioned structurally higher geopolitical uncertainty since 2022.
The researchers also noted that the prices of bitcoin, which is close to $60,000, and gold, which is about $2,700 an ounce, had effectively given them newfound wealth.
They drew attention to the US dollar’s declining proportion in world currency reserves, pointing out that, according to data from the International Monetary Fund (IMF), the dollar currently only makes up 57% of reserves. According to JPMorgan, even though China has stopped buying gold since April,
Without a doubt, the rate at which central banks make purchases will determine how gold prices develop in the future.
JPMorgan analysts also looked at institutional investors’ actions, reporting:
This implies, in our opinion, that hedge funds and other speculative institutional investors may view Ethereum as unsuitable, and that both Bitcoin and gold are products of the so-called “debasement trade.”
Additionally, they noted that given the inflows into bitcoin exchange-traded funds (ETFs) after August, ordinary investors appear to have a similar perspective on gold and bitcoin.
According to JPMorgan, if Donald Trump were to win in 2024, expansionary fiscal policies and heightened geopolitical tensions would encourage the “debasement trade.”
“This is because investors have been rather occupied with the recession trade in recent months,” the analysts said.