The ‘debasement trade’ that fueled strong demand for bitcoin and gold during recent geopolitical tensions is starting to lose momentum, according to JPMorgan analysts led by Nikolaos Panigirtzoglou.
In a report on Thursday, the bank argued that investors have begun withdrawing capital from bitcoin and gold exchange-traded funds (ETFs) at the same time as institutions reduced their exposure to futures markets linked to both assets.
That shift signals a broader retreat from macro hedging trades that became popular earlier this year amid fears of inflation and global instability stemming from tensions in the Middle East.
Bitcoin ETFs have seen significant capital outflows over the past two weeks, according to data from Farside Investors, in line with gold ETFs, while CME’s gold and bitcoin futures positions have weakened over the same period.
Panigirtzoglou argued that the move does not appear to reflect that investors are switching from bitcoin to gold, but rather that both assets are experiencing weaker demand at the same time.
“Bitcoin had been the main manifestation of debasement trading since the start of the conflict with Iran,” the report said.
Downgrade trading refers to investors’ positioning in assets viewed as stores of value during periods of inflation fears or monetary weakness. Bitcoin and gold often benefit when traders expect governments and central banks to increase spending, expand debt or maintain loose monetary policy.
Those concerns intensified earlier this year after renewed conflict in the Middle East sent oil prices soaring and raised concerns about the return of inflationary pressures.
JPMorgan said the recent pullback may reflect growing expectations that tensions between the United States and Iran could ease.
The report suggested investors may be positioning themselves ahead of a potential diplomatic deal between the two countries, reducing the need for inflation and geopolitical hedges that had supported bitcoin and gold.
