In the wake of escalating geopolitical tensions between Iran and Israel, two major alternatives to the U.S. dollar — gold and Bitcoin — have seen varied responses. While gold has stayed flat, Bitcoin has dropped by 3% since oil prices spiked.

Yet, according to a report by Steve Goldstein for MarketWatch, citing a research note from JPMorgan strategists, these assets could remain strong players in what the researchers call the “debasement trade.”

The debasement trade refers to a range of concerns that have prompted demand for both gold and Bitcoin. As described by JPMorgan’s Nikolaos Panigirtzoglou, these include heightened global political uncertainty, persistent inflation fears, and the risks posed by growing government debt levels. A loss of confidence in fiat currencies, particularly in some emerging markets, has also contributed to the increased demand for these assets. While such concerns aren’t new, the current price levels of gold, nearing $2,700 per ounce, and Bitcoin, around $60,000, have given the debasement narrative fresh relevance.

In the third quarter of 2024, the share of the U.S. dollar in global currency reserves fell to 57%, according to data from the International Monetary Fund (IMF). Interestingly, this drop occurred even though China’s central bank paused its gold purchases earlier this year. The ongoing reduction in dollar reserves has sparked concerns about the future of fiat currencies, giving further support to gold and Bitcoin as alternative stores of value.

JPMorgan’s analysis of Commodity Futures Trading Commission (CFTC) data indicates growing speculative demand for gold and Bitcoin futures, with little institutional interest in Ethereum. Hedge funds appear to view gold and Bitcoin as similar assets benefiting from the debasement trade. Retail investors seem to be following this trend, as Bitcoin ETFs saw inflows in September after a decline in August.

JPMorgan strategists predict that geopolitical tensions and the upcoming U.S. election could further drive the debasement trade, with a potential win by Donald Trump likely to boost Bitcoin and reinforce concerns about inflation and government debt.