Investors are turning toward gold and Bitcoin (BTC) in a so-called “debasement trade” as they brace for a “catastrophic scenario” amid rising geopolitical tensions, according to an Oct. 3 report by JPMorgan.
“[R]ising geopolitical tensions and the coming [United States] election are likely to reinforce the ‘debasement trade’ thus favoring both gold and Bitcoin,” according to the report, which JPMorgan shared with Cointelegraph.
The so-called ‘debasement trade’ refers to a spike in gold demand caused by factors ranging from “structurally higher geopolitical uncertainty since 2022, to persistent high uncertainty about the longer-term inflation backdrop, to concerns about […] persistently high government deficits across major economies,” among others, JPMorgan said.
Spiking open interest on BTC futures on the Chicago Mercantile Exchange (CME) suggests “speculative institutional investors such as hedge funds might see gold and Bitcoin as similar assets,” according to the report.
Net open interest on CME BTC futures has risen from approximately 10,000 contracts at the start of 2024 to upward of 40,000 as of Oct. 1.
“In addition, the fact that Bitcoin [exchange-traded funds] started seeing inflows again in September after an outflow in August suggests that retail investors might also see gold and Bitcoin in a similar fashion,” according to the report.
Cryptocurrency ETFs saw inflows of more than $20 billion in 2024, according to data from fund researcher Morningstar.
The US Securities and Exchange Commission (SEC) greenlighted spot BTC and Ether (ETH) ETFs in January and July, respectively.
The ‘debasement trade’ could become even more pronounced if Republican US presidential nominee Donald Trump prevails in November’s elections.
“A Trump win in particular, apart from being supportive of Bitcoin from a regulatory point of view, would likely reinforce the “debasement trade” both via tariffs (geopolitical tensions) and via an expansionary fiscal policy (“debt debasement”),” the report said.
Trump has courted the crypto industry with promises to “fire” the SEC’s chairman, Gary Gensler, and make the US the “crypto capital of the world.”
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