Bitcoin and gold are solidifying their roles as essential components of diversified investment portfolios, according to recent research by JPMorgan.

The ongoing trend, referred to as the “debasement trade,” highlights investors’ growing reliance on these assets to hedge against fiat currency devaluation, rising inflation, and geopolitical uncertainties.

The Rise of the Debasement Trade

JPMorgan analysts, led by Nikolaos Panigirtzoglou, emphasize that the debasement trade is far from a fleeting phenomenon. This strategy, wherein investors turn to assets like gold and Bitcoin to safeguard against economic instability, has been gaining traction due to a confluence of factors. These include persistently high inflation, rising government debt, and increasing geopolitical tensions that have characterized global markets since 2022.

Source: Bitcoin Archive via X

“Gold and Bitcoin have become structurally more important in investors’ portfolios,” JPMorgan noted, citing unprecedented capital inflows into both markets throughout 2024.

Gold’s Outperformance

Gold prices have experienced a surge beyond expectations typically linked to shifts in the US dollar and bond yields. Analysts attribute this remarkable growth to the resurgence of the debasement trade. Central banks and private investors have substantially boosted their gold holdings, which include real gold, ETFs, and other financial tools. This pattern highlights the asset’s growing popularity as a hedge against economic uncertainty.

Bitcoin’s changing role

Bitcoin, also known as “digital gold,” has received significant financial inflows, highlighting its status as a key investment asset. JPMorgan estimates a record $78 billion flowed into cryptocurrency markets in 2024. Notably, MicroStrategy alone accounted for $22 billion in Bitcoin purchases, representing 28% of total inflows. With the growing popularity of spot Bitcoin ETFs, there were also $27 billion in net inflows into crypto funds and $14 billion from CME Bitcoin futures.

Source: JPMorgan

JPMorgan noted a rebound in Bitcoin ETF inflows after September 2024 and said, “Both retail and institutional investors are using Bitcoin as a hedge against fiat currency devaluation.”

Institutional Adoption and Market Dynamics

The structural rise of Bitcoin has been further amplified by the growing involvement of traditional financial institutions. For instance, firms like Morgan Stanley have started allowing financial advisors to recommend Bitcoin ETFs to clients. These developments, coupled with diminishing liquidations from high-profile bankruptcies like Mt. Gox and Genesis, signal a maturing market.

Source: Bitcoin Act via X

However, analysts caution that anticipated cash distributions from the FTX bankruptcy, expected in early 2025, could introduce volatility but may also lead to reinvestments into cryptocurrencies.

Looking Ahead

According to JPMorgan, gold and Bitcoin are long-term hedges against inflation and geopolitical unrest, thus the outlook for these assets is still positive. Due to structural changes in investor behavior, analysts predict that institutional and retail participation will continue to rise.

The devaluation trade is expected to continue to be a key component of international investment plans as long as concerns about inflation and fiscal uncertainty endure.

Bitcoin and gold have emerged as prime hedges against the looming threat of fiat currency debasement, appealing to investors who want to preserve and potentially grow their wealth over time.

Gold boasts a centuries-long track record as a safe-haven asset, widely regarded for its scarcity and resistance to economic turbulence. Bitcoin, often referred to as “digital gold,” similarly benefits from limited supply and decentralized control, shielding it from the inflationary pressures tied to monetary policies and government intervention.

Amid fluctuating interest rates and ongoing quantitative easing, both assets can offer a measure of stability and diversification. As investors seek to safeguard themselves against the eroding value of traditional currencies, gold’s tangible allure and Bitcoin’s tech-forward promise continue to elevate their reputation as powerful tools in the debasement trade.