JPMorgan says 'bitcoin debasement trade' is a trend that's here to stay

As investors navigate the treacherous waters of geopolitical uncertainty and inflation, a new trend is emerging that could have significant implications for the financial markets. The so-called "debasement trade" into gold and Bitcoin (BTC) is here to stay, according to a recent research note from JPMorgan.

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A Growing Trend

Gold and BTC appear to have become more important components of investors’ portfolios structurally as they increasingly seek to hedge against geopolitical risk and inflation. This trend is reflected in the record capital inflow into crypto markets in 2024, according to JPMorgan.

The debasement trade refers to increasing demand for gold and BTC due to factors ranging from structurally higher geopolitical uncertainty since 2022, to persistent high uncertainty about the longer-term inflation backdrop, to concerns about "debt debasement" due to persistently high government deficits across major economies.

Investment Managers Longing Bitcoin

Institutional investors are taking notice of this trend. Paul Tudor Jones, a well-known investment manager, has been buying Bitcoin and other commodities on fears that "all roads lead to inflation" in the United States.

US state governments are also adding Bitcoin as a hedge against fiscal uncertainty, according to asset manager VanEck. This trend is not limited to just government institutions; investment managers are also flocking to BTC as a safe-haven asset.

Funds Seeing Gold and Bitcoin as Similar Assets

JPMorgan cited spiking open interest on BTC futures as another indicator that funds might see gold and Bitcoin as similar assets. In 2024, net open interest on BTC futures rose from approximately $18 billion in January to upward of $55 billion in December, according to data from CoinGlass.

Bitcoin ETFs Break $100 Billion

In addition, the fact that Bitcoin exchange-traded funds (ETFs) 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. This trend is reflected in the net assets of US Bitcoin ETFs breaking $100 billion for the first time in November, according to data from Bloomberg Intelligence.

Crypto ETF Inflows: A Key Metric

Crypto ETF inflows are among the most important metrics to watch because they are more likely than other trading activity to be new funds/market participants entering the crypto space. According to a December report by Citi shared with Cointelegraph, surging institutional inflows could cause positive "demand shocks" for Bitcoin, potentially sending BTC’s price soaring in 2025.

Sygnum Bank: Positive Demand Shocks Ahead

Asset manager Sygnum Bank echoed this sentiment in December, stating that surging institutional inflows could lead to positive demand shocks for Bitcoin. This trend is not limited to just institutional investors; retail investors are also taking notice of the potential benefits of holding BTC as a hedge against inflation.

The Future of Investing

As the financial markets continue to navigate geopolitical uncertainty and inflation, one thing is clear: the debasement trade into gold and Bitcoin is here to stay. Investors would be wise to take note of this trend and consider allocating a portion of their portfolios to these assets as a hedge against risk.

Conclusion

The debasement trade into gold and Bitcoin is a new reality for investors that should not be ignored. As the financial markets continue to navigate uncertainty, it’s clear that these two assets are becoming increasingly important components of investors’ portfolios. Whether you’re an institutional investor or a retail investor, it’s essential to stay informed about this trend and consider allocating your portfolio accordingly.

2025 ‘Demand Shocks’ Will Spike Bitcoin’s Price — Sygnum: In December, asset manager Sygnum Bank stated that surging institutional inflows could lead to positive demand shocks for Bitcoin, potentially sending BTC’s price soaring in 2025.
Institutional Inflows: Investment managers, including Paul Tudor Jones, are buying Bitcoin and other commodities on fears that "all roads lead to inflation" in the United States.