The debasement trade is a new term for an investor’s desire for assets. This has seen the price of gold and Bitcoin boom over the last month.
In the last week, the price of assets like gold and Bitcoin has soared. All of this is fuelled by worry over governments across the world and their mounting debt. Coupled with other tensions, from Japan to the US, it is causing a range of issues. The debasement trade is the term that has been given to the desire for assets other than fiat currencies, with Bitcoin and gold being the main targets.
The Rising Price of Bitcoin and Gold
The Bitcoin price USD is currently hovering at $122,000 as of October 9th. While down from its Monday 6th all-time high of $126,069, it is quickly on its way upwards and could test this level again in the coming days. This sudden spike is the result of a perfect storm combining differing factors that have created a drive for assets.
Gold prices have also boomed, reaching over $4000 per ounce and giving it a 50% year-to-date gain. This outpaces even Bitcoin, which stands at a mere 27%. Other precious metals have also benefited. Silver came close to its $50 high, with platinum also reaching over 86% in year-to-date gains.
Major UK bank Barclays has described the situation as being “Fomo in full swing”. FOMO is the acronym for the fear of missing out, and the bank has highlighted how this has driven inflows to US equities.
What is the Debasement Trade?
The term ‘Debasement trade’ originated from Wall Street, according to the Wall Street Journal. This is the pouring of money into assets like gold and Bitcoin over a fear of the US dollar’s strength and status as the global currency of choice, which has fallen in value over the year-to-date.
However, these fears are much more complex than that alone, and are made up of several macroeconomic factors. The first of these is the US Government shutdown, which at the time of writing shows no signs of abating. This has delayed key economic reports, leaving many investors making guesses and running to safer assets. Exchange Binance noted that the shutdown has suspended key U.S. data releases, including the Nonfarm Payrolls report. Private payrolls already showed a loss of 32,000 jobs in September, the largest drop since 2023, raising concerns over labor market health and U.S. creditworthiness if the shutdown extends. None of this is inspiring confidence.
Growing tension is also building over the potential bursting of the AI bubble. This is a prediction that S&P 500 growth over this uncertain period is not entirely natural. Tech stocks have been fuelled by spending on AI, with many believing the rise in gold and Bitcoin is a hedge against its failure. Many are making well-justified comparisons with the .com boom of the nineties.
Gold has also been hit with record buying sprees by central banks. While much of this is done behind closed doors, the People’s Bank of China has entered its 11th consecutive month of buying.
Demand has also been extremely strong for Bitcoin ETF products. They logged $5.67 billion in one week, setting a new record. Altcoin ETFs also did well, with Ethereum products logging $1.49 billion in inflows. However, data shows that retail buying has been falling since spring 2024, despite rising prices. This suggests that all this has been pushed by institutional and corporate demand.
There have been outflows as well, with many whales taking profits. On-chain data has shown that 49,000 BTC was withdrawn from exchanges in the last week. October is always a historically bullish period, posting gains in 9 out of 11 previous years, as is the run-up to the holiday season.
How Long Will the Debasement Trade Last?
The debasement trade will most likely last until a major economic shift takes place, or a coalition of smaller positive ones begins to change the sentiment. One on the horizon could be further rate cuts by the Fed. Binance noted that markets are pricing in near-certainty of a Fed rate cut in October and an 88% chance of another in December. With Bitcoin historically showing strong seasonal performance in October, parallels are being drawn to the 2013 rally during a previous shutdown. This positive sentiment may actually drive Bitcoin and gold even further.
Goldman Sachs has said it believes gold will continue to rise over the next year, which hints at its pessimistic approach to the global economy. It has adjusted its gold predictions to reach $4,900 in 2026.
Those looking to invest now must be wary of the approaching tops. Analysts are suggesting that assets are now overpriced, and that there may be a spike in the stock market before a quick decline. Keeping a close eye on global events and politics may provide the key to price changes over the coming weeks.
