Gold reached a new peak price of $4,210 on Wednesday, marking significant gains in the precious metals market. In contrast, Bitcoin has struggled to maintain momentum, recently experiencing a dramatic decline of $10,000 within the same week that gold broke its record. Despite this downturn, analysts argue that Bitcoin still functions as part of the debasement trade—a strategy centered on investing against the perceived mismanagement of government finances.
The recent sell-off, which resulted in the elimination of approximately $19 billion in leveraged positions across the cryptocurrency sector, is believed to have been driven primarily by technical trading factors rather than a fundamental shift in Bitcoin’s narrative as a store of value. Carlos Guzmán, an analyst at GSR, asserted that the crash primarily stemmed from leverage-related issues in perpetual futures markets, stating, “Nothing has fundamentally changed in the thesis for Bitcoin as a store of value.”
The backdrop for these market movements includes investor apprehension triggered by US President Donald Trump’s new tariff threats, which prompted a retreat from riskier assets. As gold surged over 50% year-to-date, questions have arisen about Bitcoin’s place alongside gold as a hedge against geopolitical uncertainty and governmental dysfunction.
The “debasement trade” conceptualized by analysts at JPMorgan refers to skepticism towards the ability of governments to effectively manage their debt, leading investors to distance themselves from fiat currencies. The current economic landscape has amplified these concerns, especially in the US, where Trump’s actions have raised doubts regarding the Federal Reserve’s independence and the reliability of Treasuries as a safe haven. This uncertainty has been compounded by a government shutdown now entering its second week, which has hindered the release of crucial economic data. In this volatile environment, gold has emerged as the clear beneficiary.
Even Jamie Dimon, CEO of JPMorgan Chase and traditionally skeptical of gold, suggested that owning some of the metal is “semi-rational.”
However, Guzmán warned that Bitcoin’s latest drop could negatively impact its image as an inflation hedge. “Bitcoin has been in this awkward position where its main value proposition is as a store of value and protection against debasement, but it tends to trade with tech stocks instead of gold,” he remarked. He believes this perception issue is temporary, asserting that as the cryptocurrency market matures and a larger proportion of Bitcoin transactions occur in regulated venues, the impact of abrupt liquidations will diminish.
André Dragosch, the European head of research at Bitwise, remains optimistic about Bitcoin’s potential to align with gold’s performance in the approaching months. He identifies three factors likely to drive Bitcoin prices upward: a historical correlation with global money supply, improving expectations for global economic growth due to increased liquidity, and the fact that Bitcoin’s performance relative to gold seems undervalued by a significant margin.
Dragosch cautioned against using global money supply as a strict predictor of Bitcoin price but acknowledged a long-standing relationship between the two variables. “Bitcoin has been undershooting global money supply, but I think that over time, this relationship will reassert itself,” he stated. He anticipates that as the market enters a seasonally strong fourth quarter, Bitcoin could once again outperform gold.
Currently, Bitcoin finds itself navigating a dual identity: touted as “digital gold” by advocates while also facing the reality of being a volatile asset susceptible to severe price fluctuations.
