A growing trend known as the “debasement trade” is likely to continue fueling demand for Bitcoin (BTC) and gold, as investors seek safe-haven assets amid ongoing geopolitical uncertainty, according to a research note released on January 3 by JPMorgan. The global investment bank suggests that both gold and Bitcoin have now become increasingly important components of investors’ portfolios as they hedge against rising geopolitical risks and long-term inflationary pressures. This shift comes in the wake of “record capital inflows into crypto markets” observed in 2024.
JPMorgan defines the debasement trade as the increasing preference for gold and Bitcoin, driven by a combination of structural and economic factors. These include heightened geopolitical instability, long-standing inflation concerns, and fears of “debt debasement” linked to persistently high government deficits in major economies. The bank emphasizes that the volatility of global economies and governments’ fiscal policies has caused a surge in demand for alternative assets like gold and Bitcoin, which investors see as safe stores of value in times of uncertainty.
Structural Shifts in Investment Behavior
According to JPMorgan, gold and Bitcoin are no longer just speculative assets but have increasingly become central to the investment strategies of many institutional and retail investors. The bank pointed to record inflows into cryptocurrency markets as evidence of this growing interest. The shift represents a longer-term trend, with Bitcoin and gold being viewed not merely as short-term hedges but as permanent fixtures in diversified portfolios.
The growing importance of these assets is further illustrated by the involvement of prominent figures in the investment world. Billionaire investor Paul Tudor Jones, known for his macroeconomic insight, has been vocal about his belief that inflationary pressures will persist, leading him to take long positions in both Bitcoin and commodities. He, like many others, believes that the current economic trajectory, marked by rising government debt and persistent inflation, will only drive more investors toward hard assets like gold and Bitcoin.
U.S. state governments are also reportedly adding Bitcoin to their reserves as a “hedge against fiscal uncertainty,” according to VanEck, an asset management firm. This further validates the growing recognition of Bitcoin as a store of value, especially in the context of ongoing fiscal and economic volatility in the U.S.
The interest in Bitcoin has been particularly evident in the futures market. JPMorgan noted that the open interest in Bitcoin futures spiked significantly in 2024, rising from approximately $18 billion in January to over $55 billion by December. This surge signals that large institutional players are increasingly seeing Bitcoin as a serious financial instrument, similar to traditional assets like gold. This trend suggests that Bitcoin is maturing as an asset class and may continue to attract institutional investors seeking to hedge against risks like inflation and global economic instability.
JPMorgan also pointed out the renewed interest in Bitcoin exchange-traded funds (ETFs), particularly after they began to see inflows again in September 2024. The resurgence in ETF investment suggests that retail investors are also beginning to treat Bitcoin as a store of value in much the same way they view gold. In fact, in November 2024, U.S.-based Bitcoin ETFs surpassed $100 billion in net assets for the first time, according to data from Bloomberg Intelligence.
The performance of Bitcoin ETFs, particularly in the U.S., is seen as a key indicator of the growing acceptance of Bitcoin in the broader financial system. As JPMorgan and Citi both noted in recent reports, the inflow of funds into these ETFs is significant because it indicates the entry of new, long-term investors into the market. Unlike other forms of trading activity, which may be driven by short-term speculation, ETF investments are generally seen as a sign that institutional investors and large-scale retail participants are taking a more serious, sustained interest in Bitcoin.
Crypto ETFs offer institutional investors an easy way to gain exposure to Bitcoin without directly buying and holding the underlying asset. This ease of access has attracted more money to Bitcoin, driving demand for the digital asset and, in turn, supporting its price. With ETFs now gaining widespread adoption, Bitcoin is becoming more deeply integrated into the traditional financial system, potentially increasing its stability as an asset.
Potential for Demand Shocks in 2025
Looking ahead, analysts believe that Bitcoin’s rising popularity among institutional investors could trigger “demand shocks” in 2025. These sudden surges in demand, fueled by institutional investors and large-scale asset managers, could send Bitcoin’s price soaring. Sygnum Bank, an asset management firm, predicts that the growing interest from institutional investors could be a catalyst for a significant rise in Bitcoin’s value in the near future.
The potential for these demand shocks comes at a time when many analysts are forecasting a continuation of the “debasement trade.” With governments continuing to run high deficits and inflationary pressures expected to persist, both Bitcoin and gold are expected to remain attractive alternatives for investors seeking safe havens. Moreover, as the digital asset market matures, Bitcoin is likely to become even more attractive to institutional investors looking for an alternative to traditional assets like bonds and equities.
The increasing prominence of Bitcoin and gold in investors’ portfolios represents a significant shift in the financial landscape. As global uncertainty continues to rise, more and more investors are turning to these alternative assets to protect their wealth. Whether it’s the threat of inflation, political instability, or global economic challenges, the debasement trade is set to remain a key theme in the investment world for the foreseeable future.
This trend has far-reaching implications for the cryptocurrency market and traditional commodities like gold. Bitcoin, in particular, is becoming an increasingly mainstream asset, attracting both retail and institutional investors. As demand continues to grow, Bitcoin’s potential for long-term price appreciation remains strong, particularly as more investors view it as a hedge against economic and geopolitical risks.
Author’s Opinion
Bitcoin’s appeal as a hedge against inflation and geopolitical uncertainty will likely grow in the years to come. While there are still risks associated with its volatility and regulatory uncertainty, Bitcoin has demonstrated its resilience time and time again. As more institutional players enter the space, the market could experience more stability, making it an increasingly attractive option for both retail and institutional investors. The fact that U.S. state governments and large investment firms are now adding Bitcoin to their portfolios speaks volumes about its potential as a store of value. In my opinion, this trend is only going to continue as the world becomes more uncertain.
