JPMorgan says 'debasement trade' is here to stay as bitcoin and gold gain structural importance

JPMorgan analysts said the "debasement trade" is far from a passing trend, with both gold and bitcoin gaining structural importance in investor portfolios.

"The gold price appreciation over the past year has gone well beyond the moves implied by dollar and real bond yield shifts, and likely reflects the re-emergence of this 'debasement trade,'" JPMorgan analysts led by Nikolaos Panigirtzoglou wrote in a report on Friday. Meanwhile, a record capital inflow into crypto markets in 2024 suggests that bitcoin is also becoming "a more important component" of investors' portfolios, they added.

The debasement trade refers to a strategy where investors turn to assets like gold and bitcoin to hedge against the devaluation of fiat currencies, often driven by factors such as inflation, rising government debt and geopolitical instability.

The structural rise of gold in investor portfolios is evident when examining the amount of gold held for investment purposes by central banks and private investors, according to the analysts. This includes physical gold, gold ETFs and other investment vehicles, which now account for a significant percentage of the total assets held by non-bank investors globally.

The analysts noted that MicroStrategy's bitcoin purchases alone accounted for 28% of the total capital inflow into the crypto market in 2024.

Overall, with both gold and bitcoin gaining structural importance, the debasement trade is here to stay, according to the analysts. Last October, the analysts expressed bullishness on crypto heading into 2025, citing factors such as the debasement trade and growing institutional adoption, among others.