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JPMorgan Flags Faster Pullback From the Debasement Trade in Bitcoin

JPMorgan sees investors backing away from Bitcoin as an inflation hedge more quickly. Gold is also losing ground, while the market positioning of both assets is shifting.

By Luc Vesters
• 2 min read
JPMorgan Flags Faster Pullback From the Debasement Trade in Bitcoin

Key Takeaways

  • JPMorgan sees a faster pullback from the debasement trade, with outflows from both Bitcoin and gold ETFs.
  • Bitcoin ETFs saw four straight weeks of rising outflows, while gold ETFs lost about $20 billion in the week through June 5.
  • According to JPMorgan, Bitcoin is moving more in line with risk assets, while gold's correlation with the S&P 500 is rising.

Investors are increasingly stepping away from the so-called debasement trade, where they look for protection against inflation and currency debasement through assets like gold and Bitcoin. According to analysts at JPMorgan, this pullback has recently sped up in Bitcoin, while gold is also still seeing outflows.

Outflows in Bitcoin and Gold ETFs

In the week through June 5, gold ETFs saw outflows of about $20 billion, after a short stretch of inflows. Bitcoin ETFs posted steadily rising outflows over the past four weeks. JPMorgan analysts, led by Nikolaos Panigirtzoglou, say both retail and institutional investors are broadly pulling back from this strategy. This move is showing up in ETFs, futures markets, and investor positioning.

Institutional investors are cutting their exposure through futures, with gold positions steadily declining since the end of February. Bitcoin, which had been the main expression of the debasement trade since the start of the Middle East conflict, started falling in early May and has weakened further since then. JPMorgan's momentum indicators show a similar trend: investors are trimming long positions in gold, while Bitcoin initially benefited from short covering but then also slumped. New short positions appear to have added to gold's recent decline.

The outflows also fit into the broader picture of weaker demand for spot funds. In a separate overview, it was already reported that Bitcoin ETF outflows are mainly tied to unwinding arbitrage positions and macro pressure.

Shifting Market Correlations and Investor Behavior

The analysts also point to a shift in market correlations. Bitcoin has recently shown a negative correlation with 10-year U.S. real Treasury yields, a move gold made earlier this year. This suggests that the opportunity cost of holding non-yielding assets is playing a role. At the same time, gold's correlation with the S&P 500 is getting closer to Bitcoin's, which suggests both assets are behaving more like risk assets than traditional portfolio diversifiers.

These developments underline that Bitcoin is increasingly moving in step with risk markets, unlike its earlier role as a digital store of value similar to gold. That could affect how investors position Bitcoin and gold within their portfolios.

Relevance for European Investors

For European investors, this trend could point to a changing dynamic in the role of Bitcoin and gold as safe havens in a global backdrop of economic uncertainty and geopolitical tensions. The decline in the debasement trade suggests investors may be rethinking their strategies, which could matter for portfolios that rely heavily on these assets for protection against inflation and currency risk.

Disclaimer: This content is for informational purposes only and does not constitute financial, investment, legal, or tax advice. The information provided may be incomplete, inaccurate, or outdated and should not be relied upon as such. Nothing on this website should be considered a recommendation to buy, sell, or hold any cryptocurrency. Investing in crypto-assets involves risk of loss.