Bitcoin, Not Gold, Is the Star of the Debasement Trade

Bitcoin, not gold, is emerging as the main character in the current “debasement trade,” according to StoneX senior market analyst Fiona Cincotta. Her comments came as bitcoin’s recent breakout coincided with the U.S. Treasury’s announcement that it would increase buybacks of long-dated government bonds. Still, Cincotta stressed that this does not mean investors are abandoning gold.

Cincotta said Aug. 19 was an important turning point for bitcoin, coinciding with the Treasury Department’s plans to increase buybacks for long-dated government bonds. On that date, the price broke above $65,000 and subsequently rose to this week’s high of $87,000—a 35% increase.

Over the same period, U.S. bitcoin ETFs also saw around $4.6 billion in net inflows, pushing bitcoin ETFs into positive territory for the year. “Bitcoin is up 44% so far this quarter,” she said. “This contrasts with other major assets quite sharply. Stocks have gained around 3.5% across the same period, whilst gold is up only 8%.”

She cautioned, however, that this is not a case of investors abandoning gold. “If we look at gold ETF demand, that has also remained exceptionally strong, with August recording the second largest monthly global ETF inflows on record,” Cincotta said. Gold, however, faces a more challenging backdrop from renewed expectations that the Federal Reserve could remain hawkish for longer. Higher-for-longer rate expectations and elevated Treasury yields increase the opportunity cost of holding a non-yielding asset such as gold, limiting the metal’s upside despite continued demand, she said.