The “debasement trade” that drove strong demand for bitcoin and gold during recent geopolitical tensions is beginning to lose momentum, according to JPMorgan analysts led by Nikolaos Panigirtzoglou.
In a report on Thursday, the bank argued investors have started pulling capital from both bitcoin and gold exchange-traded funds (ETFs) at the same time as institutions reduced exposure in futures markets tied to both assets.
That shift signals a broader retreat from macro hedge trades that became popular earlier this year amid fears of inflation and global instability stemming from tensions in the Middle East.
Bitcoin ETFs have seen significant outflows over the past two weeks, according to data from Farside Investors, in line with gold ETFs, while positions in CME bitcoin and gold futures have weakened over the same period.
Panigirtzoglou argued that the move does not appear to reflect investors rotating from bitcoin into gold, but rather that both assets are seeing softer demand at the same time.
“Bitcoin had been the main manifestation of the debasement trade since the start of the Iran conflict,” the report said.
The debasement trade refers to investor positioning in assets viewed as stores of value during periods of inflation fears or currency weakness. Bitcoin and gold often benefit when traders expect governments and central banks to increase spending, expand debt or keep monetary policy loose.
Those concerns intensified earlier this year after renewed conflict in the Middle East pushed oil prices higher and heightened worries about inflationary pressures returning.
JPMorgan said the recent pullback may reflect growing expectations that tensions between the United States and Iran could ease.
The report suggested investors may be positioning ahead of a possible diplomatic agreement between the two countries, reducing the need for inflation and geopolitical hedges that had supported bitcoin and gold.