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Kriptoteka > Market > ETFs > Iran-Israel Crisis Sparks ‘Debasement Trade’ for Bitcoin, Gold
ETFs

Iran-Israel Crisis Sparks ‘Debasement Trade’ for Bitcoin, Gold

marcel.mihalic@gmail.com
Last updated: October 6, 2024 2:37 am
By marcel.mihalic@gmail.com 4 Min Read
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Essential Insights

  • The rise in gold prices has exceeded forecasts due to a softening dollar and declining Treasury yields.
  • Bitcoin is projected to mimic gold’s price trajectory despite currently exhibiting a negative correlation.

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Escalating geopolitical tensions alongside the forthcoming US presidential election are driving investors toward classic safe-haven assets like gold. Conversely, Bitcoin is under selling pressure amid conflicts in the Middle East, particularly due to the recent provocations involving Israel and Iran.

Analysts at J.P. Morgan believe that the increasing global tensions combined with the November US election bolster what is referred to as the “debasement trade,” which favors both gold and Bitcoin as defenses against currency depreciation. However, the latest market trends reveal diverging trends for these two assets.

“Escalating geopolitical challenges and the imminent US election are likely to strengthen the so-called ‘debasement trade,’ favoring both gold and Bitcoin,” noted J.P. Morgan Global Markets Strategy analysts in a recent report.

Gold prices have skyrocketed over the past few weeks, nearing $2,700 per ounce as of September 26. Analysts attribute this surge to a 4-5% drop in the dollar and a remarkable decrease in real US Treasury yields. However, the increase in gold’s value has surpassed the expectations set by these factors, suggesting a rekindled interest in gold as a secure asset.

CryptoQuant has pointed out historical patterns showing that lower US Treasury yields have correlated with rising gold prices. “In 2008, as the yields on the 13-week Treasury Bill fell, gold prices escalated from $590 to a peak of $1,900 per ounce by 2011,” the firm reported. “A comparable trend is appearing now, with gold rising from $2,000 to nearly $2,700.”

While gold is gaining from the current economic climate, Bitcoin is experiencing selling pressure due to the mounting tensions in the Middle East. Notably, US spot Bitcoin ETFs ended an eight-day streak of inflows with significant outflows as Bitcoin fell below $62,000 after Iran’s missile strikes on Israel.

Data from Farside Investors illustrates that BlackRock’s iShares Bitcoin Trust (IBIT) was the only fund to register net inflows on Tuesday, attracting over $40 million. However, this was not enough to counterbalance the outflows from other funds, resulting in a net outflow of over $242 million across US spot Bitcoin ETFs.

The contrasting performance of Bitcoin and gold has revived discussions regarding Bitcoin’s status as a safe-haven asset. Following the news of Iran’s missile strikes, Bitcoin’s value plummeted more than 3% within 24 hours, decreasing nearly $4,000 to approximately $60,300. In contrast, gold’s price appreciated by 1.4% to $2,665 per ounce, approaching a new all-time high.

The Crypto Fear and Greed Index fell from a neutral 50 points to 42 points, indicating a heightened sense of caution among crypto investors as geopolitical uncertainties grow. Israeli Prime Minister Benjamin Netanyahu’s promise of retaliation against Iran has further escalated tensions, which could lead to additional market fluctuations.

Although J.P. Morgan analysts perceive potential in both gold and Bitcoin regarding the “debasement trade,” the current market dynamics highlight gold’s greater attractiveness as a safe haven amidst geopolitical volatility. Bitcoin’s recent market behavior and ETF outflows indicate that many investors might still regard the cryptocurrency as a risk asset, despite its long-term promise as a hedge against currency depreciation.

As international tensions endure and the US presidential election nears, investors are likely to keep a close watch on the performances of both gold and Bitcoin as prospective safe-haven assets in a continuously volatile geopolitical setting.

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