Wall Street Sees New Opportunities for 'Debasement Trade' Amid Rising Inflation Expectations
The 'debasement trade' is back in vogue on Wall Street after Treasury Secretary Scott Bessent announced that the government would expand its purchases of long-dated bonds, effective September 9. This move artificially attempts to keep bond yields lower, making investors believe the risk of currency debasement is rising rather than falling.
Bitcoin's correlation with gold has risen above 70%, with Bitcoin up 22% since Bessent's announcement and gold down 2%. Grayscale reported that Bitcoin's 90-day correlation with gold's price had risen to around 74%, supporting the hypothesis that investors are viewing Bitcoin as a scarce store-of-value asset.
Bitcoin's advantage is its limited supply, with only 21 million BTC in existence. This makes it a convenient and reliable hedge against dollar debasement. However, institutional investors tend to adopt new technologies and assets cautiously, making it difficult for Bitcoin to stand alone in a portfolio intended to survive currency debasement.
Some investors are bundling traditional inflation-hedge assets like gold with newer approaches like Bitcoin. For example, Bitwise Asset Management launched an ETF that holds at least 25% in spot gold alongside Bitcoin and mining stocks.