“Debasement trading” that drove strong demand for bitcoin and gold amid recent geopolitical tensions are beginning to lose momentum, according to JPMorgan analysts led by Nikolaos Panigirtzoglou.
In a report on Thursday, the bank claimed that investors have started pulling capital from both bitcoin and gold exchange-traded funds (ETFs) at the same time as institutions reduced exposure to futures markets linked 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 to gold, but rather that both assets are experiencing softer demand at the same time.
“Bitcoin had been the main manifestation of the degradation trade since the start of the Iran conflict,” the report said.
The impairment trade refers to investor positioning in assets that are considered stores of value during periods of inflationary 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 were heightened earlier this year after renewed conflict in the Middle East pushed up oil prices and heightened concerns that inflationary pressures are returning.
JPMorgan said the latest pullback may reflect growing expectations that tensions between the U.S. and Iran may ease.
The report suggested investors may be positioning ahead of a possible diplomatic deal between the two countries, reducing the need for inflation and geopolitical hedges that had supported bitcoin and gold.
