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In investment circles, over the last few years, there has been talk of the “debasement trade” — investment opportunities that could do well if the U.S. government prints more money and allows inflation to run high. The conversation ebbs and flows depending on the latest run of economic data, and, in early September, it’s back in vogue after a few quarters of quietude.
That’s bullish for traditional inflation-hedge assets like gold, but at least in the thinking of some investors on Wall Street, there’s enough demand for those inflation-resistant assets to also benefit newer contenders in the category, like Bitcoin (CRYPTO: BTC). Here’s why.
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Bitcoin’s correlation with gold is now above 70%
The trigger for the debasement trade’s latest revival was Treasury Secretary Scott Bessent announcing on Aug. 19 that the government would expand its purchases of long-dated bonds, effective Sept. 9.
What’s more, Grayscale reported on Aug. 27 that Bitcoin’s 90-day correlation with gold’s price had risen above 50%, up from near zero in January; as of Sept. 9, the correlation has risen even further to around 74%. This supports the hypothesis that investors are beginning to view Bitcoin as a scarce store-of-value asset.
It also has positive implications for its price, especially if financial institutions adopt that same perspective.
Would debasement actually create new demand for Bitcoin?
The advantage of Bitcoin as an inflation-resistant asset is that its supply is limited to a maximum of 21 million BTC, which will never be created, and no government can print more of it. In an environment of rapid currency debasement, which is unlikely to occur with the dollar within the next few years, Bitcoin is also convenient for purchasing large sums of fleeing capital, as it’s a massive market with no international boundaries.
Source: finance.yahoo.com