The “devaluation trade” that led to high demand for bitcoin and gold during recent geopolitical tensions is starting to lose momentum, according to JPMorgan analysts led by Nikolaos Panigirtzoglou.
In a report released Thursday, the bank claimed that investors had begun withdrawing capital from Bitcoin and Gold exchange-traded funds (ETFs) at the same time as institutions reduced their exposure to futures markets linked to the two assets.
The move signals a broader retreat from macro hedging 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’ shift from bitcoin to gold, but rather that both assets are seeing lower demand at the same time.
“Bitcoin has been the primary manifestation of devaluation trading since the start of the Iranian conflict,” the report said.
Depreciation trading refers to the positioning of investors in assets viewed as stores of value during periods of inflation fears or monetary weakness. Bitcoin and gold often benefit when traders expect governments and central banks to increase spending, increase debt, or maintain loose monetary policy.
Those concerns intensified earlier this year after renewed conflict in the Middle East pushed oil prices higher and increased worries about a return of inflationary pressures.
JPMorgan said the recent pullback could reflect growing expectations for an easing of tensions between the United States and Iran.
The report suggests that investors could position themselves in anticipation of a possible diplomatic agreement between the two countries, reducing the need for inflation and geopolitical hedges that supported bitcoin and gold.
