JPMorgan Strategists: Bitcoin and Gold Thriving on Geopolitical Uncertainty and Debasement Fears

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As a seasoned analyst with over two decades of experience in global markets, I find myself increasingly drawn to the intriguing dynamics unfolding between traditional currencies and their alternative counterparts – gold and Bitcoin. My career has been marked by numerous economic cycles and geopolitical shifts, which have taught me that markets often mirror societal sentiments more than cold, hard numbers.

Amidst the rising geopolitical conflicts between Iran and Israel, I’ve noticed that two significant contenders to the U.S. dollar – gold and Bitcoin – have shown differing reactions. Gold, in this case, has remained stable, but my Bitcoin investments have dipped by about 3% ever since oil prices surged.

Based on a report by Steve Goldstein for MarketWatch, which refers to a research note from JPMorgan strategists, these assets are suggested to continue their strength in an investment strategy they term the “dilution game.

The term “debasement trade” refers to a set of issues that have led to interest in both gold and Bitcoin. As explained by Nikolaos Panigirtzoglou from JPMorgan, these factors include escalating global political unrest, ongoing worries about inflation, and the potential dangers posed by rising government debt. Additionally, a decline in trust in paper currencies, particularly in some developing countries, has boosted the appeal of these assets. Although these concerns are not novel, the current high prices of gold ($2,700 per ounce) and Bitcoin ($60,000) have made the debasement argument more pertinent again.

By the third quarter of 2024, the proportion of U.S. dollars held in global currency reserves decreased to 57%, as indicated by data from the International Monetary Fund (IMF). Interestingly, this decrease took place even though China’s central bank stopped buying gold earlier this year. The continuous decline in dollar reserves has led to speculation about the future of paper currencies, bolstering the case for gold and Bitcoin as possible alternatives for holding value.

According to JPMorgan’s examination of Commodity Futures Trading Commission (CFTC) statistics, there’s an increasing appetite for speculation in gold and Bitcoin futures among traders, with minimal institutional investment in Ethereum. Hedge funds seem to regard gold and Bitcoin as analogous assets that thrive on the ‘debasement trade.’ In September, Bitcoin ETFs experienced inflows following a downturn in August, suggesting that retail investors are adopting this trend.

According to experts at JPMorgan, geopolitical conflicts and the approaching US election might intensify the trend of debasing currencies. A victory for Donald Trump in the election could increase the value of Bitcoin and fuel worries about rising inflation and growing government debt.

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2024-10-04 16:19