The "debasement trade" that drove strong demand for bitcoin and gold during recent geopolitical tensions is beginning to lose momentum, according to JPMorgan analysts led by Nikolaos Panigirtzoglou.

Market Context

Both assets have seen simultaneous outflows from exchange-traded funds over the past two weeks. Bitcoin ETFs experienced significant redemptions alongside gold ETFs, according to data from Farside Investors. Positions in CME bitcoin and gold futures have weakened during the same period, reflecting reduced institutional exposure to both markets.

Bitcoin had been the main manifestation of the debasement trade since the start of the Iran conflict, JPMorgan noted in its Thursday report. Gold's rally peaked months after bitcoin's correction, climbing from $2,000 to above $5,200 per ounce before pulling back nearly 20%. Bitcoin traded near $72,832 during this period.

Analysis

The simultaneous pullback does not appear to reflect investors rotating from one asset into the other. Rather, both bitcoin and gold are seeing softer demand at the same time, suggesting a broader retreat from macro hedge trades that became popular earlier this year.

The debasement trade refers to investor positioning in assets viewed as stores of value during periods of inflation fears or currency weakness. Bitcoin and gold often benefit when traders expect governments and central banks to increase spending, expand debt or maintain loose monetary policy.

JPMorgan suggested the recent pullback may reflect growing expectations that tensions between the United States and Iran could ease. The report indicated investors may be positioning ahead of a possible diplomatic agreement between the two countries, reducing the need for inflation and geopolitical hedges that had supported both assets earlier this year.

Concerns about returning inflationary pressures intensified after renewed conflict in the Middle East pushed oil prices higher. As diplomatic prospects improve, traders are unwinding positions that served as insurance against sustained commodity price increases and expanded government spending.

Key Numbers

- Bitcoin ETFs saw significant outflows over the past two weeks, per Farside Investors data

- Gold climbed from $2,000 to above $5,200 per ounce before correcting nearly 20%

- CME bitcoin and gold futures positions weakened over the same period as ETF outflows accelerated

- Bitcoin traded near $72,832 during the pullback phase

What to Watch

Traders should monitor developments in US-Iran diplomatic negotiations for signals that could further reduce demand for inflation hedges. Crude oil price movements will remain critical, as energy costs directly influence expectations for persistent inflation.

Gold support levels around $4,160 per ounce represent key technical territory following the 20% correction from highs. Bitcoin faces resistance at its 200-day moving average as ETF flows remain negative. Any breakthrough in diplomatic talks could accelerate outflows from both asset classes, while renewed geopolitical escalation would likely reverse current positioning trends.