Iran-Israel Crisis Could Lead ‘Degradation Trade’ Investors Favoring Bitcoin and Gold – JPMorgan

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Rising geopolitical risks and the upcoming US presidential election are pushing investors towards traditional safe-haven assets such as gold, while Bitcoin faces selling pressure amid conflicts in the Middle East, particularly recent tensions between Israel and Iran.

JP Morgan analysts suggest rising global tensions and the US election in November are reinforcing what some are calling the “debasement trade”, favoring both gold and bitcoin as a hedge against currency devaluation. However, recent market movements show diverging paths for the two assets.

“Rising geopolitical tensions and the upcoming US election are likely to reinforce what some investors are calling the ‘downgrade trade’, favoring both gold and bitcoin,” JP Morgan Global Markets Strategy analysts said in a note on Thursday.

Gold prices have risen in recent weeks, approaching $2,700 an ounce on September 26. Analysts attribute this increase to a 4-5% decline in the dollar and a significant decline in real US Treasury yields. However, gold’s appreciation has exceeded what these factors alone would suggest, indicating a renewed interest in the metal as a safe haven.

CryptoQuant highlighted historical trends where lower US Treasury yields have correlated with rising gold prices. “In 2008, as 13-week Treasury bill yields fell, gold prices rose from $590 to a peak of $1,900 an ounce by 2011,” the firm noted. “A similar trend is emerging now, with gold climbing from $2,000 to nearly $2,700.”

While gold is benefiting from the current macroeconomic environment, Bitcoin has faced selling pressure amid escalating tensions in the Middle East. U.S. spot Bitcoin ETFs reversed an eight-day inflow streak with significant outflows as Bitcoin retreated below $62,000 following Iran’s missile attacks on Israel.

Data from Farside Investors shows that BlackRock’s iShares Bitcoin Trust (IBIT) was the only fund to see net inflows on Tuesday, taking in more than $40 million. However, this was insufficient to offset outflows from other funds, resulting in over $242 million in net outflows in US spot Bitcoin ETFs.

Bitcoin and gold’s contrasting moves have reignited the debate over Bitcoin’s role as a safe-haven asset. As news of Iran’s missile strikes broke, the value of Bitcoin fell more than 3% in 24 hours, falling nearly $4,000 to around $60,300. Meanwhile, gold prices rose 1.4% to $2,665 an ounce, nearing a record high.

The Crypto Fear and Greed Index fell from a neutral 50 points to 42 points, indicating increased caution among crypto investors as geopolitical risks intensify. Israeli Prime Minister Benjamin Netanyahu’s promise to retaliate against Iran has further heightened tensions, which may lead to further market volatility.

While JP Morgan analysts see potential for both gold and Bitcoin in the “decline trade,” current market dynamics demonstrate gold’s stronger appeal as a safe haven during times of geopolitical uncertainty. Recent Bitcoin price action and ETF exits suggest that the cryptocurrency may still be viewed as a risk asset by many investors, despite its long-term potential as a hedge against currency devaluation.

As global tensions persist and the US presidential election approaches, investors will likely continue to closely monitor the performance of both gold and Bitcoin as potential safe-haven assets in an increasingly uncertain geopolitical landscape.

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