What the ‘Debasement Trade’ Means for Bitcoin

Bitcoin’s latest price movements are reviving an old narrative that traders and macro investors have dubbed the “debasement trade.”

The term describes a bet against fiat currencies, a move toward scarce or hard assets whenever markets expect governments to finance deficits with cheaper money. It’s a trade born from fear that currencies are quietly being diluted.

But the idea isn’t new.

For decades, gold investors have seen the rare metal as protection against inflation and government overspending, buying it whenever central banks pump more money into the economy.

On brink

Bitcoin advocates see the cryptocurrency fulfilling a similar function in the market.

When Bitcoin went live in January 2009, Satoshi Nakamoto, its pseudonymous creator, left a message inside the first block that read: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”

The line, lifted from a Times of London headline, captured the mood of the post-2008 crisis era: distrust in central banks, bailouts, and monetary excess.

For Bitcoin advocates, the message was a diagnosis. Where fiat money can be printed at will, Bitcoin’s supply is fixed at 21 million, while its “halvings,” which cut issuance every four years, are designed to mimic scarcity.

“Bitcoin is the single best hedge in any market. Period.” Frank Hepworth, CEO at primary crypto market Yieldschool, told Decrypt. “It’s the most finite asset on Earth, secured electronically by more energy each year than the entire nation of Finland consumes.”

Because it “can’t be inflated or debased, investors have come to trust it as the ultimate store of value,” Hepworth said. “The most obvious reflection of this is its current $2.4 trillion market cap, which is only going to rise.”

Hepworth opines that this trend would “continue as fiat currency has seemingly no choice but to continue debase.”

Lucas Kiely, founder of digital asset wealth manager Future Digital Capital Management, likened the cryptocurrency to “real assets.” While currencies have depreciated, he said, “the prices of real assets like houses, cars [and] school fees have all risen faster than the rate of inflation.” Bitcoin, he argued, has been “one of the biggest beneficiaries of this, because the original hypothesis that USD debasement will make us poorer has played out perfectly since its inception.”

“As long as the US and G7 governments keep printing money, currency debasement will continue, and so real assets and Bitcoin will continue to rise,” Kiely added. “The only thing that will stop this is if the money printers are turned off. Otherwise, any correction is simply a short-term blip.”

Stefan Nossal, who leads marketing at OP_NET, a Bitcoin metaprotocol, told Decrypt that the alpha crypto asset “hedges currency debasement conditionally.”

“Its fixed supply and cadence make it structurally anti-dilutive,” Nossal said. “In practice, the hedge is strongest when real yields are declining or liquidity is expanding; and it trades more like a high-beta risk asset when the opposite holds.”

In simpler terms, Bitcoin tends to rise when money is cheap and abundant, but falls when borrowing costs go up and cash gets tighter.

Nic Puckrin, crypto analyst and co-founder of The Coin Bureau, pointed out that the “debasement trade” is largely narrative-driven. “The narrative is psychological in the sense that it’s based on the principles of behavioral finance,” he told Decrypt, adding that, “People don’t trust the government and policymakers, and so they turn to Bitcoin. But that’s precisely why it works as a hedge, because enough people see it as one.”

Trimming the hedge

Others offered a dissenting voice. Bitcoin “does not behave as a natural hedge against the currency debasement, at least from what we can see in terms of flows,” Tomas Fanta, principal at crypto-native venture firm Heartcore, told Decrypt. “Gold and stocks are clearly the primary benefactor of the devaluing U.S. dollar.”

This year’s rally in gold and equities shows investors moving to protect against a weaker dollar, Fanta explained.

Yet Bitcoin and other cryptocurrencies do not “exhibit the same tendencies,” he said. While the asset class is appreciating, he argued that it’s driven by “easing access for tradfi” through vehicles such as ETFs and digital asset treasuries, along with greater regulatory clarity, rather than by “the demand for the asset as a protection against a declining dollar.”

The selloffs at each new high this year show that most investors still see Bitcoin “as highly speculative and less protective,” he said.

While this is the case, Fanta said he still believes “more adoption of the hedge as a structural movement” will come as “gold becomes excessively expensive, forcing people to flock into relative trades,” in which Bitcoin appears as most attractive.