Bitcoin and Gold price rally on the debasement trade — a warning, not a victory

Bitcoin and gold price gains are less about opportunity and more about escaping erosion. The debasement trade is unfolding in plain sight.

The debasement trade gains momentum

Across markets, investors are turning away from fiat money and toward tangible or scarce assets. Gold reached a new record on Oct. 7 when its spot price crossed $4,000 per ounce for the first time. The rally of more than 50% since the beginning of the year has pushed its total market cap beyond $27 trillion.

Data from the World Gold Council shows that central bank demand has remained consistently strong throughout the year, with net purchases led mainly by emerging economies.

Equities have also recorded steady gains. The S&P 500 hit new closing highs in late September and again in October, rebounding from a correction earlier in the year. The Nasdaq and Dow Jones remained close to record territory during the same period.

S&P Dow Jones Indices described this as one of the strongest multi-quarter runs for U.S. equities in more than ten years, despite high Treasury yields and wide credit spreads.

Bitcoin (BTC) has become the third pillar of this realignment. On Oct. 6, the cryptocurrency rose above $126,000, setting a new all-time high. It was trading near $125,000 on Oct. 8, extending gains of almost 8% since the start of the month.

The rally has aligned with record inflows into U.S. spot Bitcoin ETFs, which attracted more than $2 billion in just two days this week, led by BlackRock’s iShares Bitcoin Trust. On Oct. 6 alone, these ETFs drew nearly $1.2 billion in net inflows.

A clear change in investor psychology runs beneath these moves. Instead of turning to gold only in times of panic, markets are now allocating to gold, Bitcoin, and equities at the same time.

Analysts at JP Morgan describe this as the “debasement trade,” a strategy focused on holding assets that guard against monetary dilution, inflation risk, and the erosion of currency credibility.

History’s warning on fiat collapse

The loss of trust in fiat currencies has often marked the early stages of transition between monetary systems. 

In the third century, the Roman Empire began to unravel financially as wars intensified and political power changed hands repeatedly. The silver content of Roman coins fell from more than 90% to less than 5% within a few decades. 

As confidence collapsed, inflation soared and soldiers started demanding payment in goods instead of debased money. Commerce slowly withdrew into barter. Once money stopped preserving value, the foundations of the Roman economy began to crumble.

A similar pattern appeared in sixteenth-century Spain. Large inflows of silver from the Americas created a monetary surplus. Although the metal itself was real, its excessive use by the state drove prices higher across Europe and weakened the empire’s financial position.

Hard money remained in appearance but lost its purpose. When political control over issuance failed, even gold and silver could no longer serve as reliable anchors of stability.

During the French Revolution, the same cycle repeated through paper money. Assignats were first issued as notes backed by land but soon turned into tools of unchecked monetary expansion. 

Within a few years, their value fell by more than 95%. People began rejecting them in daily trade, and economic activity weakened. As the currency lost credibility, public faith in the revolutionary government faded just as quickly.

In the twentieth century, a more intricate system began to decay. The Bretton Woods framework, based on the dollar’s convertibility into gold, collapsed in 1971 when the U.S. ended that tie. What followed was the beginning of the modern fiat era.

From that point onward, the value of money depended not on convertibility but on the credibility of governments and central banks. Over time, that credibility has worn down. 

Mounting debt, chronic fiscal deficits, and a growing reliance on inflation to sustain growth have steadily weakened the base of the system.

Gold price rises as trust fades

The weakening credibility of fiat money is evident in the hard data of public finance, monetary expansion, and reserve allocation.

Global debt remains at extraordinary levels. According to the IMF, total debt across public and private sectors stood just above 235% of global GDP in 2025, with public borrowing still rising even as private debt eased slightly. 

The Institute of International Finance reports that worldwide debt surpassed $324 trillion in early 2025. Sovereign borrowing sits at the heart of this increase. The OECD projects that bond issuance across its member nations will reach a record $17 trillion this year, up from $14 trillion in 2023.

These figures place mounting pressure on fiscal legitimacy. Many governments now depend on rolling over debt, bearing higher interest costs, and relying on inflation to reduce real obligations. The question is how long markets will continue to view this structure as sustainable.

Central bank behavior offers one of the clearest signs of adjustment. In recent years, central banks have consistently purchased more than 1,000 tonnes of gold annually, far above the average levels of the previous decade. 

In the first quarter of 2025 alone, they added 244 tonnes, about 25% above the five-year quarterly mean. Poland accounted for 49 tonnes during the quarter, more than half its annual demand, while China added 13 tonnes. The buying trend continued into the second quarter, with another 166 tonnes acquired.

Survey data from the World Gold Council provides context. About 73% of central banks said they plan to reduce their share of U.S. dollar holdings over the next five years. The same proportion expect to raise their allocations to gold or alternative currencies.

Global official gold reserves now stand near 36,000 tonnes. At current market prices, some estimates place the notional value of these holdings close to the scale of U.S. Treasury exposure in certain cases. 

Economists at the Federal Reserve have acknowledged that central banks are building gold reserves to lower concentration risk in their portfolios.

Debt dynamics help explain this pattern. Inflation in advanced economies has eased on the surface, yet real interest rates remain compressed. Investors holding cash or government bonds often earn returns that lag behind monetary expansion, eroding their purchasing power over time. 

The same structure benefits governments. Lower real yields make it easier to fund persistent deficits without triggering immediate concerns about solvency.

In Japan, public debt is nearing 230% of GDP. Across Europe, France, Italy, and Greece each hold ratios above 110%. The endurance of these levels depends less on growth and more on the assumption that capital markets will continue to refinance them without resistance.

Each monetary signal points in the same direction. Central banks are increasing their gold exposure to reduce policy risk. Investors are buying Bitcoin as protection against currency dilution. Equities remain supported not by earnings momentum but because monetary supply continues to expand faster than real economic output.

Bitcoin emerges as neutral reserve hedge

Several systems that have long supported global liquidity and currency stability are now showing visible strain. 

Japan’s 30-year government bond yield reached 3.32% on Oct. 7. For decades, Japan maintained near-zero rates and carried out multiple rounds of quantitative easing, creating a low-cost liquidity base that helped stabilize global capital markets.

Institutions around the world borrowed cheaply in yen and invested in higher-yielding assets elsewhere, keeping volatility low and sustaining cross-border capital flows.

With Japanese yields now rising, that dynamic is starting to reverse. Foreign investors are cutting exposure, and Japanese institutions are bringing capital back home.

The consequences are broad. As one analyst noted, “Every asset class, every risk model, every ‘this time is different’ assumption priced into equities, housing, private credit, even crypto, is downstream of this invisible Japanese subsidy.” That subsidy no longer exists.

Credibility concerns are also surfacing in developed markets. Bloomberg anchor and financial columnist Lisa Abramowicz observed, “Gold’s parabolic move toward $4,000 is sending a warning signal to the traditional financial system. Developed-market nations are losing clout as being good stewards of capital.”

Her remarks align with the ongoing pattern of reserve diversification, where central banks continue to expand gold holdings and reduce long-term exposure to the U.S. dollar.

In this environment, economists at Deutsche Bank suggest that central banks could begin holding Bitcoin by 2030. Their assessment cites improving liquidity, growing regulatory clarity, lower volatility, and Bitcoin’s independence from government control as the main drivers.

The bank adds that U.S. led adoption could strengthen this shift, allowing Bitcoin to move from a speculative instrument into a recognized monetary alternative. 

In that sense, the expanding flows into spot Bitcoin ETFs and the steady pace of central bank gold accumulation are signs of how the global allocation engine is reprogramming itself for a world where money creation and debt expansion can no longer deliver trust.

Equity markets, meanwhile, continue to draw support less from corporate performance and more from liquidity supply. 

Investors are no longer deciding between risk and safety in the traditional sense. They are judging assets by a single measure, their ability to preserve purchasing power when fiscal systems depend on refinancing and inflation to stay afloat.

That same question of preservation now extends beyond portfolios to the structure of money itself. Every major signal, from bond yields and debt ratios to reserve behavior and ETF flows, points to a gradual redefinition of value. 

The world is no longer seeking growth at any cost. It is searching for a form of money that can hold trust when the promise of the state no longer does.