- Bitcoin and gold demand weakened as investors stepped back from geopolitical and inflation hedge trades.
- A stronger U.S. dollar and rising yields reduced appetite for bitcoin despite fresh inflation concerns.
- JPMorgan linked fading debasement trade momentum to growing optimism around possible Iran diplomacy.
Bitcoin and gold lost momentum this week as investors pulled back from trades tied to inflation and geopolitical fears. JPMorgan analysts said demand for both assets weakened after traders reduced exposure to exchange-traded funds and futures markets.
Investors once viewed bitcoin and gold as protection against rising inflation, government spending, and currency weakness. However, traders now expect possible diplomatic progress between the United States and Iran. That optimism reduced demand for traditional hedge assets even as global risks remained elevated.
Markets still faced heavy pressure on Thursday after fresh conflict between Washington and Tehran rattled investors again. Oil prices jumped nearly 3% after Tehran targeted a U.S. airbase following new American strikes. At the same time, U.S. inflation recorded its fastest annual increase in three years during April. Treasury yields also moved higher, adding fresh pressure across financial markets.
Despite rising inflation concerns, bitcoin failed to attract strong safe-haven demand. JPMorgan strategist Nikolaos Panigirtzoglou said investors appeared to exit both bitcoin and gold positions simultaneously instead of rotating between the two assets.
Investors Pull Back From Bitcoin and Gold
JPMorgan analysts said investors have started stepping away from bitcoin and gold as inflation hedge demand weakens. The bank pointed to two straight weeks of outflows from bitcoin and gold exchange-traded funds. Additionally, institutional traders reduced positions in CME bitcoin and gold futures during the same period.
The retreat suggests investors no longer treat both assets as urgent protection against inflation and currency weakness. JPMorgan strategist Nikolaos Panigirtzoglou said the market showed no clear rotation from bitcoin into gold. Instead, traders pulled back from both assets simultaneously as appetite for macro hedge trades faded.
“Bitcoin had been the main manifestation of the debasement trade since the start of the Iran conflict,” the report said.
The debasement trade gained traction earlier this year as tensions across the Middle East intensified. Investors feared higher oil prices, rising government spending, and stubborn inflation pressures. Consequently, many traders shifted capital into assets viewed as long-term stores of value.
However, JPMorgan now believes that momentum has started cooling. The bank said investors increasingly expect diplomatic progress between the United States and Iran. That shift reduced demand for defensive positions tied to geopolitical risk and inflation fears.
The slowdown also reflects broader changes across global markets. Investors recently moved back toward risk assets, especially technology stocks linked to artificial intelligence growth. Meanwhile, stronger Treasury yields and a firmer U.S. dollar created additional pressure for bitcoin and gold prices.
Wall Street Rally Faces New Inflation Risks
As per Reuters, Wall Street turned cautious on Thursday as rising tensions between the United States and Iran unsettled investors. The Dow Jones Industrial Average fell more than 110 points during morning trading. Meanwhile, the S&P 500 and Nasdaq Composite hovered near flat levels after reaching record highs earlier this week.
Higher oil prices and fresh inflation concerns weighed on several sectors across the market. Industrial shares led the decline as investors reacted to growing geopolitical risks. Airline stocks also moved lower because rising fuel costs threatened profit margins.
However, strong demand for artificial intelligence stocks continued supporting parts of the technology sector. Marvell Technology gained after projecting second-quarter revenue above Wall Street estimates. Snowflake also surged after announcing a $6 billion artificial intelligence infrastructure partnership with Amazon Web Services.
The mixed trading session highlighted the market’s current divide. Investors remain concerned about inflation and geopolitical instability. At the same time, enthusiasm surrounding artificial intelligence and corporate earnings continues driving selective buying.
Angelo Kourkafas, senior global investment strategist at Edward Jones, said the latest inflation data did not significantly alter investor expectations.
“I don’t think the data changed the narrative. The number was not as bad as feared. That pushes back a little bit against some expectations for rate hikes,” he said.
“A lot of the focus will still be on the Iran negotiations and the AI trends and these are the two things that (will) drive the narrative for equities.”
Market Attention Shifts Away From Debasement Trade
Interest in the so-called debasement trade has also started fading across financial markets and media coverage. Data from Factiva showed more than 500 articles discussing the theme last October. However, coverage dropped sharply in recent months, with only 34 articles published in May after 27 in April.
The slowdown reflects changing investor sentiment toward traditional inflation hedge trades. JPMorgan strategist Nikolaos Panigirtzoglou said momentum traders recently reduced positions in both bitcoin and gold. At the same time, institutional investors also cut exposure in futures markets tied to both assets.
The pullback suggests traders no longer see the same urgency around inflation and currency debasement risks. Earlier this year, investors aggressively bought bitcoin and gold as Middle East tensions intensified and oil prices climbed higher. However, expectations surrounding possible diplomatic progress between the United States and Iran have started cooling that demand.
Despite the recent weakness, both assets still hold strong long-term gains. Gold prices have increased roughly fourfold over the past decade. Meanwhile, bitcoin traded near $500 ten years ago before climbing above $73,000 this week.
The U.S. dollar also regained momentum during the recent geopolitical turmoil. Federal Reserve data showed the dollar strengthened about 1% on a trade-weighted basis since the Iran conflict escalated. That move added further pressure on bitcoin and gold because investors often shift toward the dollar during periods of uncertainty.
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Dollar Strength Challenges Bitcoin Narrative
A stronger U.S. dollar has also created fresh pressure for bitcoin and gold prices. Currency strategists now believe investors increasingly favor the dollar as inflation concerns and geopolitical tensions reshape global markets.
Francesco Pesole, currency strategist at ING, said the dollar currently holds stronger macroeconomic support compared to earlier months.
“It’s worth reiterating how the dollar now enjoys stronger macro support than it did in early May, when markets latched onto an overly optimistic de-escalation narrative,” Pesole said.
“Hot U.S. inflation data from a couple of weeks ago continues to feed through rates and FX, keeping Fed expectations stickier on the hawkish side whenever oil sells off.”
The stronger dollar and rising Treasury yields have complicated the outlook for bitcoin and gold. Investors usually move toward the dollar during periods of uncertainty because it offers stability and higher returns. At the same time, expectations for tighter Federal Reserve policy continue reducing appetite for speculative assets such as cryptocurrencies.
That shift has placed bitcoin in a difficult position. Rising geopolitical tensions and persistent inflation would normally support demand for hedge assets. However, hopes for possible diplomatic progress between the United States and Iran have weakened some of that urgency.
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