Debasement Trade Cools: Bitcoin and Gold ETFs See Coordinated Outflows

Investors have pulled money from both Bitcoin (BTC) and gold exchange-traded funds (ETFs) over the past two weeks, and JPMorgan analysts say the pattern reflects a cooling of the so-called debasement trade. The analysis was published May 28 by a team led by managing director Nikolaos Panigirtzoglou.

The debasement trade refers to buying assets like Bitcoin and gold as protection against inflation, geopolitical instability, and fiat currency weakness. Bitcoin had become one of the main vehicles for this trade following the start of the US-Iran conflict earlier this year, with Bitcoin ETFs drawing consistent inflows while gold ETFs struggled to recover earlier losses. Now, both asset classes are experiencing simultaneous outflows, signaling a broad retreat.

Bitcoin ETFs See Steeper Outflows

Bitcoin ETFs have seen steeper outflows than gold ETFs over the same period. The JPMorgan analysts said the data looks more consistent with a broad retreat from the debasement trade than with investors rotating out of Bitcoin and into gold. They linked the shift to investor expectations around a potential Iran-US deal.

The outflow figures reflect the shift. BlackRock's IBIT Bitcoin ETF recorded $527.8 million in outflows on May 28, its second-largest single-day redemption since launch. Overall, US spot Bitcoin ETFs posted $733.4 million in net outflows on Wednesday, their steepest daily redemptions since Jan. 29, according to SoSoValue data. Grayscale's GBTC followed with $104.8 million in outflows, alongside negative flows from funds managed by Fidelity, Bitwise, and Ark & 21Shares. Morgan Stanley's MSBT was the only fund to record positive flows, attracting $4.3 million.

Institutional Positioning Also Eases

The same pattern appeared in futures markets. Institutional investors appear to have trimmed exposure to both Bitcoin and gold over the past two weeks. BTC futures saw a sharper pullback because Bitcoin had become a more concentrated expression of the debasement trade since the conflict began, the analysts noted.

JPMorgan's momentum signal framework flagged softening positioning from momentum-driven traders, including commodity trading advisors (CTAs). The analysts said positioning from that group lost momentum in both Bitcoin and gold over the past one to two weeks. The trend reinforced the view that a broader cooling is underway across both assets.

Geopolitical and Macro Context

The outflows come amid a backdrop of geopolitical developments. A U.S. official told MS NOW on Wednesday that the military had carried out new strikes in Iran overnight, while Secretary of State Marco Rubio said the U.S. will give Iran talks 'every chance to succeed.' The conflicting signals have created uncertainty, dampening the safe-haven appeal of both Bitcoin and gold.

Bloomberg Senior ETF Analyst Eric Balchunas flagged on Tuesday that a bulk trade of 29.2 million IBIT shares worth $1.3 billion had taken place the previous day, pushing total Bitcoin ETF volume to $4.4 billion, the highest since April 17. Dominick John, analyst at Zeus Research, told The Block that Wednesday's IBIT outflows were partly a consequence of the unwind of basis trades linked to that large block trade, combined with broader institutional de-risking.

Peter Chung, head of research at Presto Research, described Bitcoin's behavior since mid-May as a 'peculiar trading pattern.' After hovering above $80,000 earlier in the month, BTC dropped below $73,000 in early Thursday trading, compounding a broader market decline driven by institutional repositioning and escalating geopolitical uncertainty.

Market Impact and Outlook

The coordinated outflows from Bitcoin and gold ETFs suggest that investors are reducing exposure to assets that had benefited from inflation and geopolitical fears. If an Iran-US deal materializes, the debasement trade could continue to unwind, potentially leading to further outflows. However, if tensions escalate, safe-haven demand could return.

JPMorgan's analysis indicates that the current retreat is more about a general reduction in risk appetite rather than a shift from one asset to another. The coming weeks will be critical in determining whether this is a temporary pause or the beginning of a longer-term trend.

1. Bitcoin and gold ETFs saw coordinated outflows of $733.4 million and significant redemptions respectively, marking a broad retreat from the debasement trade.
2. JPMorgan analysts attribute the outflows to investor expectations of a potential Iran-US deal, reducing the need for inflation and geopolitical hedges.
3. Institutional positioning in futures markets also eased, with momentum traders like CTAs reducing exposure to both assets.
4. The largest Bitcoin ETF outflows came from BlackRock's IBIT ($527.8M) and Grayscale's GBTC ($104.8M), while Morgan Stanley's MSBT bucked the trend with small inflows.
5. Geopolitical uncertainty remains high, and the direction of the debasement trade will depend on whether US-Iran tensions de-escalate or intensify.

Sources: CoinMarketCap Academy, CoinMarketCap Academy, CNBC, CryptoNews.