"Depreciation trades" make a comeback! Gold and Bitcoin ETF attract about $7 billion in five days as two major scarce assets strengthen together

According to Zhitong Finance APP, as renewed concerns over the US fiscal deficit, government debt, and the outlook for the US dollar rattle the market, investors are flocking to both gold and bitcoin simultaneously, instead of choosing between the two assets. The latest fund flow data shows that exchange-traded funds (ETFs) tracking gold and bitcoin attracted a combined record inflow of about $7 billion over the past five trading days, with these two scarce assets once again becoming key safe-haven directions for global capital.

Data shows that over the past five trading days, SPDR Gold Shares (GLD.US) under State Street Investment Management attracted nearly $3.4 billion in capital inflows, while BlackRock’s iShares Bitcoin Trust ETF (IBIT.US) saw a net inflow of about $1.5 billion.

Both funds ranked among the top ten US ETFs for inflows during the same period, with GLD’s inflows trailing only a few large equity ETFs, including the S&P 500 ETF (VOO.US).

The simultaneous large inflows into gold and bitcoin are especially noteworthy.

In previous periods, when market risk-aversion intensified, gold would traditionally attract capital due to its status as a conventional safe-haven asset, while bitcoin’s “digital gold” property was met with more skepticism. However, now, assets exemplifying different forms of “scarcity” are rising in tandem once again.

A key driver behind this shift is renewed market anxiety about the US government’s massive funding needs, the trajectory of the US dollar, and the potential effects of governmental attempts to suppress long-term Treasury yields.

US Treasury Secretary Yellen previously announced that the Treasury would at least double the scale of long-term Treasury buybacks. After this news was released, US Treasury yields and the dollar temporarily declined, while both gold and bitcoin surged. This has further strengthened investor demand for scarce assets whose supply cannot be easily increased by governments.

Gautam Chhugani, Senior Digital Assets Analyst at Bernstein, noted that what appears to be an era of falling interest rates that has lasted around 40 years is coming to an end. With sovereign debt now at unprecedented levels, governments are facing increasingly high debt servicing costs. In this environment, investors could benefit from holding scarce assets such as bitcoin, which cannot be easily created or diluted.

The latest market trends have also brought “debasement trades” back into focus. This strategy operates on the logic that as government fiscal pressure intensifies and policymakers ease financial conditions to mitigate the debt burden, investors tend to prefer assets with limited supply that lie outside the monetary system.

Historically, gold has been the traditional choice due to its centuries-old role as a store of value and safe haven. Meanwhile, with bitcoin’s ultimate supply capped at 21 million, it is increasingly being used by some investors as a tool to hedge against currency debasement and fiscal risks.

Eric Balchunas, Senior ETF Analyst at Bloomberg Intelligence, stated that this is very important for bitcoin’s long-term investment narrative, as its core story should indeed be “an asset that resists currency debasement.”

Bridgewater Associates founder Ray Dalio recently also recommended that investors reduce their bond allocations, consider putting up to 10% to 15% of their portfolios in gold, and also hold a “small amount” of bitcoin to hedge against potential US debt crisis risks.

It is noteworthy that the pace of recent inflows has clearly accelerated. GLD, with assets of about $155 billion, has net outflows of about $2.8 billion so far this year; however, it attracted about $3.4 billion in just the past five trading days, indicating a significant shift in investor attitude toward gold allocation.

IBIT, with assets around $60 billion, has remained relatively stable this year, garnering about $830 million of cumulative inflows during the same period, while its inflows in the past five trading days alone reached approximately $1.5 billion.

Noelle Acheson, author of Crypto Is Macro Now, believes that what’s truly notable isn’t just the capital inflows themselves, but the clear trend of acceleration developing. She stated that this flow momentum could mean that investors who were previously underallocated in gold and bitcoin are now rapidly increasing their positions.

The large influx of capital is also pushing both assets to rise in tandem in recent periods.

Gold is up about 13% for the month, with prices briefly breaking above $4,600 per ounce; bitcoin once surged past the $80,000 mark. This simultaneous rally means that both gold and bitcoin are currently benefiting from concerns over US fiscal conditions, government debt, and the dollar’s purchasing power.

In the past, investors might have viewed gold and bitcoin as alternative competing assets, but the latest capital flows show that some investors are now allocating to both—using gold as a traditional safe haven, while leveraging bitcoin’s fixed supply to hedge against long-term currency and fiscal risks.

However, not all Wall Street institutions believe the “debasement trade” will remain the main driver for gold and bitcoin’s price rise.

Fundstrat economist Hardika Singh believes momentum behind this strategy may be waning, and that equities may ultimately become a more reliable hedge than gold or bitcoin.

She noted that the ever-expanding US fiscal deficit is indeed an issue, but if the market gradually accepts that no clear resolution is imminent, investors may eventually adapt to these fiscal conditions.

In this context, it is entirely possible for gold and bitcoin to continue rising, but the reasons driving this price increase may not be fueled by worries over currency debasement alone.