Bitcoin-gold ratio hits 18.17 as debt fears revive debasement trade

One bitcoin now buys 18.17 ounces of gold, the most since January, as investors hedge against swelling US debt.

"Investors are no longer asking whether to hedge currency debasement with gold or bitcoin. They're simply hedging with both," André Dragosch, head of European research at Bitwise, said.

The ratio milestone tracks a revival of the debasement trade, in which investors buy hard assets to guard against a currency losing value. Bitcoin's correlation with gold has climbed to its highest in six years, Dragosch wrote in a Bitwise report this week, after the US Treasury said it would more than double the size of its government debt repurchases. The Treasury the same week said US public debt exceeded $40 trillion for the first time. Bitcoin was trading near $81,438 as of Sept. 4, up nearly 6 percent over 24 hours, after its best run in three years and its third-best August on record.

The last time bitcoin's correlation with gold ran this high was 2020, following the rounds of fiscal and monetary stimulus during the Covid crisis, Dragosch noted. Bitcoin's correlation with the stock market, by contrast, has dropped to a one-year low, pointing to a decoupling between hard assets and equities.

A hedge that trades with gold, not the Nasdaq

The shift marks a departure from bitcoin's history of moving as a risk asset in step with technology stocks. The token has been pitched as a monetary hedge for years, yet it has often tracked the Nasdaq during risk-on stretches. The current setup, in which bitcoin follows gold more closely than equities, suggests the market is pricing it as a hedge against fiat debasement rather than a growth bet.

The catalyst traces to Washington. When the Treasury said it would step up debt repurchases to rein in long-term borrowing costs, the dollar slid, sending investors back toward gold and bitcoin. Excessive debt also undermines confidence in the dollar, Dragosch argued, reinforcing demand for assets that sit outside the fiat system.

Whether the link holds is the open question. "Bitcoin spent its first fifteen years being priced as a risk asset. If this correlation trend with gold holds, the next fifteen may look very different," the Bitwise report said. A sustained link would strengthen the case for bitcoin allocations in portfolios that already hold gold, and could draw fresh institutional flows into the token as a debt hedge.

This article is for informational purposes only and does not constitute investment advice.