If the debasement trade would catapult Bitcoin, why is the market down?

Bitcoin traded at $117,729.81 as of press time, struggling to extend gains from its $126,000 all-time high as short-term positioning dynamics and risk-off flows dominated the medium-term debasement thesis.

The debasement trade thesis gained popularity after JPMorgan published a report on the topic on Oct. 1. The thesis is based on the expectation that fiscal expansion and currency devaluation will drive demand for hard assets.

Consequently, assets that hold buying power, such as gold and Bitcoin, would favor under these conditions. Amid this backdrop, gold reached a new all-time high of $4,059.38 on Oct. 10.

But if gold is benefiting from the debasement trade, why is Bitcoin down by 4.2% on the week?

Short-term pressure

The US dollar is up by 1.3% on the week as of press time, approaching what could be its best weekly close since mid-November 2024.

The movement began after Japanese government bonds reached their highest yield in 17 years, which strengthened the US dollar.

Traders began de-risking mid-week when chatter about a stock bubble surfaced in the markets, fueled by stocks trading near their all-time highs.

On Oct. 10, President Donald Trump threatened tariffs against China as a response to its control over rare-earth elements, which power the supply chain of tech hardware.

Reflections on market structure

The macroeconomic developments affected one of Bitcoin’s major supports for price action, namely the demand from exchange-traded funds (ETFs).

Despite pulling over $1.2 billion on Oct. 6, the second-largest daily inflows on record, Bitcoin ETF flows subsided to $875.6 million the following day.

Data from Farside Investors shows that the flows became even thinner on Oct. 8, totaling $440.7 million. On Oct. 9, the Bitcoin ETFs registered nearly $198 million in inflows, the smallest amount during their spree of nine positive days.

On Oct. 10, the Trump threat prompted a risk-off wobble, triggering long liquidations totaling $807 million over 24 hours, with $580 million wiped out in just four hours.

Temporary setback

Despite the current choppy backdrop, Bitcoin still appears poised to perform strongly in the fourth quarter.

The equity pause, volatile haven bid, and end-of-week trade shock reduced investors’ urgency to add at highs.

Additionally, Bitcoin’s consolidation reflects profit-taking after a 7% rally to $126,000 rather than deteriorating fundamentals.

The debasement narrative persists, but positioning cleanup and flow dynamics will likely dictate near-term price action before macro tailwinds reassert control.