The Breakdown - Wall Street Discovers the “Debasement Trade”

Episode Date: October 10, 2025

Bitcoin’s October rally isn’t just another crypto surge — it’s part of what JPMorgan calls the Debasement Trade. As gold spikes and the dollar weakens, major banks and economists are finally voicing fears long held by Bitcoiners: runaway deficits, fading Fed independence, and a loss of faith in fiat currencies. Today NLW unpacks why Wall Street is suddenly embracing Bitcoin as a hedge against currency decay, how Japan’s yield crisis and global debt pressures fit in, and what the IMF’s latest warnings mean for the next phase of this trade. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/@TheBreakdownBW Subscribe to the newsletter: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://blockworks.co/newsletter/thebreakdown⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownBW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Thursday, October 9th, and today we are talking about the debasement trade. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation. Come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. All right, friends, well, Bitcoin's huge run-up to begin October is grabbing a ton of attention on Wall Street. Research shops are combining it with a spike in the gold price and a decline in the dollar, and they're calling it the debasement trade, and it's the hottest trade in town.

J.P. Morgan used that name and a research note at the beginning of last week, defining it as a trade that, quote, reflects a combination of factors, which in our client conversations range from elevated geopolitical and policy uncertainty to uncertainty about the longer-term inflation backdrop, to concerns about debt debasement, due to persistently high government deficits across major economies, to concerns about Fed independence, to waning confidence in fiat currencies in certain emerging markets in particular, and to a broader diversification away from the U.S. dollar. Now, that laundry list of concerns used to be fodder for discussion in Bitcoiner and Goldbug circles, but these fears are now held by a significant portion of J.P. Morgan customers.

Economics professor Muhammad L. Erion amplified the theme last Thursday, tweeting, per the CNBC reporting, the strategy favoring golden Bitcoin now has a name. G.P. Morgan analysts are calling it the debasement trade. Of course, the snark from Bitcoiners was off the scale. Michael Saylor wrote, we call it, saving our money. Bitwise researcher Andre Dragos tweeted, Bitcoiners have been talking about the debasement trade for years. The fact that mainstream economists have just started talking about the debasement trade right now tells you everything you need to know about the current state of the economics profession. Now, whatever your opinion of mainstream economists is, it is self-evidently a big deal that they're

waking up to the debasement trade as a legitimate view, rather than the domain of fringe weirdos. Isabella Kaminska, the former editor of F.T. Alphaville, tweeted, the debasement trade became a thing last week when Mohamed al-Irion posted about it. I find this amusing because the supposed wingnuts of the financial space have been screaming about the debasement trade, also known as the zero hedge trade for decades now. Though, as the trader and my family loves to tell me, it is also true that it doesn't matter if you're right about something in markets if you're right about it at the wrong time. Nonetheless, there's something very Voldemorty going on here. Once the serious people in finance start saying things out loud that were previously unsayable, because

they're now too obvious to deny, I dare say we're in the realm of slowly than suddenly. And this week, Deutsche Bank has gone all in on the debasement trade. What she's referring to is a Deutsche Bank note published on Monday called Gold's Rain Bitcoin's Rise that advised customer to jump on the trade. Jeff Park, the CIO of ProCAP Bitcoin, isn't sure either name is quite right for describing what's going on, commenting, I don't like the term debasement trade. It implies the unwanted erosion of something durable and righteous. What's happening is the opposite. Everyone is learning to gravitate towards something valuable and permanent. We're long on the purification trade. Now, we've had a few glimpses of this

type of thing before, where Bitcoin all of a sudden starts being discussed in a serious way as something other than the riskiest of risk assets. We had Paul Tudor Jones in his great monetary inflation thesis in 2020, in which he explained that COVID is going to require a ton of money printing, and Bitcoin is the fastest horse in the race. Then again, PTJ has always been a maverick and doesn't represent the views from the largest institutions on the street. Then we got Larry Fink and BlackRock come on board with Bitcoin in 2022. Once Fink became a believer, he went on TV and declared that investors buy Bitcoin because they're frightened of the debasement of their currency. What's happened over the past two weeks takes it to the next level. Fink was describing a theoretical investment thesis for Bitcoin,

but now we have two of the most important banks throwing their weight behind it. G.P. Morgan, in particular, is saying that their clients have specific concerns about debasement, and they're buying gold and Bitcoin to alleviate their fears. Again, these thoughts are nothing new for Bitcoiners, but it's a big change of reference for normal investors. We got a glimpse of this narrative striking a court on Wall Street last October when missiles were exchanged between Iran and Israel. Bitcoin dumped and then took off. Now, the rally actually seemed like it was more closely related to Binance converting their billion dollar insurance fund from stablecoins to Bitcoin, but the seeds of the narrative were definitely planted. This time around, all of Wall Street

saw the government shut down and Bitcoin take off from there. It was the kind of price action that nails home the court thesis for Bitcoin as digital gold in the face of uncertainty. Bitmex co-founder Arthur Hayes believes this was a huge switch that just triggered. He tweeted, The new Tradfai meta-narrative is the debasement trade. It took them almost 20 years to notice. Don't believe for a second they will forget about it just because of the Bitcoin four-year cycle. It's time for the banksters to sell gold, crypto, and tech stock derivatives to clients. This was exactly the same trade that Paul Tudor Jones suggested in an interview on Squawkbox on Monday when he said all the ingredients are in place for some kind of a blowoff.

For many bitcoinsers, this feels like the moment they have been preparing for. Lawrence Lepard commented, I literally wrote a book on the monetary debasement trade, and it is unfolding in spades as I predicted. All the media outlets are now recognizing and discussing this trend. It is happening fast. Think Silicon Valley Bank failure fast. Legacy internet and infrastructure are brittle, plagued by downtime, coverage gaps, and outdated financing models. Communities and builders are left behind while capital sits locked out. Althea is changing that. Since 2018, their technology has powered resilient,

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Now, while JPMorgan focused on the U.S.-centric view of the debasement trade, those concerns are a global phenomenon. In South America, there is a full-blown hyperinflationary crisis playing out in Venezuela, and Argentina is in the grips of yet another peso crisis. However, we're going to focus on Japan next due to their important role in the global liquidity system. The past year has seen a significant amount of political turmoil in Japan, leading to the resignation of the prime minister in September.

Sinai Takaichi won a leadership vote among the ruling Liberal Democratic Party on Sunday, setting her up to become the first female prime minister of Japan. Her election was viewed as a lurched towards the far right of the traditionally center-right party. Specifically, Takaichi is a nationalist, holding pro-stimulus economic views, and is discussed interfering with monetary policy of the central bank. That combination of policy views led to a huge breakdown in Japanese government bonds or JGBs to begin the week. The 10-year hit 1.7 percent, which is a 17-year high, and the 30-year spiked above 3%, an all-time high for the security that was first introduced in

1999. The Kobayisi letter wrote on Monday, tonight's price action summarized. Japan's stock market record highs. Japan's 30-year bonds, record highs, gold record highs, Bitcoin record highs. Central banks have lost control of long-term rates as economic stimulus ramps up into rising inflation. On Tuesday night, the yen dropped 30 basis points forcing the 30-year off its highs. Mr. Vicks wrote, looks like Japan has decided to sacrifice the yen to save the bonds. Robin Brooks is your fellow at the Brookings Institution commented, looks like Japan intervened to bring 30-year JGB yield back down

after it spiked earlier this week on news its next prime minister is a fiscal dove. Yield caps like this aren't the answer for Japan. They just lead to uncontrolled yen devaluation. We watch this movie in 2024. He's referring to August of last year when a B.OJ rate hike caused a large fall in the yen, which dominoed into global equity drawdown. Most believed the problem was a large unwind in the yen carry trade. This trade is a funding mechanism for global financial institutions they borrow in yen

to access low interest rates, then convert into dollars to put into other international positions. A surprise move in the yen can trigger margin calls and generally cause chaos as institutions unwind their positions. We haven't seen that kind of acute problem in the financial plumbing this time around, and we may not. Many believe the size of the yen carry trade was dramatically reduced last year, making it much less of a systematic risk. But that doesn't mean it's smooth sailing for Japan. The bond vigilantes don't like the sound of loose fiscal policy, but with an interventionist prime minister, the BOJ may be forced to cap interest rates. Financial writer Shinaka Herrera believes this will end in disaster, tweeting, Japan's yield cap is monetary triage, not strategy.

At 260% debt to GDP, every 10 basis point move in the 30-year adds billions in fiscal strain. The BOJ isn't defending yields, it's defending solvency optics. But here's the paradox. Every intervention to stabilize JGBs accelerates yen erosion because markets front-run monetization risk. You suppress the yield curve long enough, you end up exporting inflation through FX. Japan isn't out of ammo. It's out of credibility. Yield control is the symptom. currency decay is the disease. Now, on Wednesday, the IMF added to the feeling of unease with the release of their semi-annual global financial stability report. In her accompanying speech, managing director Kristina Georgieva warned, buckle up. Uncertainty is the new normal and it is here to stay.

She presented the IMF's latest forecast that global growth would be limited to a tep at 3% this year. Latching on to the narrative that informed the debasement trade, Georgiava urged the U.S. to address the federal debt load. She noted that its debt-to-GDP ratio would soon surpass the levels reached during World War II. Overall, the IMF's view is that global debt is at risk of outpacing global growth over the next five years. She commented, global resilience has not yet been fully tested and there are worrying signs that test may come.

Just look at the surging demand for gold. Even more troubling was a warning contained in the pages of the report, where the IMF wrote, although stress testing and systemic risk monitoring have advanced, the role of FX markets as a conduit for risk transmission and cross-border spillovers remains underappreciated. Enhancing FX liquidity stress tests is essential to assess the same. sectoral resilience to funding shocks. They noted that stress in the foreign exchange markets can, quote, spill over to other asset classes, tightening financial conditions and posing risks to macro financial stability, especially in countries with significant currency mismatches and fiscal

vulnerabilities. So, with the dollar setting a two-month high, it's reasonable to ask whether we're seeing the first signs of a global dollar shortage, or more precisely, a shortage of international dollar liquidity. If it gets bad enough to cause a crisis, the Fed may be called upon to offer dollar swap lines to address the issue. With the current administration, we could see the politicization of this unofficial function of the Fed, who may even be forced to choose between dealing with inflation at home and addressing a systemic crisis abroad. The cracks are definitely starting to show in the global economy. To give one more example, in Germany, the government is discussing radical pension reform. On Wednesday, Chancellor Friedrich Mertz announced his intention

to raise the retirement age from 65 to 73. This would be the highest retirement age in Europe, exceeding Denmark's age of 70, which is set to take effect in 2040. The announcement was based on a government report that advised increasing the retirement age in steps, reaching the age of 73 by 2060. While that is a long way away, it also means moving the goalposts on the bulk of the working age population. The report stated, we will have to work more if we want to maintain the scope of the social security system without simultaneously leaving even larger burdens for future generations. The retirement age must be linked to life expectancy. It also noted that the German economy has been stagnating for years. Germany entered recession in late 2022 and had a negative growth rate

for eight quarters in a row. Growth was weekly positive across the first two quarters of this year at 0.3% and 0.2%. The announcement of a rising retirement age was met by understandable outrage, however, a large part of the controversy is that German workers were blamed for being lazy and contributing to the crisis. In an article entitled, Are the Germans Too Lazy, Mr. Chancellor? The chief economist of German bank, LBBBW, wrote, the reality is that in 2023, the average German worker clocked just 1,343 hours per year. This is the lowest among all 38 OECD member countries, where the average stands at 1,746 hours per year. Not mentioned in the article was German industrial powerhouses like Volkswagen, shuttering plants in 2022,

and a huge amount of job loss during the long recession. Now, ultimately, Germany's problems are a little remote for the U.S., but similar discussions about the retirement age have taken place in Washington. For now, Social Security is sacrosanct, but ask any Gen Zier, and they don't expect the same benefits to be available when they retire. And the point is that many nations are facing the same choice as Germany, change the goalposts on their social welfare system or print money to make up the difference. And that all leads back to the debasement trade. There's little reason to believe that any fiat currency will hold its value over the long term, and for many there's reason to think another round of debasement is coming soon.

Gold just had its fastest ever move of $500 over the past month to reach new all-time high, and is now up 10x since 2004. Gold seems to be sending a message about the sustainability of the status quo and Bitcoin may be as well. And for the first time in Bitcoin's history, Wall Street is fully paying attention. That's going to do for today's breakdown. Appreciate you listening, as always. And until next time, be safe and take care of each other. Peace.