Investors across global markets are piling into gold, bitcoin and equities as concern grows about government debt, currency strength and central bank independence. The mood has a name — the “debasement trade” — and it reflects a belief that major currencies, led by the US dollar, may lose purchasing power if borrowing keeps climbing and policymakers step in to support growth and debt service. This shift has coincided with fresh record highs across several asset classes, as reported by the Guardian, and it has added fuel to a rally already powered by technology earnings and strong risk appetite. The trend has divided opinion: proponents see scarce assets and cash-generative companies as a shield against currency erosion; sceptics warn that stretched valuations could unravel if real interest rates rise or fiscal policy tightens.
Context and timing
The “debasement trade” theme gained prominence in recent weeks, culminating in a Guardian report published on Thursday 9 October 2025. Market participants have used the term to explain why gold, bitcoin and major stock indices have notched record levels, even as growth looks mixed and inflation moderates in some economies. The debate spans London, New York, Tokyo and other financial centres, where currency moves, fiscal paths and central bank messaging remain under close watch.
What investors mean by the ‘debasement trade’
In markets, “debasement” describes a perceived decline in the real value of fiat currencies over time. Investors who worry that governments will not — or cannot — rein in borrowing look for assets they believe can hold value if money supply expands faster than the economy. They rotate towards finite or hard-to-issue assets such as gold and bitcoin, and towards equities with strong cashflows and pricing power.
This mindset does not rely only on high inflation today. It also reflects unease about the longer arc of fiscal policy and the possibility that, in a downturn, policymakers could lean on central banks to keep financing costs low. In that scenario, investors argue, headline currencies could weaken in real terms, rewarding exposure to perceived stores of value and to companies able to pass on costs.
Debt and deficits pull currencies into focus
Public debt rose worldwide after the pandemic, and it has remained elevated. In the United States, outstanding federal debt topped $33 trillion in 2023, according to Treasury data. In the United Kingdom, public sector net debt hovered around 100% of GDP in mid?2023, Office for National Statistics figures show. Japan’s public debt stood above 250% of GDP in 2023, based on IMF estimates. These headline numbers do not tell the full story, but they set the backdrop for today’s debate.
Traders link heavy borrowing to long?term currency risk, especially if interest costs climb while tax bases fail to keep pace. The US dollar remains the world’s reserve currency and a benchmark for global trade, yet the size of US deficits and the prospect of future policy loosening feature prominently in investor discussions. The same questions arise in Europe, the UK and Japan: how far can governments lean on bond markets without testing currency confidence?
Gold and bitcoin draw inflows as perceived hedges
Gold has long served as a traditional hedge against financial stress and currency erosion. The metal set a series of records in 2024, at one point trading above $2,400 an ounce, before consolidating gains. Enthusiasts cite its scarcity, deep liquidity and long history as reasons to hold a strategic allocation. They also note that gold tends to benefit when real yields stabilise or fall, or when investors seek diversification away from currency risk.
Bitcoin, by contrast, is a newer and far more volatile instrument. It reached an all?time high in March 2024, near $73,000, buoyed by institutional adoption and the view among some investors that its fixed issuance schedule provides a digital analogue to gold. Those who buy bitcoin as part of the debasement trade argue that its supply cap distinguishes it from government money. Critics counter that bitcoin’s price correlation with risk assets, regulatory uncertainty and sharp drawdowns undermine its role as a reliable hedge.
Equities join the rally amid AI and earnings momentum
Shares have advanced alongside gold and bitcoin, with major indices setting records over the past year as technology earnings and productivity hopes lifted sentiment. The run?up in 2024 featured heavy contributions from large US technology firms tied to artificial intelligence, while European and UK markets benefited from energy, financials and exporters. In this context, the debasement trade has broadened to include equities seen as resilient to currency dilution, such as firms with strong free cashflow and global pricing power.
Valuation risks also loom. Commentators have warned that parts of the AI trade now carry exuberant pricing. If bond yields rise in real terms or profit growth falls short, equity multiples could compress. For now, momentum and liquidity dominate, but the balance between growth expectations and funding costs remains the key variable that could test the equity leg of the debasement trade.
Central bank independence under the microscope
A core anxiety behind the debasement theme is whether central banks can maintain independence while governments run persistent deficits. The Bank of England gained operational independence in 1997, and the US Federal Reserve and the European Central Bank emphasise their mandates. Yet investors worry that political pressure could intensify if unemployment rises or if interest costs squeeze public budgets, potentially nudging central banks to ease prematurely or slow balance?sheet reduction.
Those fears may not materialise. Central banks have repeatedly signalled their focus on inflation targets and financial stability. However, even the perception of pressure can move markets. When investors believe policymakers will cap yields or tolerate higher inflation to ease debt burdens, they reposition into scarce assets and global equities. That narrative, in turn, can weaken confidence in currencies at the margin, creating a feedback loop that reinforces the debasement trade.
What could interrupt the ‘debasement’ momentum
Several developments could cool the trade. First, credible fiscal plans that stabilise or reduce debt?to?GDP ratios would challenge the premise of long?run currency erosion. Clear medium?term frameworks and spending restraint can rebuild confidence in sovereign balance sheets. Second, higher and sustained real interest rates typically weigh on both gold and bitcoin while pressuring equity valuations, especially if growth slows.
Regulatory shifts also matter. Tougher crypto regulation can sap liquidity and sentiment, while stronger enforcement on illicit flows can raise frictions. For equities, earnings disappointments or tighter financial conditions could test the case for owning growth at any price. Conversely, a strong currency backed by rising real yields often dampens gold and crypto demand, as the opportunity cost of holding non?yielding assets increases.
Wrap?up
The debasement trade captures a broad investor response to persistent deficits, currency questions and political risk around monetary policy. It has helped propel gold, bitcoin and shares to fresh highs, according to the Guardian’s report, building on trends that took shape through 2024. Advocates frame the move as prudent diversification into scarce assets and durable businesses; critics see a momentum trade vulnerable to higher real rates and tougher fiscal choices. The next phase will hinge on fiscal credibility, central bank signals and the path of growth and inflation. If policymakers convince markets that debt is on a sustainable track, the urgency to hedge currency risk may fade. If not, investor demand for perceived stores of value, and for companies with the power to defend margins, is likely to stay in focus.