The Debasement Trade Splits as Gold and Bitcoin Bets Diverge
The Debasement Trade Splits as Gold and Bitcoin Bets Diverge
"Gold wins in every branch of the fiscal-dominance scenario," Ardern said.
Bitcoin presents a less straightforward payoff, he said. It can benefit strongly if investors come to expect greater monetary support or currency debasement, but it can also trade like a risk asset when inflation and bond yields rise and investors pull back from equities.
"That isn't skepticism about the debasement thesis," Ardern said. Rather, traders are keeping exposure to further gains while adding protection because Bitcoin's performance depends more heavily on which path the macro economy takes.
Bitcoin's recent surge helps explain the caution. After spending much of the bear market around $63,000, it shot toward $80,000 and has yet to establish a durable new trading range. Investors want to stay exposed if the breakout resumes, but they are also protecting against a reversal.
"After that squeeze, institutional flows returned to the Bitcoin spot market and to IBIT — albeit mostly at much higher prices, close to current market levels. For those recent buyers, it makes sense to hedge their positions while the sentiment recovery is still nascent and its resilience has not yet been tested," said Andreja Cobeljic, head of derivatives trading at Amina Bank.
The open interest data can't by itself prove whether traders are bullish or bearish. Large option positions can also be parts of more complicated strategies. In the case of GLD, much of the call option positioning is in the form of spreads, where a long position in one strike is offset by a short at a higher level, reducing the cost of the bullish bet but also limiting the gain if prices rally.
"The strike level numbers do not settle conviction versus caution, because open interest is a stock of matched positions: it tells you contracts exist, not who holds them or which side opened them," said James Harris, chief executive officer at asset manager Tesseract.
The broader macro backdrop helps explain why gold has been the cleaner expression of the debasement trade, according to Harris.
The Fed rate decision and follow-up comments from central bank chairman Kevin Warsh add another complication to the longer-term picture. Investors have become increasingly convinced that interest rates could go higher rather than lower, pricing in a nearly 92% chance of a hike at the meeting Wednesday. That compares with a 32% probability on Aug. 19, when the Treasury Department unexpectedly announced that it would at least double the purchase of long-dated bonds.
"Inflation remains above target, and Warsh made clear at Jackson Hole that unless the Fed can be confident it is moving towards 2% at sufficient speed, it still has work to do," Harris said. "The September debate is now between raising and waiting, not tightening and easing."
This article has been published in bloomberg.com via Yahoo News
Loading…
finance.yahoo.com
