The ‘debasement trade’ and why crypto and gold are surging

On August 19, Treasury Secretary Scott Bessent announced the department will double the size of its buyback operations for longer-dated securities from $2 billion per batch to $4 billion. The stated goal of this operation is to bring the yields down for bonds between 10- and 30-year durations, which is another way of saying the government wants to make money cheaper to borrow.

It didn’t exactly work. After a brief dip in long-dated bond yields, the cost of borrowing returned to its multi-year highs. Meanwhile, the dollar as measured by the ICE dollar index fell nearly 1% on the news, putting the dollar down 2.5% since its recent July high. Money managers who first talked about the “debasement trade” in February started talking about it again.

What is the debasement trade?

The debasement trade is the market’s belief that the value of the dollar will continue to fall, which is another way of saying the government may stoke inflation, whether intentionally or as a side effect of monetary, fiscal and trade policy. Traders see this as an opportunity to buy “hard” assets like gold and cryptocurrency.

In addition to the Trump administration’s extraordinary push to bring down the yield curve on long-dated bonds, its deficit ballooning tax cut in 2025 and its scattershot approach to tariffs have already driven inflation up from 3% in January 2023 to 3.5% today.

The cumulative effect has been both to extend inflation’s run and to devalue the dollar. This shouldn’t come as a surprise, however; Trump has made a weaker dollar central to his fiscal argument since the 1980s.

Even in his first term he was tweeting his desire to see a weaker dollar.

If a weaker dollar is the strategy, it’s working. Since the dollar notched a post-pandemic high in October 2022, IT has lost 12% of its value. And the national debt also reached a record high $40 trillion this past week. Adding to the pain for American consumers, since the war with Iran began in February, the price of gas has shot up by 72%.

Meanwhile, the price of gold and Bitcoin have been surging. Both assets took a hit at the beginning of the year when gold dropped 25% and Bitcoin lost more than half its value. But since the beginning of August, the yellow metal’s price has surged 15%, and Bitcoin has popped 25%.

Though these moves don’t bring either back to their eye-watering highs from the end of 2025, further deterioration of the U.S. financial picture could put upside pressure on both as investors seek safe-haven investments outside of U.S. stocks and bonds. 

What’s the worst that could happen?

An interesting analysis by the American Cement Association notes that the AI data-center construction boom constitutes more than half of all office construction spending and 36% to 44% of U.S. GDP (depending on how you measure it) in Q2 2026. That’s a lot of growth concentrated into one sector.

It’s not just the real economy that’s dominated by AI. The “Magnificent 7” group of stocks including most of the names who are making very large investments in AI account for fully one third of the value of the S&P500. And as reported in the Wall Street Journal, these companies have started going into debt (including off-balance sheet commitments) to finance their infrastructure investments — to the tune of an estimated $3 trillion.

If you’re an AI optimist, this could be the start of a new era of exponential growth just like the growth of the Internet 1.0. But in recent months, a chorus of doubters have started throwing cold water on that projection. Tech journalist Ed Zitron has noted that AI companies need to make $3 trillion in annual AI specific revenue by 2030 to break even. In fiscal 2025 Microsoft, Meta, Amazon and Google — the most profitable tech companies on the planet — made just $1.6 trillion combined.

If the AI bubble bursts, what happens to your dollar-denominated assets? The playbook for 21st century has been for the Fed to lower interest rates to stimulate the economy, but that is likely to weaken the value of the dollar. Add that economic shock to the the long list of current inflationary pressures, and you have a recipe for disaster.

Are crypto and gold safe places to put your money?

Every few years crypto has a moment followed by a “crypto winter” when the value falls and remains depressed, but the cycle has been following an upward trend since the cryptocurrency was launched in 2009. As recently as 2025, economists writing in The Quarterly Review of Economics found that adding Bitcoin to your portfolio improved risk-adjusted portfolio performance during periods of high U.S. economic policy uncertainty.

Gold is a perennial store of value. That’s why overthrown dictators who flee their countries always ask for an airplane loaded with gold bars on the way out. As reported by CNBC, Deutsche Bank analyst Michael Hsueh has become bullish that gold could surpass his target price of $4,800 an ounce.

And billionaire investor Ray Dalio, who has been warning of a U.S. debt crisis for years, has reiterated his advice that investors remain overweight gold and Bitcoin unless the government gets its act together and either slashes spending or raises revenue — neither of which are likely in the current political environment.

Though neither Bitcoin nor gold are guaranteed to increase in value, the current “debasement trade” is operating on the assumption that in a world where the dollar is under pressure from all quarters, these assets are seen as safe harbors in a storm.