Debasement Trade: How Bitcoin ETFs May Drive The Next Rally

The 'debasement trade' positions Bitcoin as a hedge against currency erosion. With rising institutional interest and ETF inflows, Bitcoin may experience significant price growth in late 2025.

The “Debasement Trade”: Why Bitwise Sees Bitcoin ETFs Fueling the Next Rally

Bitcoin’s momentum has stalled in recent weeks, with prices still struggling to retest September’s highs above $125,000. Yet beneath the surface, institutional demand appears to be building for what could become one of Bitcoin’s strongest quarters on record. Binance CEO Richard Teng had a calm and measured outlook during the last market pull-back in February 2025 when he posted this on X, “This too shall pass! It’s helpful to realize that this downturn is temporary. Like traditional markets, the crypto market is cyclical in nature, with its moments of ups and downs. But! The positive thing is that the overall trajectory of the crypto market is one of growth.”

As institutional investors and sovereign wealth funds deepen their exposure to digital assets, Bitcoin’s price swings are increasingly viewed as buying opportunities rather than red flags. The market’s growing sophistication, bolstered by the influx of ETF capital, suggests that long-term sentiment remains strongly bullish, even as short-term volatility persists.

According to Bitwise CIO Matt Hougan, inflows into spot Bitcoin exchange-traded funds (ETFs) are poised to set new records in Q4 2025, potentially eclipsing the pace seen during the asset’s early post-ETF approval boom. In an October 7 research note, Hougan outlined how growing concerns over fiat currency debasement, combined with rising liquidity and renewed interest from professional money managers, could drive a new wave of ETF capital into Bitcoin.

He calls this dynamic the “debasement trade”: a thesis that positions Bitcoin not merely as a speculative asset, but as a macro hedge against monetary erosion, paralleling gold’s historical role during periods of expansionary fiscal policy and negative real yields. If this view proves right, the next leg of Bitcoin’s rally may be powered less by retail enthusiasm and more by institutional conviction.

Why the 'Debasement Trade’ Could Prove Key to a Bitcoin Rally

Per Hougan, factors like official allocation recommendations from institutional investment advisors, plus a possible surge in media hype surrounding Bitcoin and other cryptocurrencies, could also contribute to another rally for BTC.

However, the so-called “debasement trade” may ultimately serve as the catalyst that amplifies these other bullish factors creating conditions ripe for Bitcoin’s next major rally. But what exactly does the term mean?

In essence, the debasement trade refers to investing in assets that tend to outperform during periods when major economies weaken or erode the real value of their currencies. It’s a strategy built around the expectation that loose monetary policy, rising debt, or inflationary pressures will drive investors toward scarce, hard-capped assets like digital currency that cannot be printed or diluted.

Over the past five years, the US money supply has increased 44%. Take a look at the current macro backdrop, and there’s much to suggest that this trend will continue. This has been a big reason Bitcoin, as well as gold, have performed so well relative to other major assets, like major indices such as the S&P 500.

How this relates to the additional factors is as follows. Institutions are likely recommending greater Bitcoin allocation, due to its recent strong performance. Rightly or wrongly, much of the investment management industry is about showing to clients that you have put their money in the right assets, and right now, those assets are Bitcoin and gold.

What This Means for Bitcoin Prices

The debasement trade alone could have a tremendous impact on cryptocurrency prices. Recently, analysts at JP Morgan, citing Bitcoin’s relative undervaluation to gold, argued that BTC prices could hit $165,000 by year’s end.

The analysts previously had a $126,000 price target, but in light of rising gold prices upped said target. If the debasement trade continues in gold specifically, it could lead to a further rise in spot gold prices, perhaps justifying an even greater surge for gold prices over the next few months.

Alongside this, the aforementioned secondary factors could also contribute to BTC’s further rise. Remember, it’s only recently that institutional advisors have started to recommend a 2%-4% allocation to Bitcoin.

As it takes time for these recommendations to disseminate to investors, and in turn for these recommendations to become portfolio allocation changes. This could lead to a further steady increase in institutional demand for BTC via spot Bitcoin ETFs, providing upward pressure for prices.

The Bottom Line

In Binance Research’s August 2025 edition of 10 Charts Shaping 2025, numerous trends were identified that bode well for Bitcoin prices in the near future. These trends include BTC’s outperformance relative to traditional financial assets, a steady increase in spot BTC ETF inflows, as well as continued BTC dominance relative to the rest of the crypto market, as seen below:

Recent price action may suggest that these trends are easing in intensity, but this could soon be proven wrong. The macroeconomic factors driving the debasement trade do appear to be slowing down anytime soon.

A further rise in spot gold prices could help justify a further run for Bitcoin prices, given Bitcoin’s status as an alternative to the U.S. Dollar. At the same time, institutional re-allocation to Bitcoin, via vehicles like spot Bitcoin ETFs, may also help to keep this cryptocurrency on an upward trajectory.

If this occurs, you can expect the three abovementioned trends to persist, and in the case of Bitcoin dominance, this could strengthen back to levels previously hit a few months ago.