The bet on devaluation. What is behind the record highs of gold, bitcoin and stocks?
Gold, bitcoin and stock markets have seen significant gains in recent months, fuelled by concerns about the sustainability of public debt, the independence of central banks and falling confidence in major currencies such as the US dollar. This phenomenon has been dubbed by investors as a “bet on devaluation”, writes The Guardian.
What does "betting on devaluation" mean?
Devaluation, in the classical sense, refers to a decrease in the value or quality of a currency or asset. A notorious historical example is the "Great Devaluation" initiated by King Henry VIII, when the gold and silver content of British coins was reduced by replacing them with cheaper metals such as copper to finance wars and royal spending.
Today, “betting on devaluation” refers to moving capital from fiat currencies – such as the dollar – to “tangible” or more stable assets, such as precious metals or cryptocurrencies, in an attempt to protect against runaway inflation and loss of confidence in current economic policies.
Fiduciary currency (or fiat currency) is a currency issued by a government or central institution, the value of which depends on the trust (fidelity) that people have in it, rather than on an intrinsic value, such as gold or silver. The US dollar, the euro, and the Romanian leu are examples of fiduciary currencies, which are accepted as a means of payment due to the guarantee provided by the state.
The term "fiduciary" comes from Latin and refers to trust or fidelity. Therefore, fiduciary currency is a currency in which its value as a means of payment and exchange is supported by popular confidence in the guarantee provided by the issuing authority.
Fiduciary currency is not backed by a physical commodity (gold, silver), but by the promise and guarantee offered by the government that issues it.
Its nominal value, declared by the state, is superior to its intrinsic (material) value. Due to these guarantees, it is accepted by all as a means of payment, although the paper or metal from which the value is made is not of great importance in itself.
Why has this bet become so popular?
Concerns about the stability of fiat currencies have been growing steadily in recent years. The Trump administration’s tax and trade policies, combined with the explosive growth of the US public debt – estimated at over $37 trillion – have intensified these fears.
Meanwhile, calls for interest rate cuts despite persistent inflation have heightened concerns that central banks could succumb to political pressure. Budget uncertainty in France, support for massive public spending by Japan's new leader and the recent government shutdown in the US have all contributed to a fragile global picture.
In addition, the consequences of the expansionary monetary policies launched during the financial crisis continue to influence investors' perception of systemic risk.
How do investors react?
Faced with these uncertainties, many investors are turning to assets that cannot be “printed” – such as gold or bitcoin. According to analysts at JP Morgan, we are witnessing a “familiar devaluation of the dollar relative to alternative assets, amid political dysfunction in Washington”.
Data from the World Gold Council shows that investment flows into exchange-traded funds (ETFs) with gold exposure reached record levels last quarter.
What are the effects?
Asset prices are hitting all-time highs. Gold has surpassed $4,000 an ounce for the first time, up 50% in 2025 alone. Bitcoin has climbed more than 20% since the start of the year and hit a new record of $125,000.
At the same time, the US dollar lost about 9% in value against a basket of international currencies, reflecting the weakening of its status as a global reserve currency.
Ken Griffin, founder of the investment fund Citadel, recently said that investors are looking for ways to "disengage from the dollar and reduce their exposure to US sovereign risk."
"Inflation remains well above target and there are no optimistic short-term forecasts. That is why the depreciation of about 10% in the dollar in the first six months of this year is the largest in the last five decades," Griffin said at a conference dedicated to global markets.
Long-term government borrowing costs have risen as investors shun bonds with extended maturities, fearing inflation will erode their value. According to Deutsche Bank, this is the weakest decade for government bonds on record.
The weakening dollar and the rise of alternative assets are fueling speculation that bitcoin could become a viable reserve asset, alongside gold.
“A strategic allocation in bitcoin could become a new pillar of financial security, similar to the role of gold in the 20th century.”", economists Marion Laboure and Camilla Siazon from Deutsche Bank said, anticipating that by 2030 both assets could appear on central bank balance sheets.
Can this trend continue or will it have a painful end?
Goldman Sachs estimates that the price of gold will continue to rise, forecasting a level of $4,900 per ounce by the end of 2026.
However, several analysts warn that asset prices are overvalued, in part due to the excitement surrounding artificial intelligence (AI). Comparisons are already being made to the dotcom bubble of the late 1990s.
Billionaire Paul Tudor Jones said this week that a stock price explosion is possible ahead of a potential market top: “All the ingredients are there for a potential < >. History tends to repeat itself, and if we are to judge by the past, the current situation is even more explosive than in 1999.”
Gold is also seen as a haven from the risks associated with a possible correction in AI stocks, where some companies have entered into a series of interdependent deals that have amplified concerns about a possible speculative bubble.
Meanwhile, fears of missing out (FOMO) continue to push stock markets to new highs.
Source: adevarul.ro/
