Every empire thinks its money will last forever.
The Dutch believed it when Amsterdam was the center of global finance and the guilder became Europe’s reserve currency.
It held that spot for nearly 150 years, until war and bad debt brought the whole system down.
The British believed it when the pound settled trade across an empire that circled the globe.
It dominated for over a century. But World War I drained the Bank of England, and by the end of World War II the U.S. dollar had replaced sterling as the world’s reserve currency.
Since then, the dollar has worn the crown. But its reign might soon be over too.
Reserve currencies don’t collapse overnight. They tend to erode in phases. First slowly, then all at once.
And the first phase of the dollar’s collapse might already be here….
Is Bitcoin the New Gold?
According to the DXY index, the dollar lost roughly 11% of its value from its January peak to its September low.
Morgan Stanley warns it could fall another 10% by the end of 2026.
If that happens, it would mark the steepest multi-year drop since the 1970s.
But that’s only part of the story.
You see, for most of the past century, a weaker dollar would have sent investors into “safe” investments like gold, oil and foreign bonds.
But this time, something different is happening.
The biggest bank in America — JPMorgan — is now telling its clients to treat bitcoin as insurance against a falling dollar.
This is the same bank whose CEO once called bitcoin “a fraud,”
But today, JPMorgan is positioning bitcoin as a way out of whatever comes next for the U.S. dollar.
And they’re aiming this message at the pensions, sovereign funds and institutional managers who move hundreds of billions of dollars at a time.
They’re giving these clients permission to look beyond the dollar and consider bitcoin as a legitimate asset.
They’ve even given this strategy a name. It’s called “the debasement trade.”
In finance, “debasement” means your money is being watered down. That’s exactly what’s happening with the dollar.
For decades, the assumption was that if you held U.S. Treasurys or parked cash in money markets, the dollar would stay strong enough to protect your savings.
But the numbers no longer support this.
The U.S. is carrying more than $35 trillion in debt. Interest payments on this debt are now larger than our defense budget, meaning the Treasury has to roll over trillions of dollars in the next 24 months.
Meanwhile, foreign buyers — especially in Asia — are trimming their exposure.
And the Trump administration is putting pressure on the Fed to continue lowering interest rates.
Morgan Stanley’s analysts recently advised that these factors will create a “persistent downward bias” for the dollar in the coming years.
That’s polite language for the same thing JPMorgan is hinting at with its “debasement trade:” the smart money is getting ready to move their money somewhere else.
And I believe bitcoin is going to be the main beneficiary of this move.
As I’ve noted before, bitcoin was created in direct response to the last time the global monetary system cracked.
It came out of the 2008 financial crisis, when central banks printed trillions of dollars almost overnight to bail out the system.
But bitcoin’s fixed supply means it can’t be inflated away like the dollar.
And smart investors are waking up to this fact. Bridgewater’s Ray Dalio has already said cash is trash in an inflationary world. BlackRock is now offering bitcoin exposure to institutional clients, and Fidelity has built a custody business around it.
This year, inflows into spot bitcoin ETFs have already topped $16 billion.
Most of that money is coming from institutional investors who aren’t crypto diehards. They’re simply fiduciaries who see the writing on the wall.
Foreign investors hold more than $30 trillion in U.S. stocks, bonds and property. Most of that exposure is unhedged.
If even a small portion of those holders decide to protect against further currency losses, you’ll see the impact across every asset class.
That’s what Morgan Stanley is worried about. They warned that foreign selling and currency hedging could create a feedback loop that accelerates the dollar’s decline.
And if you think that scenario sounds extreme, I urge you to pay attention to what’s happening globally.
Central banks have already been reducing their dollar reserves in favor of gold, yuan and other assets.
BRICS nations have openly discussed alternatives to dollar settlement.
And U.S. deficits keep forcing the Treasury to issue more debt into a market that’s already oversaturated.
That tells me we could be witnessing the beginning of the end of the dollar.
And that makes bitcoin more important now than ever.
Here’s My Take
To me, the phrase “debasement trade” is an admission of failure.
It means the dollar can’t be “fixed” without lowering its value.
For most of the 20th century, the U.S. could get away with this practice because other countries had weaker economies and less global influence.
But that’s no longer the case.
China is already setting up its own payment system using the yuan instead of the dollar. Oil contracts today are being settled in non-dollar currencies. And U.S. allies in Europe and Asia are starting to hedge against future dollar shocks instead of waiting for Washington to act.
This is bad news if you’re sitting on cash. But it could be great news for crypto.
The last time the dollar had a multi-year decline like this, gold rose more than 400%.
But gold is a $15 trillion asset, while bitcoin is barely $2 trillion.
If investors start treating bitcoin like gold, we could start seeing massive moves in the crypto space.
The world’s biggest institutions are already making the move.
Are you?
Regards,
Ian King
Chief Strategist, Banyan Hill Publishing
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