Morgan Stanley analysts say that escalating geopolitical tensions and the upcoming US presidential election are driving investors to turn to gold and Bitcoin as safe haven assets, a phenomenon described as "depreciation trade".

Is geopolitical intensification more advantageous than Bitcoin?

Morgan Stanley's global market strategy analysts Nikolaos Panigirtzoglou, Mika Inkinen, Mayur Yeole, and Krutik P Mehta pointed out in a report on Thursday that "escalating geopolitical tensions and the upcoming US election may strengthen what some investors call 'devaluation trading,' thus benefiting gold and Bitcoin

The so-called 'devaluation trading' is an investment strategy in which investors choose to invest their funds in assets such as gold or Bitcoin, which are considered 'safe haven assets', when they expect a country's legal currency (usually the US dollar) to depreciate. The idea behind this strategy is that in the event of currency depreciation or loss of purchasing power, the value of these safe haven assets typically increases relatively, as they are seen as a more reliable store of value.

The report added that although gold's response to recent geopolitical events has been relatively mild, its price has risen sharply in the past quarter and approached the level of $2700 on September 26th. Analysts say:

"The rise of gold price was affected by the decline of 4-5% in the US dollar and the sharp decline of 50-80 basis points in the real yield of US treasury bond bonds. However, the appreciation of gold was beyond the scope of explanation of these factors, which indicates that the" devaluation transaction "has reappeared."

The report points out that this "devaluation trade" is driven by a series of factors, including increased geopolitical uncertainty since 2022, persistent inflation concerns, large-scale government deficits in major economies, and weakened confidence in fiat currencies, particularly in some emerging markets.

Standard Chartered Bank: Bitcoin is difficult to hedge against geopolitical risks

On the other hand, Geoff Kendrick, the global head of digital asset research at Standard Chartered Bank, also said that although the risk in the Middle East may lead to a decline in the price of Bitcoin, because Donald Trump's chances of winning the US presidential election are rising, investors should regard it as an opportunity to bargain. Geoff Kendrick said:

The risk concerns related to the Middle East seem destined to push Bitcoin below $60000 before the weekend. However, the emphasis on positions such as $80000 call options and the cycle of probabilities relative to Trump suggest that investors should buy on dips now

And Geoff Kendrick believes that Bitcoin has not served as a safe haven against geopolitical tensions. Compared to gold, which is widely used as a geopolitical hedge tool. Bitcoin is more inclined to serve as a hedging tool for traditional financial issues such as bank failures, de dollarization, and sustainability concerns of the US Treasury Department.