Podcast Summary: Bankless - “The Debasement Trade”

Guest: Luke Gromen
Date: November 3, 2025
Host: David (Bankless)

Overview

Main Theme:
This episode explores the unfolding “debasement trade” – not as a short-lived investment trend but as a profound, secular shift in the global monetary system. Luke Gromen, an influential macro strategist, argues that currency debasement (especially of the US Dollar) is now a structural trend rather than a fleeting trade. The conversation spans from how assets behave when denominated in gold or bitcoin, the re-emergence of gold as a reserve asset, the shifting geopolitical order, and the implications for crypto investors, especially those betting on bitcoin.

Key Discussion Points & Insights

1. What Is the Debasement Trade?

• Luke: The so-called “debasement trade” is not a temporary trade—it’s a “secular trend” driven by the need for governments, especially the US, to maintain negative real interest rates to keep their debts serviceable. This results in a long-term, persistent debasement of fiat currencies.
• Quote:

  “It’s not a debasement trade. It is a debasement secular trend… you don’t sell rallies, you buy dips.” (Luke, 00:38, 08:42)

2. Asset Performance: Dollars vs Gold vs Bitcoin (01:00)

• David highlights that while assets look strong in USD, measured in gold or bitcoin, they’re often flat or losing value.
• Luke: This showcases the real purpose of gold and bitcoin – as refuges in an era of ongoing currency debasement.

3. Historical Parallels: Volcker, Brazil, and Fiscal Dominance (04:45, 06:00)

• Luke: Investors mistakenly believe the US can “do another Volcker” and reverse inflation with extremely high rates as in the 1980s. The current fiscal/debt situation is more like Brazil 2000 than USA 1980—a much uglier, longer-term unwind.
• Quote:

  “It’s not even close… it looks much more like Brazil in 2000… this looks like fiscal dominance.” (Luke referencing John Welch, 06:07)

4. Gold Overtakes Treasuries in Global Reserves (11:23, 12:35)

• Gold is now the dominant reserve asset in foreign central bank reserves, not US Treasuries—a “before and after” moment and an inflection point in global power balance.
• Luke: Unless the US completely reverses its economic and political policies, or China and Russia willingly submit to Western dominance, this trend will continue.

5. How Did Treasuries Replace Gold (16:22)

• In the 1990s, after the fall of the USSR and Asian financial crises, US Treasuries became the central global reserve due to US strength, peak empire, and regulatory incentives. Now, the logic has unwound.

6. Gold’s Price Action and its Political Meaning (20:20)

• Public discourse (ex: Sorkin and Cuban on TV) treats rising gold with suspicion, but in reality, a higher gold price reflects the reindustrialization and protection of national security.
• Quote:

  “If you are of the view that you want the defense industrial base to come back, you want wage growth, you want to inflate away our debt… then you’re rooting for gold to go higher.” (Luke, 21:00)

7. Central Bank Reserves & Gold Implied Price (24:04, 26:59)

• If gold were to reach parity with global currency reserves (as in the 1970s), its price could soar to $20,000/oz or higher.
• Central banks have stopped accumulating Treasuries since 2014, favoring gold in a profound, likely irreversible shift.

8. Are We Returning to a Gold Standard? (30:51)

• Not precisely: Luke distinguishes between a pegged gold standard ("barbarous relic") and Keynes’s vision of a floating commodity reserve (“Bancor”).
• A rising gold price, rather than a fixed peg, would act as relief valve to balance trade and prevent extreme imbalances.
• Quote:

  “What I’m describing is not a gold standard... it would be Keynes’ Bancor. It’s a neutral reserve asset and it would fluctuate in value in every currency to reflect inflation expectations, reflect trade balances.” (Luke, 31:00)

9. Orderly vs. Disorderly Transition (37:37, 38:42)

• Every month the US delays restructuring (writing down debt, revaluing reserves), the odds of a disorderly transition—financial chaos, dangerous policy swings—rise.
• AI-driven job disruption will accelerate instability and necessitate even more radical monetary intervention.
• Quote:

  “I’m not that optimistic anymore that this can be done without severe disruption, severe chaos, and I wish that wasn’t the case.” (Luke, 42:39)

10. The Gold Accumulation Game: Who Has How Much? (44:34, 49:20)

• Official stats understate China’s true gold reserves; actual holdings likely exceed US holdings.
• Luke: China’s “bide and hide”—conceal strength until geopolitically advantageous.

11. Gold on the US Balance Sheet: Why Not Mark to Market? (49:58, 50:47)

• US gold is still valued at $42/oz, a relic of post-Bretton Woods politics. Marking to market would be a political declaration that gold, not Treasuries, is the true reserve asset.
• Repricing would instantly create trillions in the US Treasury General Account, allowing debt buybacks and financial stimulus.
• Quote:

  “You could buy back a lot of the Treasury market… At $20,000, it’s $5 trillion.” (Luke, 54:35)

12. How Should Individuals Hold Gold? (57:00, 58:46)

• Not all “paper gold” is equal:
  • ETFs (e.g., GLD) are generally fully-backed but vulnerable to political risks (cash settlement in a crisis).
  • Unallocated gold (especially in London) is riskier; you’re an unsecured creditor in bankruptcy.
  • Physical allocated gold (in private vaults, not banks) is safest but less liquid.
• Quote:

  “If you don’t hold it, you don’t own it…” (60:18)
  “In a real crisis… do you trust the Western and Eastern governments not to grab this stuff? I don’t trust anybody.” (63:36)*

13. Crypto Investor Perspective: Bitcoin’s Role (65:17, 66:38)

• Gold is the asset of choice for central banks now, but bitcoin is the rising alternative, especially for retail and digital-native investors.
• Will gold’s appreciation spill into bitcoin?
  Luke expects so, especially as the US is incentivized to support a stronger bitcoin price for balance sheet reasons (e.g., stablecoins).
• Quote:

  “My base case is it will trickle down into bitcoin and my confidence in that base case is rising..." (Luke, 66:38)

14. East vs West: Gold and Bitcoin Blocs? (67:44, 68:50)

• Luke sees a scenario where the East adopts gold as the hard-money anchor while potentially the West leans into bitcoin.
• Performance parity between gold and bitcoin in recent years may foreshadow this.

15. Timeline for Bitcoin as a Reserve Asset (71:50)

• Central bank adoption of bitcoin may take decades, but crises (esp. from AI-driven unemployment) could accelerate the timeline.

16. Short-Run: Bitcoin-Gold Cycles (76:19)

• Historically, gold runs first, then bitcoin “chases,” but bitcoin also has 4-year cycle downturns.
• Luke’s not highly confident but expects another bitcoin rally may follow the current gold run.

17. Tokenized Gold in Crypto (79:02)

• Tokenized gold brings liquidity and convenience, but in a crisis, underlying vault gold could be seized by authorities, leaving holders with only cash equivalents (“force majeure” risk).
• Owning physical gold coins (e.g., American Eagles, Canadian Maple Leafs) can be a simple, practical hedge for retail investors.

18. Protection Amid the 100 Year Reset—Portfolio Strategy (84:19, 85:18)

• Luke’s model:
  • 25% gold (or gold + bitcoin, weighted by age and risk tolerance)
  • 25% cash
  • 25% real estate (productive: timberland, farmland, rental)
  • 25% equities (preferably industrials and commodity-linked)
• Avoid long-term government bonds; the real upside will be in hard assets as the reset unfolds.

Notable Quotes & Timestamps

• "It’s not a debasement trade. It is a debasement secular trend… you don’t sell rallies, you buy dips." (Luke, 00:38, 08:42)
• "It looks much more like Brazil in 2000… this is fiscal dominance." (06:07, on US fiscal situation)
• "Gold’s price rise can rise infinitely. There’s plenty of gold. It’s just a question of price." (24:47)
• "What I’m describing is not a gold standard... it would be Keynes’ Bancor. It’s a neutral reserve asset, and it would fluctuate in value..." (31:00)
• "Every day that has passed that they have not done that, their odds of success and their odds of… a fair transition goes down and down." (41:50)
• "[On China’s gold holdings]: The 2,200 tons, that’s exactly what China has… it’s all they can do not to laugh." (45:05)
• "If you don’t hold it, you don’t own it…" (60:18)
• "My base case is it will trickle down into bitcoin and my confidence in that base case is rising…" (66:38)
• "If the US revalued its gold to $20k per ounce… you could buy back a lot of the Treasury market. At $20,000, it’s $5 trillion." (54:35)
• "For me, I think the ideal portfolio for most investors is… 25% gold, 25% cash, 25% real estate, 25% essentially equities and… rebalance over time." (85:18)

Key Takeaways for Listeners

• The “debasement trade” is no trade—it’s a multidecade global regime shift.
• Gold is regaining its pre-eminence as the ultimate reserve asset; bitcoin may follow, especially as generational turnover advances.
• Political, fiscal, and technological (AI) pressures mean the transition will be tumultuous and possibly very disorderly if not addressed soon.
• Owning real assets (physical gold, bitcoin, real estate, equities) is the recommended hedge—paper claims and long-duration government bonds are tenuous in a major reset.
• Tokenized and paper gold products deliver convenience but carry significant tail risk in crisis scenarios.
• For crypto-native investors, the impending gold revaluation could precede (and help drive) bitcoin’s escalation to a true reserve status—but patience is required, and events may accelerate timelines unexpectedly.

For more from Luke Gromen:
Check out his research and newsletter at fftt-llc.com

This summary omits ads and non-content sections. All referenced quotes are attributed with timestamps for context.