The phrase “corrupt trading” as a cryptocurrency story has become popular. The idea is to move from government-backed assets such as bonds and fiat currencies to “hard” assets such as gold and Bitcoin.
Bitwise CIO Matt Hougan recently posted on X that the downgrade trade theory is gaining momentum and will remain popular through 2026. So what is this theory and why is it gaining attention now?
What is the Bitcoin Degradation Transaction Theory?
Bitcoin deterioration trading theory refers to investors purchasing Bitcoin as protection against a decline in the value of fiat currencies.
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When governments expand the money supply through debt and monetary stimulus, each monetary unit loses purchasing power. This process is known as currency deterioration.
Bitcoin’s fixed supply of 21 million coins and independence from central banks make it an attractive hedge against this erosion.
In this view, Bitcoin functions as a “digital hard asset” similar to gold. It retains its value even when faith in traditional money weakens.
Trade is gaining momentum as global debt rises and inflation concerns persist. This will allow investors to treat Bitcoin as part of a broader strategy to protect their wealth from currency dilution.
increasing uncertainty
Satoshi Nakamoto created Bitcoin as a response to the 2008 financial crisis. When the network first went live in 2009, its genesis block included messages referencing bank bailouts.
So, despite the mystery surrounding Bitcoin’s founder, there is no doubt that this cryptocurrency was created as a remedy for traditional financial turmoil.
“I think the basic theory of BTC has always been a variation of degrading trading,” said Andrew Tu, an executive at crypto market maker Efficient Frontier. “We start with the Genesis block where Satoshi mentions the bank bailouts.”
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Financial markets overall appear to be highly responsive to US policy. That’s why markets seem to change suddenly or capriciously under the Trump administration.
The recent market crash on October 10th due to tariff concerns is one example. Although recovery was almost as quick.
In fact, if you zoom out, the price of Bitcoin has increased by 50% over the past year, despite week-to-week market volatility.
Are crypto traders bearish or bullish?
The term “downgrade” sounds serious and should be of concern to market participants.
But the term may be the story to tell to make markets swirl, often at the whims of U.S. policymakers and other global events.
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Those who study the market on a daily basis may have different opinions on the decline in quality, leading to an overall bearish sentiment.
“Despite all the uncertainty and the fact that economists are saying a recession or bear market is very likely in 2023, most likely in 2024 and 50-50 in 2025,” said Jeff Emby, managing partner at Globe 3 Capital. “While it is too early to tell now, we expect another bull market to arrive in 2026.”
Long-time Bitcoin believers won’t be surprised if, as Bitwise’s Hogan predicts, disparaging trading ideas become a topic of conversation for many people in 2026.
This used to be called “libertarian” or “cypherpunk.” It wasn’t necessarily trendy at the time and was part of the Bitcoin counterculture vibe until about 2016. It may be popular now.
“This is the very foundation of Bitcoin’s value story,” said Witold Smisek, investment director at Paramount Digital. “In that sense, it’s nothing new for the old guard, who entered crypto by combining economics and cypherpunk values.”
Bitcoin rotation
Compared to the cypherpunk days when only Bitcoin was available, potential crypto investors have more options in front of them.
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With the proliferation of Layer 1 and more favorable regulations, companies are showing interest in different chains, which could significantly increase the value of the underlying tokens.
But perhaps the one that best fits this narrative of disparagement is Bitcoin.
“BTC, with its hard supply cap, has always been seen by Bitcoin enthusiasts as a hedge against the current fiat system,” Efficient Frontier’s Tu said.
Since the pandemic-era money printing in 2020, the total M2 money supply, which is cash and its equivalent, has surged from about $15 trillion to more than $20 trillion.
Cheap and easily available money led to rotation into Bitcoin and a surge in price, with BTC as low as $4,000 during the 2020 lockdown. But that doesn’t mean rotation doesn’t occur in the face of other macro events.
Volatility may not necessarily be fun for inexperienced crypto holders, but it’s a very good thing for traders, with daily Bitcoin volume across exchanges at $17 billion, according to data aggregator NewHedge.
Efficient Frontier’s Andrew Tu added: “Even if the market crashes, such as due to the AI bubble bursting, BTC and the entire crypto market, and perhaps even gold, will likely crash in the short term before outperforming in the medium term.”
