Bitwise Chief Investment Officer Matt Hougan pointed out that the world is gradually realizing the "madness" of the fiat currency system. Central banks are purchasing large amounts of gold, while individual investors are turning to Bitcoin as a digital safe-haven asset against currency devaluation.

Background: Since the United States abandoned the gold standard in 1971, the financial community has generally accepted the fiat currency system, considering it an inevitable stage in the evolution of money.

Main Content: Hougan quoted writer David Foster Wallace's metaphor, emphasizing that people often overlook the most important realities around them. With global central banks significantly increasing gold purchases since the 2008 financial crisis, especially accelerating after the 2022 Russia-Ukraine conflict, it reflects concerns over fiat currency depreciation and asset confiscation. U.S. debt is approaching 37 trillion dollars, and gold has become the second-largest reserve asset for central banks. Individual investors show a stronger preference for Bitcoin, with Bitcoin ETF inflows reaching 45 billion dollars since 2024, surpassing gold ETFs' 34 billion dollars.

Impact and Significance: Whether gold or Bitcoin, investors are beginning to recognize that traditional stock and bond portfolios remain heavily dependent on fiat currencies, posing considerable risks. Although the Bitcoin market size is small, demand is noticeably growing, and it may become a new choice for central banks and institutional investors in the future.

Bitwise Chief Investment Officer Matt Hougan says the world is waking up to the "craziness" of the fiat currency experiment, with central banks buying record amounts of gold and individuals turning to bitcoin — recognition that fiat money may not be the unquestioned default it once seemed.Drawing on author David Foster Wallace's parable of fish unaware of the water around them, in a memo to clients late Tuesday, Hougan noted that we are often blind to the most important realities, especially those that have surrounded us our whole lives.The U.S. abandoned the gold standard in 1971, so anyone in finance who remembers working in a non-fiat system would be at least 75 years old today, assuming a typical career starts at age 21, Hougan said. "Like nearly every other financial professional working today, I've spent my entire life swimming in the water of a fiat-based world — one in which a country's money supply is based not on its accumulation of reserves like gold or silver, but whatever the government decides it should be," he added. "When most of us were in school, the adoption of fiat currency was presented as an inevitable progression, like crawling out of the mud and beginning to walk upright. People thought gold was money, we laughed. How cute."However, the Bitwise CIO argues that more people are beginning to realize that the era of fiat currency may be an anomaly. "Maybe printing money out of thin air, as we started to do in 1971, is actually a wild idea. Maybe sound money requires limits," he said. "Put differently, people are starting to look around and ask: What the hell is fiat?"Referencing a recent Financial Times report, Hougan noted that central banks, which were once routine gold buyers before 1971, began ramping up purchases again after the 2008 financial crisis — a response to growing concerns about fiat currency — and aggressively accelerated their purchases after Russia's 2022 invasion of Ukraine, amid rising fears of debasement and asset seizures.With U.S. debt nearing $37 trillion, gold last year overtook the euro as the second-largest reserve asset as central banks seek a scarce, global, self-custodied hedge that's resistant to government manipulation, Hougan continued — highlighting that those properties don't just apply to gold.Like governments, individual investors are too waking up to the risks of unchecked money printing — but they are mostly turning to bitcoin, often seen as a digital alternative to gold, Hougan argued, noting that bitcoin ETFs have attracted $45 billion in inflows to outpace the $34 billion pulled in by gold ETFs since January 2024.The current gap between public and institutional bitcoin adoption largely comes down to scale, he explained. At $2 trillion, the bitcoin market remains too small and illiquid for central banks to move in and out efficiently, although demand is growing.Ultimately, whether it's gold or bitcoin, the core realization is the same: traditional portfolio strategies built on stocks and bonds are still fully exposed to fiat. "People are realizing that those are rather risky waters to be swimming in," Hougan concluded.

Bitwise Chief Investment Officer: Global Awakening to the "Madness" of Fiat Currencies, Bitcoin Becomes a Digital Safe-Haven Asset