Introduction

Gold and Bitcoin might not produce income, but they reduce the need for income by preserving purchasing power when cash and financial claims quietly erode.

In a world where governments run persistent deficits, central banks expand the money supply, and interest rates fluctuate unpredictably, holding cash alone no longer guarantees that your wealth will maintain its value over time.

In this article, I wanted to show you how money loses purchasing power, how monetary debasement works, and why holding too much cash can quietly erode your wealth.

It explores how gold acts as a defensive, anti-debasement asset that has preserved value for centuries, and why Bitcoin offers a digital alternative for the same problem.

We also examine the forces that amplify gold’s value, i.e., falling real yields, geopolitical risk, and cyclical surges, and show why scarce assets matter more than ever in a system designed to continuously produce more money.

By the end, you’ll understand not just why these assets exist, and why owning them is less about chasing returns (the Warren Buffet objection) and more about refusing to be diluted!

Let’s dig in.

Why money keeps losing value (a simple refresher)

The answer is laid out in detail in my historical blogs and newsletters and summarised in a recent blog that you can access here.

But if you’re short for time, here’s a summary on everything you need to know about the creation and management of money in the fiat financial system.

Governments run deficits

When governments spend more than they collect in tax, they don’t stop spending. They borrow.

They do this by issuing bonds which are IOUs that promise repayment in the future.

On their own, these bonds are just promises. They are debt, not money.

New money is created when the debt is funded

Banks and large financial institutions buy these bonds. But they don’t simply move existing money around.

When they pay for the bonds, they create new bank deposits. These deposits can be spent immediately. That means the amount of money in the system increases.

This is how broad money grows.

Central banks make the process easier

Central banks support this system by buying government bonds and supplying liquidity to banks.

When a central bank buys bonds, it creates new reserves. This keeps borrowing costs low and makes it easier for governments to keep issuing debt.

The result is more money, cheaper debt, and continued government spending.

Banks multiply the money further

Banks then lend against these deposits and reserves.

Each loan creates another deposit. This is fractional-reserve banking. It expands the money supply again.

The end result is more money, same real world

The economy now has more units of money, but not proportionally more goods, services, or assets.

Each unit of money buys less than before. This is monetary debasement.

Historically, this happened by mixing cheaper metals into coins. Today, it happens digitally.

Where the impact shows up first

The new money doesn’t hit everything at once.

It first flows into financial assets like shares, property, and bonds. Their prices rise quickly.

Consumer prices and wages adjust later.

This is why asset prices often rise faster than everyday living costs. It’s not always because assets are “better” — it’s often because the measuring unit (money) is weaker.

Looked at from the other direction, it means you need more money units to afford the same asset, and that’s why “number go up”.

What this means for saving and income

Holding cash in this system is risky over long periods.

Even if the number in your bank account stays the same, what that money can buy usually shrinks over time.

That means you need to earn more income just to stand still.

Why gold plays a different role

Gold does not produce income. It doesn’t pay interest or dividends. Buffet is correct about that.

But it does something else.

Gold is scarce. It cannot be created by policy, debt, or banking activity.

When the money supply expands, gold tends to be repriced higher in money terms.

This is not because gold is doing more work. It’s because money is doing less and more units of money are required to buy the same gold bar.

By holding gold (and other scarce assets), you are stepping outside the debasement process.

But because gold has been around for the longest, it is the default macro asset to solve for debasement.

Falling real yields strengthen the case

When interest rates come down, it is usually because growth is slowing, debt levels are high, or the system needs relief.

What matters most is not nominal rates, but real yields, i.e., interest rates after inflation.

In debasement-driven systems:

Inflation often remains stubborn.
Policy rates are eventually pushed lower to manage debt and stability.
Real yields fall and sometimes turn negative.

When real yields fall, traditional “safe” assets like cash and government bonds quietly lose value in real terms. You may still receive interest, but that interest does not keep up with rising prices.

Gold benefits in this environment because:

It has no yield to lose.
The opportunity cost of holding it falls as real yields decline.
Investors looking to preserve purchasing power rotate away from cash and bonds.

This is one reason gold often performs well when rate cuts begin, not just when inflation is high.

Gold’s defensive role in stress, war, and hostility

Gold also plays a role that most financial assets cannot.

In times of war, sanctions, or geopolitical stress:

Financial claims can be frozen.
Bank deposits can be restricted.
Government bonds can be seized or rendered unusable.

When Russia invaded Ukraine, foreign-held reserves and Treasury-style assets were frozen. That event sent a clear signal: financial assets are only as safe as the system backing them.

Gold is different:

It is no one else’s liability.
It can be held directly.
It can be moved, hidden, or stored outside the financial system.
It does not rely on permission, clearing systems, or counterparties.

This defensive characteristic explains why gold is often accumulated during periods of conflict, rising hostility, or loss of trust in institutions. Undoubted provenance diamonds and other rare items can also play a part.

Why gold moves in cycles and surges

Gold does not rise smoothly.

Most of the time, it reflects slow-moving debasement, with the price chart rising “up and to the right” over time.

But from time to time, prices surge sharply.

These surges usually occur when:

Real yields fall quickly.
Confidence in financial assets is shaken.
Geopolitical risk spikes.
The market suddenly re-prices monetary risk.

In other words, gold spends long periods being ignored, then short periods being urgently repriced.

Those cycles add to its overall anti-debasement appeal. You are not only preserving purchasing power over time but occasionally benefiting from moments when the market recognises the risk that has been building.

Since November 2025, Gold has been in a rising wedge, so there’s more to come in price action for all of the reasons explained above.

Gold versus Bitcoin is simply a battle of centuries versus decades

Gold and Bitcoin are often grouped together, but they are not the same thing.

Gold is physical, tangible, and has been relied on for centuries in periods of monetary stress, war, and loss of trust. Its long history gives it what is called a Lindy effect, which is to say that the longer it has persisted, the more likely it is to continue.

Bitcoin is only 16 years old. It is not digital gold. Bitcoin is digital anti-debasement.

It was designed with a fixed supply, immune to discretionary money creation. It exists entirely outside the banking system and does not rely on governments, central banks, or debt markets.

Where gold protects purchasing power in the physical world, Bitcoin aims to do the same in the digital one.

Gold short-circuits debasement through scarcity you can hold. Bitcoin does it through code you can verify.

It is worth noting that gold and Bitcoin are not the only scarce assets that can reduce exposure to monetary debasement. There are many others, but gold’s multi-century history and Bitcoin’s coded scarcity make them the most widely recognised for this purpose.

The final takeaway

Together, the adoption of gold and Bitcoin as anti-debasement assets highlights a simple reality.

In a system that continuously produces more money for all the reasons in this note, and explained here, owning scarce assets is less about chasing returns, and more about refusing to be diluted.

If, like me, you refuse to be diluted over the long term, short cash and bonds and go long your preferred anti-debasement asset.

If you’re a physical or digital project developer, a collector, or a corpdev practitioner thinking about directions in 2026, I hope this note helps.

See you in the market 🖐

Mike

for those who refuse to be diluted, this is real money

Introduction

Why money keeps losing value (a simple refresher)

Governments run deficits

New money is created when the debt is funded

Central banks make the process easier

Banks multiply the money further

The end result is more money, same real world