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Confidence in the dollar and the fiat system, in general, is breaking down, and central banks are turning to gold while individuals are turning to Bitcoin, according to Bitwise investment chief Matt Hougan.

Hougan said in a June 17 note that 54 years after the U.S. left the gold standard, the world is waking up to the reality that the fiat system may not make sense.

“Maybe printing money out of thin air, as we started to do in 1971, is actually a wild idea,” he said. “Maybe sound money requires limits. Put differently, people are starting to look around and ask: What the hell is fiat?”

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Hougan cites a recent Financial Times report, which said that gold was once again becoming the anchor of the global economy as people questioned the core assumptions of the present system. Central banks have been rapidly accumulating gold in recent years, with spikes following the 2008 financial crisis and Russia’s invasion of Ukraine in 2022. Amid this buying spree last year, gold surpassed the euro as the second most widely held reserve asset by central banks, behind only the dollar.

Hougan said the flight back to gold came as governments started abusing fiat and accelerated after they began seizing it. He said the desire by central bankers to hedge their bets has only grown with the increasing temptation for the U.S. to devalue its way out of its ballooning $37 trillion debt. He notes that they are turning to gold because it is scarce, global, resistant to manipulation and non-sovereign.

These characteristics, he points out, also apply to Bitcoin, which he says has become the alternative for individual investors. He cites the large capital inflows into Bitcoin exchange-traded funds since they started trading in January 2024 compared to gold.

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Bitcoin ETFs have attracted $45 billion in net inflows. By comparison, gold ETFs have attracted only $34 billion.

“I see these as two sides of the same trade,” he said, comparing the flight of central banks to gold and the individuals to Bitcoin.