Investors Weigh Gold Against Bitcoin as Hedge Assets Amid Pro-Crypto Climate

Investors are re-evaluating the roles of gold and bitcoin as hedges in light of recent market dynamics.

Gold's Role as an Equity Hedge

Gold historically protects against stock market losses.
During market stress, gold often rises. For example, it gained 5% in the 2022 bear market while the S&P 500 fell nearly 20%.
Gold’s correlation with the S&P 500 is near zero, dipping negative during downturns.

Bitcoin's Function as a Bond-Market Counterweight

Bitcoin struggled during equity sell-offs, losing over 60% in 2022 alongside tech stocks.
However, it shows low or slightly negative correlation with U.S. Treasuries, performing better than gold amid rising yields.

Performance Insights for 2025

As of August 31, 2023, gold increased over 30%, driven by demand during equity volatility.
Bitcoin rose about 16.46% this year, benefiting from falling 10-year U.S. Treasury yields.
The S&P 500 is up roughly 10% in 2025.

Data-Driven Conclusions

A Bitwise report confirms gold as a reliable hedge against stock downturns.
Bitcoin offers stronger returns during market recoveries and has lower correlation with U.S. Treasuries.
Holding both assets can enhance diversification and optimize risk-adjusted returns.

Caveats to Consider

Correlations are not static; Bitcoin's ties to equities have strengthened due to significant inflows into spot ETFs.
Short-term shocks like regulatory news can impact both assets simultaneously, limiting their hedging effectiveness.

Conclusion

Despite Trump’s support for crypto, abandoning gold for bitcoin is not recommended. Each asset serves distinct purposes: gold for stock market protection and bitcoin for bond market pressures. Using both may be the most strategic approach for investors.