Can Bitcoin and gold co-exist in a portfolio?
Gold and Bitcoin can co-exist within a diversified portfolio because they perform different functions. Gold has historically demonstrated certain defensive attributes, offering a hedge against adverse market conditions and serving as a store of value. Bitcoin, by contrast, represents a newer source of return potential, but at the expense of increased risk to an overall portfolio. Both underliers may benefit from “alt-fiat” demand. Together they have the potential to serve as left tail (gold) and right tail (Bitcoin) diversification hedges.
Contrasting correlations
Since President Nixon closed the gold window in 1971,1 effectively establishing a free market in gold and the US$, the metal has exhibited almost no structural long-term correlation to equities or bonds. Static correlations have been ~0.01 versus the S&P 500 and ~0.10 against the Bloomberg US Aggregate Bond Index.2 The random walk for gold holds when comparing correlations over the past decade. Gold’s correlations range from -0.25 with MSCI Japan to 0.32 with Emerging Markets and generally is low across various other equity indexes.3 Bitcoin, by contrast, exhibits consistently higher correlations across the board, from 0.22 with MSCI Japan to 0.35 with developed world equities and similarly elevated levels with U.S. Large Caps and global equities.4
Crisis performance: gold’s resilience vs. Bitcoin’s volatility
Beyond its low correlation to financial assets, gold has also historically provided more reliable protection against sudden equity market downturns. As detailed in figure 2, during peak-to-trough drawdowns greater than 12% on the S&P 500 after Bitcoin’s inception, gold returned an average of +4.7%, compared with a steep ~35.3% loss for Bitcoin.5 Gold also posted positive returns in six of seven episodes, with its worst outcome a relatively modest ~3.6% drop during the peak Covid-19 sell-off.6 Meanwhile, Bitcoin failed to register a single positive return during these seven events, with its deepest drawdown occurring during the US credit downgrade of 2011, where the cryptocurrency fell ~66%.7
When looking at sharp corrections that happened before Bitcoin’s inception, gold’s strong record tells a similar story of protecting portfolios against systematic market shocks. Currently both equity (VIX) and bond (MOVE) volatility indices are sitting near trailing-twelve-month lows,8 and we believe these levels are unlikely to sustain in the current macro regime. As we flagged in our 2025 Midyear Outlook, gold can serve as a timely volatility and overlay hedge when vol markets are compressed.
Volatility: The cost of Bitcoin’s return potential
The greatest contribution an exposure to Bitcoin makes to an investment portfolio is its returns, even though these have been inconsistent over the life of the cryptocurrency. The chart below highlights why: Bitcoin’s volatility has consistently been several multiples of equities and gold, even as it has started to normalize in recent years. This elevated volatility creates the potential for outsized gains but also makes Bitcoin a challenging allocation for many investors. Gold has provided far greater stability and even a modest allocation can help offset portfolio risk while still leaving room for the return potential of Bitcoin.
Conclusion
In Figure 4 we start with a traditional 60/40 portfolio, represented by the S&P 500 and the Bloomberg U.S. Aggregate Bond Index. We then evaluated the impact of three alternative allocations: A 5% allocation to Bitcoin (funded from equities), a 5% allocation of gold (funded from fixed income), and a portfolio that includes both. It is no secret that Bitcoin’s introduction significantly lifts overall performance, with a CAGR of 18.8% versus 10% for the traditional 60/40 portfolio.9 What’s more interesting, however, is that the portfolio that combines both Bitcoin and gold not only outperforms the other three portfolios but does so with a lower maximum drawdown than the Bitcoin only version.
It’s also worth noting that when we reduce the equity and bond sleeves, hold bitcoin constant at 5%, and increase the allocation to gold, the portfolio still delivers strong performance while exhibiting a lower annualized standard deviation of returns.10
Bitcoin, and the broader cryptocurrency market appear here to stay. Supportive regulatory legislation such as the GENIUS Act further cements the legitimacy of the crypto market and may curve the volatile swings in price action that the space has been criticized for. Gold, a proven store of value for thousands of years, has outperformed Bitcoin year-to-date by roughly 24%11 and is still supported by the tailwinds that include hidden market risks and an ongoing aggregate demand shock for gold backed ETFs. Together, Bitcoin and gold can complement each other by improving portfolio performance while tempering extreme swings.