Bitcoin and Gold: A Comparative Analysis by Bitwise Supporting Dalio’s 15% Hedge Strategy

Bitwise has conducted an analysis that illustrates the distinct roles of gold and Bitcoin in investment portfolios. The report shows that gold protects against downturns while Bitcoin offers significant recovery gains. This supports investor Ray Dalio's suggestion of allocating 15% of portfolios to both assets amid increasing U.S. federal debt.

Key Takeaways

Distinct Functions: Gold provides downside protection during market downturns, while Bitcoin drives significant recovery returns.
Performance Analysis: Bitwise examined market cycles comparing traditional 60/40 stock-bond portfolios to versions including gold, Bitcoin, or both.
Dalio's Recommendation: Ray Dalio endorses a combined 15% investment in gold and Bitcoin to hedge against economic uncertainty.
Sharpe Ratio: Portfolios with gold and Bitcoin achieved a Sharpe ratio of 0.679, surpassing traditional portfolios and those with gold alone.

Bitwise data on Bitcoin and gold portfolio performance

Bitcoin and Gold: Performance Insights from Bitwise

Asset management firm Bitwise has released a significant analysis revealing how gold and Bitcoin play different roles during various market cycles. Their findings indicate that gold acts as a protective cushion in turbulent market conditions, while Bitcoin typically leads to substantial gains when the market recovers.

Analysis Overview

The report investigates major market downturns over the past decade, comparing two types of portfolios: the conventional 60/40 stock-bond portfolio and those that incorporate gold, Bitcoin, or a blend of both assets. This analysis was prompted by investor Ray Dalio's advice regarding the allocation of 15% of portfolios to gold and Bitcoin in light of increasing federal debt and deficit spending in the U.S.

Gold’s Defensive Nature

According to the analysis, gold exhibited consistent defensive characteristics during significant market stresses. For instance, during the 2018 equity downturn, where stocks fell by 19.34% and Bitcoin plunged more than 40%, gold actually increased by 5.76%. Similarly, in 2020, amid the COVID-19 market shakeup when equities dipped nearly 34% and Bitcoin dropped 38.1%, gold's decline was limited to just 3.63%.

The trend persisted in 2022, where equities saw a decline of 24.18%, and Bitcoin experienced a near 60% drop due to inflation concerns and harsh interest rate hikes, yet gold's decrease was under 9%. In another instance during the 2025 market pullback prompted by trade tensions, while equities fell by 16.66% and Bitcoin decreased by 24.39%, gold actually increased by almost 6%.

Recovery Gains from Bitcoin

Data further reveals that during recovery phases, Bitcoin generated substantial gains. Following the market lows in 2018, it achieved a remarkable rally of nearly 79%. The digital asset surged an astounding 775% after the pandemic lows in 2020 and experienced a 40% rise in 2023 as inflation concerns eased. Although gold also gained during recovery trends, its increases were generally more moderate compared to Bitcoin, which was accompanied by strong rebounds from equities.

Comprehensive Market Cycle Evaluation

The report emphasizes the importance of looking at performance across full market cycles rather than focusing solely on individual phases. Portfolios that included both gold and Bitcoin achieved a Sharpe ratio of 0.679, which is nearly three times higher than traditional 60/40 portfolios and even higher than those containing only gold. While a Bitcoin-only allocation may produce a better Sharpe ratio, it comes with markedly increased volatility.

Conclusion

The findings from Bitwise suggest that gold and Bitcoin may complement each other rather than compete in investment portfolios. Gold provides stability during market downturns, while Bitcoin presents growth opportunities during recovery phases. This balanced approach may lead to a more resilient investment strategy in today's uncertain economic landscape.