In a turbulent market, which is a safer haven, gold or Bitcoin?

Despite being called “digital gold,” Bitcoin is far less safe-haven than physical gold in the current market environment.

All eyes are now on gold, the ultimate safe-haven asset. The price of gold just reached an all-time high of $3,000 per ounce. This price rise was accompanied by a correction in the stock market, a significant decline in the cryptocurrency market, and widespread concerns about the future direction of US economic policy.

But don’t forget Bitcoin (BTC -0.76%), which is often called “digital gold.” A growing number of top investors believe that Bitcoin is superior to physical gold as a store of value, an anti-inflation hedge, and a safe-haven asset during economic uncertainty. But is this really the case?

1. Bitcoin vs. Gold

To answer this question, it is crucial to understand Bitcoin’s unique characteristics and functions. Most importantly, Bitcoin’s lifetime supply is capped at 21 million, and nearly 20 million already exist. This gives Bitcoin great scarcity. Almost all of the Bitcoin that will ever exist already exists.

But that’s not all. Bitcoin is completely decentralized, meaning that no central bank, sovereign government, or Wall Street investment bank can change its underlying algorithm. A unique feature of the algorithm is the Bitcoin halving mechanism. Every four years, the supply of new Bitcoins is halved, making it a deflationary asset over time. This is a key reason why many people believe that Bitcoin is an effective hedge against inflation.

Due to the encrypted nature of blockchain technology, Bitcoin is highly resistant to government confiscation or other asset seizures. This is one of the reasons why billionaire Ricardo Salinas - now one of the five richest people in Mexico - calls Bitcoin "the hardest asset in the world" (even harder than gold). Bitcoin also has a unique feature: it is purely digital and can be transferred across borders almost instantly. Bitcoin was originally designed as a peer-to-peer digital currency without any third-party intermediaries. Although it is not free to transfer Bitcoin to others, you do not need banks or other financial institutions to intervene and charge fees.

2. Gold ETF vs. Bitcoin ETF

For the sake of discussion, let's assume that you are not planning to invest in Bitcoin or gold directly. That is, you are not planning to buy Bitcoin in the spot crypto market or buy gold bars at Costco. Instead, you may invest in Bitcoin and gold through trading platform exchange-traded funds (ETFs). This approach allows you to easily and effectively adjust your portfolio allocation. The most popular spot Bitcoin ETF is the iShares Bitcoin Trust (IBIT -0.18%), let’s compare it to the performance of its iShares Gold Trust (IAU 0.59%) over the past 15 months.

As you can see from the chart, the iShares Bitcoin ETF has outperformed the iShares Gold ETF over the past year when the market was flat or rising, but it has far underperformed the gold ETF when the market is down (as it is now). This explains why so much money is flowing into gold ETFs right now. Concerns about the economic outlook are real, and some have hit the panic button.

The recent performance is particularly disappointing for Bitcoin supporters because it undermines the argument that Bitcoin can be used as a hedge during a recession or a major market pullback. A similar situation occurred in 2022, when Bitcoin lost 65% of its value, accompanying a broader market downturn.

3. Which is the better recession hedge?

In theory, “digital gold” should provide the same (or even better) recession hedge as physical gold. But as we know, reality doesn’t always follow theory. If you’re seriously concerned about a recession eating into your hard-earned savings, gold looks like the better hedge. Its 4,000-year track record is unquestionable.

That said, there’s one thing I’d be willing to change my mind about if: Bitcoin’s correlation with the stock market decreases. The lower stock correlation is what’s made Bitcoin so special over the past decade; it seems completely uncorrelated to any major asset class, which provides a huge diversification benefit. But if Bitcoin loses value every time the stock market drops, its usefulness as a hedge will be greatly reduced. It’s embarrassing to admit defeat to gold supporters, but that seems to be the end result. Unless Bitcoin can buck the trend and rise when the stock market drops, gold looks like the better recession hedge in 2025.