Bitwise CIO Compares Bitcoin and Gold as Currency Hedges

Bitcoin Bitwise Gold

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Hongji Feng

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Hongji Feng

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Hongji is a crypto and tech reporter. He graduated from Northwestern University's Medill School of Journalism with a Bachelor's and a Master's. He has previously interned at HTX (Huobi Global),...

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September 30, 2024

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Investors weigh Bitcoin and gold as potential hedges against economic uncertainty amid recent monetary policy shifts from the Federal Reserve and China’s economic stimulus measures.

According to a blog by Bitwise Asset Management, both assets have their advantages, with Bitcoin offering higher potential returns and gold providing greater stability. The decision ultimately depends on the investor’s risk tolerance and objectives.

Bitwise CIO Hougan: Bitcoin Offers Flexibility with Volatility

Bitwise Chief Investment Officer Matthew Hougan emphasized that Bitcoin and gold are attractive hedges because they operate independently of government control.

“Jerome Powell can print all the dollars he wants, but he can’t create more gold or change Bitcoin’s supply cap of 21 million,” he stated.

Hougan further explained that while both assets are appealing, their differences are significant. He pointed out that Bitcoin offers greater flexibility due to its ease of transfer and storage, though it has increased volatility.

Gold, meanwhile, is more stable but less versatile. “Bitcoin is less established and more volatile than gold, but it’s also easier to send, store, and divide,” he explained.

Bitcoin vs. Gold, or Returns vs. Stability

In his analysis, Hougan cited Bitwise data showing that adding even a small percentage of Bitcoin to a traditional 60/40 portfolio could substantially boost returns with only a minor increase in risk.

A 2.5% allocation to Bitcoin, for example, could enhance portfolio returns by 50 percentage points, with only a slight increase in volatility. Gold, by contrast, had a minimal effect on returns but effectively reduced portfolio risk.

Hougan advised that investors base their decisions on risk tolerance. Bitcoin could be a suitable option for those seeking higher returns and willing to accept some volatility. On the other hand, those prioritizing stability may find gold a better fit for their portfolios.

Ultimately, Hougan suggested that while both assets offer benefits, the choice comes down to individual investment goals, with Bitcoin offering the potential for greater gains and gold providing a safer, more traditional hedge.