Bitwise Explains Why Gold Protects and Bitcoin Attacks During Market Cycles

Studying the market crash from 2018, Bitwise finds gold limits losses while bitcoin drives rebounds.

Bitcoin and gold are often at odds as competing currencies against inflation and devaluation. However, the data suggests that the strongest portfolios hold both.

In fact, experts from Bitwise found that gold tends to go down during market downturns, while BTC tends to outperform during recoveries.

Gold and Bitcoin portfolio

A new report by Bitwise Senior Investment Strategist Juan Leon and Mathematical Research Analyst Mallika Kolar said investors seeking protection from a weakening dollar and market volatility may benefit more by holding both gold and Bitcoin instead of choosing between the two.

The analysis was prompted by recent comments from Bridgewater Associates founder Ray Dalio, who recommended a combined 15% gold supply for gold and BTC amid rising US government debt and persistent spending, which he said increases the risk of a long-term deflation.

To test the claim, Bitwise analyzed the declines in capital markets over the past decade and compared a standard 60/40 portfolio with versions that include gold, BTC, or both.

The findings showed that gold consistently acts as a hedge asset during periods of market depression, while bitcoin tends to outperform during subsequent recoveries. During the equity drawdown of 2018, when stocks fell 19.34%, and BTC fell more than 40%, gold gained 5.76%.

In 2020, equities fell nearly 34% during the COVID-19 shock, BTC fell 38.1%, and gold fell 3.63%. A similar pattern emerged in 2022, when equities fell 24.18% and BTC nearly 60% amid inflation, aggressive rate hikes, and some crypto turmoil, while gold fell less than 9%.

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Sharp measurements

In the 2025 pullback in a market tied to rising trade tensions, equities fell 16.66%, bitcoin fell 24.39%, and gold rose nearly 6%. After the subsequent recovery, the crypto asset has repeatedly delivered huge gains, including a rally of almost 79% after the end of 2018, an increase of 775% following the decline of the epidemic in 2020, and a rise of 40% in 2023 as inflation subsides and expectations increase with a change in monetary policy.

Gold also posted strong gains during the recovery period. However, this was not the most surprising thing, while the prices went up a lot. The report examined performance across entire periods rather than individual categories. On that basis, portfolios including both gold and Bitcoin showed a superior balance of risk and return, with a Sharpe ratio of 0.679. This is almost three times more than a traditional 60/40 portfolio and more than a portfolio that only added gold.

Although only the BTC share produced the highest Sharpe ratio, it also came with the highest volatility.