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

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

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

01 Bitcoin vs. Gold

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

But that’s not all. Bitcoin is fully decentralized, meaning 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 cut in half, making it a deflationary asset over time. This is a key reason many believe Bitcoin is an effective hedge against inflation.

Because of 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 don't need a bank or other financial institution to intervene and charge a fee.

02 Gold ETF vs. Bitcoin ETF

For the sake of discussion, let's assume that you're not going to invest in Bitcoin or gold directly. That is, you're not going to buy Bitcoin in the spot crypto market or buy gold bars at Costco. Instead, you're likely to invest in Bitcoin and gold through an exchange-traded fund (ETF). This approach allows you to easily and efficiently adjust your portfolio allocation. The most popular spot Bitcoin ETF is the iShares Bitcoin Trust (IBIT -0.18%), so let's compare its performance over the past 15 months with its iShares Gold Trust (IAU 0.59%).

iShares Bitcoin Trust chart provided by TradingView.

As you can see from the chart, the iShares Bitcoin ETF outperformed the iShares Gold ETF over the past year when the market was flat or rising, but when the market was down (as it is now), it underperformed the Gold ETF by a wide margin. This explains why a lot of money is flowing into the Gold ETF right now. People's concerns about the economic outlook are real, and some people 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 sharp market pullback. A similar situation occurred in 2022, when Bitcoin's value fell 65% in the wake of a broader market downturn.

03 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 worried about a recession eating into your hard-earned savings, gold appears to be the better hedge. Its 4,000-year track record is unquestionable.

That being said, there is one thing I’m willing to change my tune on if: Bitcoin becomes less correlated with the stock market. The lower stock correlation is what’s made Bitcoin so special over the past decade; it seems to be completely uncorrelated with any major asset class, which provides a huge diversification benefit. But if Bitcoin loses value every time the stock market falls, 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 rise against the trend when the stock market falls, gold looks like the better recession hedge in 2025.