Gold Holds, Bitcoin Fluctuates: What Investors Need to Know

When markets turn gloomy, gold often shines. Investors call gold a “safe haven” because it tends to hold its value, or even increase, during uncertain or volatile periods. Gold has historically had a low or negative correlation with traditional assets like stocks and bonds. That means when stocks are falling, gold often outperforms, helping to…

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When markets turn gloomy, gold often shines. Investors call gold a “safe haven” because it tends to hold its value, or even increase, during uncertain or volatile periods. Gold has historically had a low or negative correlation with traditional assets like stocks and bonds. That means when stocks are falling, gold often outperforms, helping to cushion portfolio losses. This diversification benefit is one of the key reasons why gold is often suggested as part of a balanced portfolio.

In recent years, a new contender has entered the scene: Bitcoin. Often dubbed “digital gold,” Bitcoin has attracted a following of investors who see it as the modern equivalent of gold—a store of value and hedge against fiat currency debasement. Both gold and Bitcoin share some similarities: neither is tied to a company’s earnings or bond interest payments, and both have limited supplies (gold by nature, Bitcoin by code).

The first major difference between them is volatility. Gold has earned its safe-haven reputation over centuries, whereas Bitcoin is still arguably in its infancy and has behaved more like a high-risk asset throughout its history. If your primary aim is portfolio insurance and stability during crises, gold’s long history and lower volatility probably make it the more reliable choice. Bitcoin is more of a speculative diversifier; it might play a role in a portfolio, but its performance is not yet as established as gold’s is.

As institutional adoption grows and regulatory clarity improves, Bitcoin and crypto are gradually shedding their purely speculative image and growing toward mainstream acceptance as assets that deserve a place in investment portfolios.

Built-in scarcity underpins the idea that Bitcoin should hold its value when inflation erodes the purchasing power of the dollar. Over the past decade, Bitcoin’s price appreciation has well outpaced inflation. However, in 2022, when inflation in the US and Europe hit decade highs, Bitcoin’s price fell 65% for the year, even as gold stayed roughly flat. At the same time, Bitcoin has also outperformed gold, but not without its ups and downs – which aren’t for the faint-hearted.

Some younger investors with a high-risk tolerance and long time horizon might favour Bitcoin or high-growth stocks as their “alternative” asset and skip gold entirely. In my experience, the question of gold in a portfolio often comes down to this: Does it help you stay disciplined and calm? If knowing you have a bit of gold helps you not panic-sell your stocks in a downturn because you see something in your portfolio holding value, then gold is doing its job.

For now, most investors see Bitcoin as a long-term store of value rather than a safe haven. Bitcoin is a promising but still maturing asset – a small allocation has proven that it can increase gains in a portfolio, but with a high level of volatility. However, it still falls short of the consistency that traditional hedges such as gold tend to offer.

This communication is for information and education purposes only and should not be taken as investment advice, a personal recommendation, or an offer of, or solicitation to buy or sell, any financial instruments. This material has been prepared without taking into account any particular recipient’s investment objectives or financial situation, and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Any references to past or future performance of a financial instrument, index or a packaged investment product are not, and should not be taken as, a reliable indicator of future results. eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication.

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