Bitcoin and gold face off as Bitwise backs Dalio’s 15% hedge thesis

Bitwise finds gold cushions 60/40 portfolios in drawdowns while Bitcoin drives outsized recovery gains, with a combined 15% allocation lifting Sharpe to 0.679 versus 0.23.

Asset management firm Bitwise has released analysis indicating that gold and Bitcoin perform distinct functions during market cycles, with gold providing downside protection during market drawdowns while Bitcoin (BTC) delivers stronger returns during recovery periods.

The report examined major market downturns over the past decade, comparing traditional 60/40 stock-bond portfolios with versions incorporating gold, Bitcoin, or both assets. The analysis was conducted in response to comments from investor Ray Dalio, who recommended a combined 15% allocation to gold and Bitcoin amid rising U.S. federal debt and deficit spending.

According to the Bitwise report, gold consistently demonstrated defensive characteristics during periods of market stress. During the 2018 equity drawdown, when stocks fell 19.34% and Bitcoin declined more than 40%, gold gained 5.76%. In 2020, equities dropped nearly 34% during the COVID-19 market shock and Bitcoin fell 38.1%, while gold declined just 3.63%.

The pattern continued in 2022, when equities fell 24.18% and Bitcoin dropped nearly 60% amid inflation concerns and aggressive interest rate increases, while gold declined less than 9%. In the 2025 market pullback linked to trade tensions, equities fell 16.66% and Bitcoin declined 24.39%, while gold rose nearly 6%.

During subsequent recovery periods, Bitcoin delivered substantial gains, according to the data. The cryptocurrency rallied nearly 79% after the 2018 bottom, surged 775% following the 2020 pandemic lows, and rose 40% in 2023 as inflation eased. Gold also posted gains during recoveries, though these were typically more moderate, while equities rebounded strongly.

The report evaluated performance across complete market cycles rather than individual phases. Portfolios containing both gold and Bitcoin showed a Sharpe ratio of 0.679, nearly three times higher than traditional 60/40 portfolios and above portfolios that added gold alone, according to Bitwise. While a Bitcoin-only allocation produced a higher Sharpe ratio, it also exhibited significantly higher volatility.

The findings suggest that gold and Bitcoin may serve complementary rather than competing functions in investment portfolios, with gold providing stability during market declines and Bitcoin offering growth potential during recoveries, according to the analysis.