Why do we still firmly allocate Bitcoin when gold is leading the pump?

Investment masters suggest increasing gold allocation to 15% and Bitcoin to 5%, as both are important hedging tools against global risks. (Background: CZ Zhao Changpeng will debate Bitcoin's arch-nemesis Peter Schiff! Digital gold BTC vs. tokenized gold: which better satisfies currency attributes?) (Background supplement: Why has gold's rise this year far exceeded that of Bitcoin, yet I am not worried about BTC?) This year, gold has been in the limelight—under the multiple disturbances of trade frictions, US Treasury volatility, and geopolitical tensions, gold has outperformed Bitcoin, Nasdaq, and all mainstream asset classes, with cries of “the king returns” rising again, and its increase this year has exceeded 50%. In contrast, Bitcoin, which has gradually gained hedging properties in recent years, has only risen about 15%. This significant divergence has sparked heated discussions in the market about “why is gold strong while Bitcoin is weak?” and “is Bitcoin still worth investing in?” By carefully analyzing the historical pricing rules and buying logic of gold, we still firmly believe that Bitcoin, as an emerging hedging tool in the digital age, is currently undergoing a historical phase of “hedging + risk duality.” In the long run, Bitcoin's uniqueness and rarity mean that it possesses significant long-term allocation value similar to gold; while the current low allocation of Bitcoin in global investment portfolios indicates higher allocation leverage and profit potential. This article presents a Q&A format, systematically organizing our allocation framework from the perspectives of the evolution of hedging logic, the hedging mechanisms of gold and Bitcoin, long-term allocation ratios, tail risk pricing, etc., and introduces the viewpoints of global mainstream institutions and investors to further argue why Bitcoin deserves higher strategic attention in the current and future global asset portfolios. Q1. Theoretically, both gold and Bitcoin have hedging properties, but how do their hedging roles differ? Answer: The market generally believes that gold is a mature hedging asset of the traditional “carbon-based world.” Bitcoin, on the other hand, can be viewed as a new star for value storage in the “silicon-based world,” rather than a mature hedging tool, and still possesses strong risk asset attributes. We observed that before the approval of Bitcoin ETFs in early 2024, the correlation between Bitcoin prices and the Nasdaq index was as high as 0.9; after the approval, the correlation decreased to 0.6, and it clearly began to follow global M2 liquidity, exhibiting “anti-inflation” properties similar to gold. Goldman Sachs has pointed out that compared to gold, Bitcoin has higher returns but extreme volatility, often performing like stocks in times of strong risk appetite; once the stock market declines, Bitcoin's hedging effect is inferior to that of gold. Therefore, gold is currently more reliable in terms of hedging, while Bitcoin is still in the transition phase from a risk asset to a hedging asset. Ray Dalio, founder of Bridgewater Associates, also emphasized that if investors need to maintain neutrality and diversify risks in asset allocation, they can consider gold or Bitcoin, but he personally prefers gold as a historically tested hedging tool. He pointed out that while Bitcoin has limited supply and certain storage potential, its hedging status is far from that of gold, which has long historical support. Q2. What have been the main drivers of gold prices since 2007? Why did central banks become the main buyers of gold after the Russia-Ukraine war in 2022? Answer: Since the global financial crisis in 2007, US real interest rates have become one of the key drivers of gold prices. Since gold itself does not generate interest (“zero-coupon” asset), its price is negatively correlated with real interest rates—when real interest rates rise, the opportunity cost of holding gold increases, and gold prices tend to fall; conversely, when real interest rates decline (or even turn negative), the relative attractiveness of gold increases, and gold prices strengthen. We note that this relationship has been very significant over the past fifteen years: for example, after the Fed cut interest rates in 2008, real yields fell, leading to a significant surge in gold, while the recovery of real interest rates from 2013 onwards put pressure on gold prices; during the Fed's negative interest rate period in 2016, we saw a massive inflow into North American ETFs. After the outbreak of the Russia-Ukraine war in 2022, global central banks significantly increased their gold holdings, becoming a new dominant factor driving gold prices. In that year, net gold purchases by central banks set a historical record, exceeding 1000 tons each year thereafter. Data from Metals Focus shows that annual gold purchases by central banks since 2022 have far surpassed the average level of previous years (2016–2021 average of 457 tons), and it is expected that around 900 tons will still be purchased in 2025. These official purchases contributed to 23% of global annual gold demand from 2022 to 2025 (over 40% of investment demand), double the proportion of the 2010s. Currently, global central banks hold nearly 38,000 tons of gold, more than 17% of the world's total gold, accounting for 44% of the total amount used for investment purposes outside of jewelry and technology, with still room for growth. The latest survey from the World Gold Council shows that central banks remain optimistic about holding gold. The vast majority of respondents (95%) believe that global central bank gold reserves will increase in the next 12 months; a record 43% of respondents expect their own country's gold reserves to increase during the same period, with no one expecting their gold reserves to decrease. The motivation driving central banks to “buy gold in bulk” stems from 1) geopolitical hedging 2) diversification of reserve assets: the Western sanctions that froze half of Russia's foreign reserves due to the Russia-Ukraine conflict have led many emerging countries to consider replacing some US dollar assets with gold. As US debt skyrockets and credit prospects are concerning, the attractiveness of dollar assets such as US Treasuries has relatively declined, further enhancing the appeal of gold as a reserve asset and hedging tool. Additionally, the allocation demands of some large long-term investment institutions also arise from the increasing moments of failure in the “stock-bond seesaw”: since 2022, stocks and bonds have shown more positive correlation, diverging from the “60:40 stock-bond allocation” narrative we have been familiar with for the past 20 years. Q3. What major tail risks does gold's hedging function primarily target? Answer: From the above analysis, it is not difficult to see that gold's hedging value in the future should mainly reflect its ability to hedge two relatively independent extreme tail risks: the US debt or inflation crisis (i.e., US dollar credit/sovereign debt risk) and significant geopolitical economic conflicts. First, in scenarios of uncontrolled debt or high inflation, fiat currency may depreciate significantly or even face a credit crisis, highlighting gold's role as a long-term store of value and inflation hedge. A survey conducted by the World Gold Council on nearly 60 central banks shows that the primary motivation for holding gold among various central banks is to view it as a long-term store of value and inflation hedge, as well as an asset that performs excellently during crisis periods. Central bank officials also see gold as an effective portfolio diversifier, used to hedge economic risks (such as stagflation, recession, or debt default) and geopolitical risks. For example, the rapid rise of US debt has raised concerns about the long-term value of the dollar, and gold can serve as a “shield” in such extreme situations. Secondly, in terms of geopolitical conflicts, gold is seen as a safe haven during turbulent times. Whenever war or international relations become tense, such as during the 2018 US-China trade war, the 2022 Russia-Ukraine war, or the 2025 US tariff impact, hedging funds often flow into gold, driving up gold prices. Economic historical backtesting also shows a positive “power law” relationship between gold prices and trade policy uncertainty (Trade Policy Uncertainty Index) over the past decade: this also explains why in the near…