Gold and cryptocurrencies have been having a great end to the year. Both bitcoin and gold have reached all-time highs. In 2024, digital and real assets all of a sudden had a lot in common. But it will be their differences that can help investors balance their portfolios in the coming year.
Bitcoin might seem like a competitor to gold because both are alternative assets that can help lower risk in a traditional portfolio, according to Edmund Moy, senior IRA analyst for U.S. Money Reserve, a company that sells precious metals.
People who are bullish on cryptocurrencies have long called bitcoin “digital gold.” Recently, Federal Reserve Chairman Jerome Powell said that bitcoin is “just like gold.”
But, Moy said, “they are more different than they are alike.” “There isn’t a strong link between gold and bitcoin.” Given how uncertain the coming year will be, that may be the best reason for buyers to own both.
Moy said that buyers who want to diversify their portfolios should keep in mind that diversification by itself doesn’t completely remove risks. This is especially true when you consider how volatile bitcoin is.
Mark Hackett, chief of financial research at Nationwide, says that both assets could help protect against the dollar falling in value and could add diversity to a traditional portfolio.
“Gold could be a good investment for people who are worried about the value of stocks, geopolitical unpredictability, government debt, and rate pressure,” Hackett told MarketWatch. He did say that gold risk should be kept low since prices are getting close to record highs.
Bitcoin, on the other hand, has had great results, but Hackett said it has mostly moved in sync with stock markets, especially tech stocks. Hackett said, “Investors who are willing to take on more risk and have a longer time horizon could benefit from exposure.”
Allocation of the portfolio
The company that runs the iShares Bitcoin Trust ETF IBIT -1.14%, BlackRock, said this week that putting up to 2% of your money into bitcoin is “reasonable” in a traditional, multi-asset strategy.
Thomas Martin, senior portfolio manager at Globalt Investments, said that 10% of his protocol portfolio is presently in gold. He may add bitcoin to the portfolio, but it would only make up 5% of the whole.
He might decide to keep 5% of his money in cash and the rest in stocks and bonds. The exact mix of stocks and bonds will depend on the investor’s risk tolerance. Martin told me over the phone that stocks may make up to 90% of some of the aggressive strategies he runs for clients.
He also said that gold doesn’t have a lot to do with stocks, bonds, or cash, and it could be used as a store of value sometimes.
Young and old goods
Moy, who used to be the head of the U.S. Mint for the Treasury Department, said that gold and bitcoin have very different backgrounds. Gold has been around for 5,000 years, while bitcoin has only been around for 15 years.
The fact that Bitcoin is still new means that it is “something that should be considered,” but only as a small part of your portfolio. “Leave and go to zero,” said Martin of Globalt Investments. “Then you can still get back on your feet.”
“There’s a chance you could lose all of your money, but there’s also a chance it could grow at a rate that has never been seen in any other financial asset, if it really does what it’s supposed to do in 10 or 20 years,” Martin explained.
On December 4, Bitcoin BTCUSD +0.05% went above $100,000 for the first time. Many people in the market see this as a major turning point in the rise of crypto as a common financial asset. Dow Jones Market Data says it reached a record high of $103,853 on Dec. 5. As of Friday, it was just above $100,000, which means it was up 140% for the year.
Bitcoin is the biggest cryptocurrency by market value. It got a boost when bitcoin exchange-traded funds came out early this year, and it also got a boost from hopes that the new Trump administration will make regulations easier to follow.
The most popular gold futures, GC00 +0.17% GCG25 +0.17%, have gained more than 30% so far this year. Gold and silver prices hit an all-time high of $2,800.80 an ounce on October 30. This was helped by the weakening of the dollar, strong buying by central banks, and people looking for safety from global risks. Since then, prices have gone down to $2,709.40 on Thursday.
This month, gold futures will have been traded for 50 years. Their first day of trading at CME Group CME +0.04% was December 31, 1974.
There is no link
George Milling-Stanley, chief gold strategist at State Street Global Advisors, said that changes in the stock market have very little to do with gold prices. He calculated that since 1971, gold has had a 0.03% association with the S&P 500 SPX -1.11%, which is “mathematically zero.” That is, changes in the prices of stocks don’t really affect changes in the prices of gold, and the same is true for gold.
Dow Jones Market Data shows that there has been no rolling connection between gold and the S&P 500 index (SPX -1.11%) since 1975. A correlation coefficient of exactly 1 would show a perfect positive correlation, while a correlation coefficient of zero would mean there is no linear link. The link between bitcoin and the S&P 500 has been 0.21 since November 2014, and the link between bitcoin and gold has been 0.09.
Milling-Stanley said that gold has generally provided a “significant degree of protection” against long-term high inflation, possible weakness in stocks, and possible currency DXY -0.11% depreciation. Gold has gone up over 30% this year, which makes the message “even more powerful.” These safeguards send a “very strong message for investors.”
Still, the gains bitcoin has shown in its short life cannot be ignored.
Milling-Stanley said, “We understand why investors want to get a good return on their money.” While buyers look for returns, they should be aware that they are also adding a lot of risk to their portfolios because bitcoin has been more volatile than gold over the past 15 years.
Not quite gold
Powell, the head of the Federal Reserve, was recently asked at the DealBook Summit if cryptocurrencies were a sign that people didn’t trust the dollar or the Fed. That’s what he said: “People use bitcoin as a speculative asset.” He also said, “It’s like gold, but it’s in the cloud.” It is electronic. It’s not being used as a way to pay for things or keep value. “It changes a lot.”
Market players said Powell’s comparison of bitcoin to gold was a reason why the cryptocurrency went above $100,000.
An piece from Mike Maharrey, a market analyst at MoneyMetals.com, says that bitcoin is not the same as gold. He said gold is not a risky investment and that many people see it as a safe haven and a way to keep their money safe.
Clearly bitcoin and gold aren’t the same. They are different assets that can both boost a diversified portfolio.’
Mike Maharrey, MoneyMetals.com
“The fact of the market is gold and bitcoin don’t tend to correlate at all,” said Maharrey. “Clearly, bitcoin and gold aren’t the same. They are different assets that can both boost a diversified portfolio.”
