Author: By Dominic Basulto; Compiled by Bai Hua Blockchain

All eyes are now focused on gold, the ultimate safe-haven asset. The price of gold has just reached a historic high of $3,000 per ounce. This price increase has been accompanied by stock market adjustments, a significant decline in the cryptocurrency market, and widespread concerns about the future direction of U.S. economic policy.

But don't forget BTC, which is often referred to as "digital gold." More and more top investors believe that BTC, as a store of value, an inflation hedge, and a safe-haven asset in times of economic uncertainty, is superior to physical gold. But is this really the case?

01 The BTC vs. Gold Debate

To answer this question, it is crucial to understand the unique characteristics and functions of BTC. Most importantly, the lifetime supply cap of BTC is 21 million, and nearly 20 million BTC already exist. This gives BTC tremendous scarcity. Almost all the BTC that will ever exist already exist.

But that's not all. BTC is completely decentralized, meaning that no central bank, sovereign government, or Wall Street investment bank can alter its underlying algorithm. A unique feature of this algorithm is the BTC halving mechanism. Every four years, the supply of new BTC is halved, making it a deflationary asset over time. This is a key reason why many believe BTC can effectively combat inflation.

Due to the cryptographic nature of blockchain technology, BTC has a high degree of resistance 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, has called BTC "the world's hardest asset" (even harder than gold). BTC also has a unique feature: it is purely digital in form and can be transferred across borders almost instantly. BTC was originally designed as a peer-to-peer digital currency, without the need for any third-party intermediaries. While transferring BTC to others is not free, you do not need a bank or other financial institution to charge a fee.

02 Gold ETF vs. BTC ETF

For the sake of discussion, let's assume you don't plan to invest directly in BTC or gold. In other words, you don't plan to buy BTC on the spot crypto market or gold bars at Costco. Instead, you might invest in BTC and gold through exchange-traded funds (ETFs) on a trading platform. This allows you to easily and effectively adjust your portfolio allocation. The most popular spot BTC ETF is the iShares BTC Trust (IBIT -0.18%), so let's compare its performance over the past 15 months to the iShares Gold Trust (IAU 0.59%), its counterpart.

iShares BTC Trust chart provided by TradingView.

As the chart shows, in the past year when the market has been stable or rising, the iShares BTC ETF has outperformed the iShares Gold ETF, but in the current market downturn (as is the case now), it has performed far worse than the gold ETF. This explains why a lot of money is now flowing into gold ETFs. People's concerns about the economic outlook are real, and some have already hit the panic button.

The recent performance is particularly disappointing for BTC supporters, as it undermines the argument that BTC can be used as a hedge during an economic recession or a significant market pullback. A similar situation occurred in 2022, when the value of BTC fell by 65%, accompanied by a broader market downturn.

03 Which is the Better Recession Hedge?

In theory, "digital gold" should provide the same (or even better) recession-hedging effect as physical gold. But as we know, reality does not always follow theory. If you are very concerned that a recession will erode your hard-earned savings, gold seems to be the better hedge. Its 4,000-year track record is undisputed.

That said, I would be willing to change my mind if one thing happened: BTC's correlation with the stock market decreases. The lower stock correlation has made BTC so special over the past decade; it seems to be completely unrelated to any major asset class, providing huge diversification benefits. But if BTC's value also falls whenever the stock market falls, its usefulness as a hedge will be greatly diminished. Admitting defeat to the gold supporters is embarrassing, but it seems to be the ultimate outcome. Unless BTC can rise in the face of a stock market decline, gold looks like the better recession hedge by 2025.