Compiled by: Bai Hua Blockchain

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All eyes are now focused on gold, the ultimate safe-haven asset. Gold prices have just reached a new all-time 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 Bit (BTC -0.76%), which is often referred to as "digital gold". More and more top investors believe that Bit is superior to physical gold as a store of value, an inflation hedge, and a safe-haven asset in times of economic uncertainty. But is this really the case?

01
The Bit vs. Gold Debate

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

But that's not all. Bit 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 Bit halving mechanism. Every four years, the supply of new Bit is halved, making it a deflationary asset over time. This is a key reason why many believe Bit can effectively combat inflation.

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

02
Gold ETF vs. Bit ETF

For the sake of discussion, let's assume you don't plan to invest directly in Bit or gold. In other words, you don't plan to buy Bit on the spot crypto market or gold bars at Costco. Instead, you might invest in Bit 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 Bit ETF is the iShares Bit 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 Bit Trust chart provided by TradingView.

The chart shows that in the past year, when the market was stable or rising, the iShares Bit ETF 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 so much 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 Bit supporters, as it undermines the argument that Bit can be used as a hedge during an economic recession or significant market pullback. A similar situation occurred in 2022, when Bit's value fell 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 effects 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, there is one thing that would make me change my mind: a decrease in Bit's correlation with the stock market. Over the past decade, Bit's lower stock correlation has made it so special; it seems to be completely uncorrelated with any major asset class, providing huge diversification benefits. But if Bit's value also falls whenever the stock market declines, its usefulness as a hedge will be greatly diminished. Admitting defeat to gold supporters is embarrassing, but it seems to be the ultimate outcome. Unless Bit can rise in the face of a stock market decline, gold appears to be the better recession hedge by 2025.

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