Bitcoin as a Hedge?
A friend recently told me they’ve added Bitcoin to their portfolio as a hedge. I hear this a lot, and given Perfectly Hedged LLC's education platform, I figured it was worth investigating—does Bitcoin actually function as a hedge against traditional financial instruments?
For something to be a hedge, it should move inversely to the asset it’s protecting against. If Bitcoin rises, the other should fall, and vice versa. So, I analyzed five years of price data (excluding its early years to reduce noise) to see if Bitcoin holds up as a hedge. Here’s what I found (charts attached):
📈 𝗕𝗶𝘁𝗰𝗼𝗶𝗻 𝘃𝘀. 𝗦&𝗣 𝟱𝟬𝟬
The data shows Bitcoin has a 𝘀𝘁𝗿𝗼𝗻𝗴 𝗽𝗼𝘀𝗶𝘁𝗶𝘃𝗲 𝗰𝗼𝗿𝗿𝗲𝗹𝗮𝘁𝗶𝗼𝗻 with equities. When stocks rally, Bitcoin tends to rise. When markets drop, Bitcoin usually follows. This suggests Bitcoin acts more like a risk asset than a hedge against stock market declines.
💸 𝗕𝗶𝘁𝗰𝗼𝗶𝗻 𝘃𝘀. 𝗜𝗻𝗳𝗹𝗮𝘁𝗶𝗼𝗻 (𝗖𝗣𝗜)
If Bitcoin were a hedge to protect holders against inflation, we’d expect the price to rise when inflation spikes. The reality? Mixed. Bitcoin surged from 2020 to mid-2021 when inflation was rising—but from late 2021 through peak CPI in 2022, it suffered its 𝘄𝗼𝗿𝘀𝘁 𝗱𝗿𝗮𝘄𝗱𝗼𝘄𝗻 𝗶𝗻 𝗳𝗶𝘃𝗲 𝘆𝗲𝗮𝗿𝘀. More recently (late 2024–2025), Bitcoin is gaining while inflation stays stable. The inconsistency weakens the argument that it’s a reliable inflation hedge.
💰 𝗕𝗶𝘁𝗰𝗼𝗶𝗻 𝘃𝘀. 𝗨𝗦 𝗗𝗼𝗹𝗹𝗮𝗿 (𝗗𝗫𝗬)
Some argue Bitcoin could replace the dollar as the global reserve currency. Its relationship with the dollar index (DXY) is inconsistent. From 𝗠𝗮𝗿𝗰𝗵 𝟮𝟬𝟮𝟮 𝘁𝗼 𝗠𝗮𝗿𝗰𝗵 𝟮𝟬𝟮𝟯, Bitcoin had a clear inverse correlation with the dollar. But over longer periods, Bitcoin and the dollar have moved in the same direction at times. The data doesn’t support Bitcoin as a consistent hedge against the USD.
So what about comparing it to an asset that is the world’s go-to hedge to protect against market downturns?
🥇 𝗕𝗶𝘁𝗰𝗼𝗶𝗻 𝘃𝘀. 𝗚𝗼𝗹𝗱
Gold is the world’s go-to hedge, can Bitcoin be the same? Maybe one day—but not yet. While Bitcoin has had a 𝗵𝗶𝗴𝗵 𝗰𝗼𝗿𝗿𝗲𝗹𝗮𝘁𝗶𝗼𝗻 𝘄𝗶𝘁𝗵 𝗴𝗼𝗹𝗱 in the last two years, it remains too volatile, and doesn't (yet) have the same track record to be classified as a true hedge.
𝗦𝗼, 𝗜𝗳 𝗕𝗶𝘁𝗰𝗼𝗶𝗻 𝗜𝘀𝗻’𝘁 𝗮 𝗛𝗲𝗱𝗴𝗲, 𝗪𝗵𝗮𝘁 𝗜𝘀 𝗜𝘁?
In my view Bitcoin behaves more like a 𝗿𝗶𝘀𝗸 𝗮𝘀𝘀𝗲𝘁 similar to equities, a speculative vehicle for risk/volatility exposure rather than a hedge against any particular asset class.
We’re still extremely early in cryptocurrency adoption. If central banks and institutions increase holdings, Bitcoin could see massive growth. But for now, it remains a 𝗵𝗶𝗴𝗵𝗹𝘆 𝘃𝗼𝗹𝗮𝘁𝗶𝗹𝗲 𝗮𝘀𝘀𝗲𝘁.
