As the U.S. dollar continues to depreciate, many investors are contemplating whether to allocate their funds to gold or Bitcoin. Historical evidence suggests they might be better off holding both.
Ray Dalio, founder of Bridgewater Associates and one of the most influential figures in hedge fund history, recently made headlines by suggesting that investors should allocate 15% of their portfolios to a combination of gold and Bitcoin.
What is his reasoning? Soaring federal debt and persistent deficit spending signal a continued devaluation of the U.S. dollar. This environment makes it increasingly important to hold assets that can enhance portfolio resilience and protect against loss of purchasing power.
This naturally caught our attention. We decided to conduct a stress test on Dalio's recommendation. We analyzed major market downturns over the past decade, examining a traditional 60/40 portfolio (60% stocks, 40% bonds) and several variations, including allocations of 15% to Bitcoin, 15% to gold, or a combined allocation to both.
The results were intriguing: in all scenarios, the combination of gold and Bitcoin performed better than holding either asset alone, together forming one of the most potent complements to the traditional 60/40 portfolio.
'The Buffer' and 'The Spring' Looking at each major stock market decline over the past decade—2018, 2020, 2022, and the 2025 tariff war—gold provided an excellent cushion against market corrections.
In 2018, stocks plummeted 19.34% amid escalating U.S.-China trade tensions, concerns about a global economic slowdown, and hawkish monetary policy from the Federal Reserve. Bitcoin also fell sharply, dropping 40.29%. In contrast, gold gained 5.76%.
In 2020, the COVID-19 pandemic brought the world economy to a standstill, causing stocks to fall 33.79%. Bitcoin again declined significantly, dropping 38.10%. Gold also fell, but its loss was limited to just 3.63%.
The 2022 market downturn was driven by multiple factors, including spiraling inflation, aggressive Fed rate hikes, and lingering COVID-19 supply chain issues. The market reaction was severe, with stocks falling 24.18%. Bitcoin performed even worse, plummeting 59.87% due to the unique complications from the FTX collapse. Gold significantly outperformed both, declining by only 8.95%.
In 2025, a similar pattern emerged when markets corrected following President Trump's announcement of new tariffs and an escalation of trade wars. Stocks fell 16.66%, Bitcoin dropped 24.39%, while gold actually gained 5.97%.
So, should one just hold gold and forget Bitcoin? Not so fast. Look at what happened during the market recoveries:
After bottoming in late 2018, stocks surged 39.89% over the following year. Gold rose 18.14%, while Bitcoin skyrocketed 78.99%.
In 2020, after massive government stimulus announcements calmed the COVID-19 panic, stocks rebounded 77.80%, and gold advanced 111.92%. Bitcoin, however, staged a monumental recovery of 774.94%.
In 2023, as inflation fell and expectations grew for a Fed pivot to rate cuts, stocks rose 22.82% and gold climbed 17.53%. Bitcoin gained nearly 40.16%.
Since the market began recovering from the 2025 tariff scare, stocks have risen 38.65%, while gold has jumped 44.79%. Bitcoin currently trails both, up only 14.04%; however, the one-year recovery period does not end until April 2026, leaving Bitcoin with several months to potentially reclaim the lead.
What is the key takeaway? If history is any guide, you need gold during the market correction and Bitcoin during the recovery.
Examining the Full Cycle Looking at this data, it is easy to think the strategy is obvious: hold gold right as the downturn begins, then perfectly switch to Bitcoin the moment the market bottoms. But this is, of course, impossible. In fact, if you knew a downturn was imminent, the best course would be to exit the market entirely, selling all assets including stocks.
A more practical approach is to consider performance across the entire cycle. And here, the data is conclusive: historically, adding both gold and Bitcoin provides the best balance between cushioning the impact of a market correction and enhancing returns during the recovery. Statistically speaking, a portfolio containing both gold and Bitcoin achieved a Sharpe ratio of 0.679—nearly triple the traditional portfolio's ratio of 0.237 and significantly higher than the 0.436 of a gold-only (no Bitcoin) portfolio. While a Bitcoin-only (no gold) portfolio had the highest Sharpe ratio (0.875), its volatility was also substantially higher than the gold/Bitcoin combination.
Performance of Portfolios Containing Gold, Bitcoin, and Their Combination Source: Bitwise Asset Management, data from Bloomberg.
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