What about digital assets as a hedge against fiat currency debasement?

Is bitcoin a reliable hedge against currency debasement, or does gold still lead? We explore risks, volatility, and why central banks continue to back gold.

Gold vs Bitcoin: Which Is the Better Hedge Against Fiat Currency Debasement?

What about digital assets as a hedge against fiat currency debasement?
​Mike Bell, CFA, Interim Macro Investment Strategist at Elston Consulting
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Many use the same arguments that we think are supportive of gold to make the case for owning digital assets such as bitcoin. As the chart shows, over the last couple of years bitcoin has performed very strongly, along with gold.

Source: Bloomberg

​Our preference is for gold for these reasons:

1. While bitcoin is limited in supply, like gold, the total supply of digital crypto assets is not limited in supply. While bitcoin has gathered some support over the last decade it is generally not owned by central banks and has nowhere near as long a history of acting as a store of wealth compared with gold. Just because something is limited in supply doesn’t necessarily make it a good store hold of wealth. Consider your toenail clippings, or your children’s artwork, as a couple of obvious examples.
   
   
2. Governments and central banks want to control which currency their citizens save in, partly, precisely so they can print more of it during times of economic contraction or when they need to finance government spending. For example, in 1933, to escape the great depression Roosevelt enacted executive order 6102 which required all citizens to hand over their gold in exchange for paper currency. He then devalued the dollar against gold. Private ownership of gold was remained illegal in the US, throughout the Nixon shock in 1971, when USD convertibility to gold was officially halted. It was only in the mid-1970s that private gold ownership was made legal again.
   
   Now of course, this argues that private ownership of gold could one day be banned again. However, we think that the long term risk of private ownership of bitcoin being banned is higher than that for gold even though a ban on bitcoin currently seems unlikely under this US administration.  Bank of England governor Andrew Bailey has said publicly that cryptocurrencies have no intrinsic value and warned that holders could lose all of their money.
   
   
3. Bitcoins larger drawdowns and higher correlation with risk assets compared with gold.
   

Source: Bloomberg

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​Between its peak in 2021 and the end of 2022, Bitcoin lost 75% of its value, gold lost 20% from peak to trough. Bitcoin likewise lost 83% of its value during the 2018 selloff while gold lost 12%. Admittedly, the upside has been much greater for Bitcoin too. 

More recently, in early 2025, Bitcoin and US equities plunged together while gold proved resilient:

Source: Bloomberg

​The same pattern of gold protecting portfolios while equities and bitcoin fell also played out in late 2018:

Source: Bloomberg

​​Gold meanwhile has a long history of diversifying portfolios in periods when a traditional 60:40 exposure struggles:

Source: Bridgewater Associates

4. Gold is owner by central banks, Bitcoin is mainly held by retail investors.

While retail investors certainly own gold too, our concern is that in the event of rising unemployment and/or margin calls on their stock portfolios in the event of a recession retail investors could be more likely to sell their bitcoin holdings than gold investors are to sell their gold. Central banks for example are not likely to be forced sellers of gold and could even increase their holdings during a recession.
Anecdotally, we have already heard of people who have recently lost their jobs living off their bitcoin gains for now. This could become a greater risk in the event of a recession.
 
5. Security risks.
 
Hacks leading to the loss of digital assets have been quite common. We also wonder about the risks that quantum computing could pose to the security of digital assets. Gold held in a secure vault on the other hand has lower security risk and insurance is available unlike with digital assets.

Conclusions:

​Returns on digital assets have been spectacular and the scarcity of bitcoin has led some to adopt it as a potential hedge against fiat currency debasement.
 
For the reasons highlighted above, our preferred hedge against fiat currency debasement is gold. That said, if investors want to hold a very small allocation to digital assets, in a size which they wouldn’t mind losing all of in a worst case scenario, along with gold, in the hope that bitcoins future returns will justify the numerous risks of holding it, then that’s up to them.