The on-going rally in gold and Bitcoin—beside the 10 October sell-off—has been eye-popping. Yet, unlike equity and debt, which are staple portfolio assets with tangible fundamentals, gold and crypto are outliers.
In equity stocks, investors back proven businesses with growth prospects. In bonds, the certainty lies in a committed coupon. Gold, on the other hand, acts as a ‘portfolio diversifier’. Historical data shows that even a 10% allocation to gold can improve a portfolio’s risk-adjusted (i.e., volatility-adjusted) returns. In short, gold helps optimize outcomes, not drive them.
Gold vs. the digital token
Gold, as we know, doesn’t produce anything. Its industrial applications are limited, and demand largely stems from central banks and jewellery buyers. Cryptocurrencies, meanwhile, are still struggling for identity.
Whether Bitcoin is truly an investment asset remains debatable. If it is a currency, well, it is accepted in some parts of the world, for goods and services, but on a private basis. It is not legal tender currency in any country, except a small country, El Salvador.
While its adoption may grow, it remains a medium of exchange—one whose price movement depends purely on collective faith.
If I tell you that I will give you ₹100 and in exchange you have to give me ₹101, that may not sound like a lucrative deal. Yet investors continue to pay over $100,000 ( ₹1 crore) per Bitcoin, betting on future appreciation.
In the US, big fund houses like BlackRock have launched Bitcoin ETFs (exchange traded funds), giving investors an easy entry point into the crypto market. Even though Bitcoin’s price is steep, fractional investing lets you own a small part of it. Remember, Bitcoin’s track record includes both stellar gains and steep falls—so invest only after gauging your risk tolerance.
Both gold and Bitcoin today are benefiting from the same global undercurrent. The United States, long seen as the world’s safe haven, is witnessing waning confidence in its policies and currency.
The trend of de-dollarization—accelerated by “Trump 2.0″—has led treasury desks worldwide to adopt the acronym ABUSA: Anything But USA. This sentiment is pushing investors towards alternatives such as gold and crypto.
The key difference between the two lies in their fundamentals. Gold has stood the test of time, with a history that dates back to the BC era. Historical data shows that gold tends to deliver steady returns during equity market downturns. Its recent rally, however, is being driven largely by central banks diversifying away from US Treasuries.
In earlier times, money printing by central banks in some countries was directly linked to gold. That link no longer exists, yet the fact that central banks continue to buy gold aggressively for their reserves underscores its enduring value and institutional support.
Crypto, by contrast, is a creation of the digital era—fuelled largely by private innovation and investor enthusiasm. Its rapid rise has been extraordinary, but that momentum also makes it highly volatile. It represents a cultural shift as much as a financial one, symbolizing the move from tangible to digital, from centralized to decentralized. Whether it can climb further is anyone’s guess. The risks are substantial—so much so that most Indian wealth managers still don’t consider crypto a legitimate investment asset.
What should you do?
It is prudent to maintain some exposure to gold in your portfolio for diversification. Since it is not a core asset, the allocation can be limited to around 10–15% of the total portfolio. While there are concerns about gold trading near all-time highs, it’s worth noting that most asset classes touch new peaks multiple times over their cycles.
Crypto, on the other hand, remains a high-risk avenue despite the potential for outsized returns. For most investors, it’s best avoided. However, if you do wish to participate, restrict your exposure to a small portion—no more than 5–10% of your portfolio.
For investors, balance is key—gold can steady your portfolio, while crypto demands caution. Keep exposure limited, stay diversified, and align every bet with your risk appetite and long-term goals.
Joydeep Sen is a corporate trainer (financial markets) and author
