At first glance, gold and Bitcoin could not appear more different. Gold is a natural asset that has earned its reputation as a haven and store of value over thousands of years. It has even experienced a renaissance in recent years as a sought-after central bank reserve.
Bitcoin, by contrast, is a digital creation – a technical asset that emerged in the aftermath of the global financial crisis, born in an era when trust in traditional financial institutions was at an ebb.
While gold’s legitimacy is deeply rooted in history, Bitcoin’s value proposition stems from innovation. Its ambition is to become a sound form of money – and it is here that its similarities with gold begin to surface.
Like gold, it is mined, has a capped supply and is not issued by any central authority. Yet, its relatively short and volatile history makes it a more complex addition to traditional investment portfolios.
The strong performance of both gold and Bitcoin last year has led to a new debate over which is the better hedge. Gold climbed about 25 per cent. Bitcoin more than doubled, breaking past $100,000, and is staying above that mark for now.
For many investors, especially in the Middle East, the bigger question is how these assets fit into a portfolio designed to manage risk and capture long-term value.
Investors need not view gold and Bitcoin as mutually exclusive choices. In fact, both assets can coexist within a portfolio, each serving a distinct purpose. While a sizeable allocation to Bitcoin, such as 10 per cent, may not be appropriate for most investors, having 1 per cent is not a bad idea. It gives them the smell test, or the taste test, if you like.
That small allocation is not a speculative bet. It is part of a thoughtful and measured approach to help investors prepare for a possible long-term shift in the global monetary system. Bitcoin is still not a mainstream asset class, but it is getting harder to ignore. Taking a five-year view, it has delivered returns no other asset class has over the same time frame.
I often describe Bitcoin as the digital equivalent of gold. And investor demand is growing, particularly among those who are looking for assets outside the traditional system. But it is also volatile. If you are trying to de-risk your portfolio from a volatility point of view, you are better off with gold than with Bitcoin.
Structured solutions that combine Bitcoin with other asset classes have emerged as one way to gain exposure while managing risk and maintaining alignment with evolving regulatory requirements.
We are seeing rising interest from investors in “out-of-system” assets, ie assets that are not tied to central banks or fiat currency structures. While gold has long filled this role, Bitcoin is emerging as a digital alternative, particularly appealing to younger and less constrained investors.
As this shift continues, it is probable that Bitcoin will begin encroaching on gold’s traditional appeal. This may well represent the next evolution in investor behaviour.
This perspective is supported by our research, which demonstrates that both gold and Bitcoin can act as hedges against systemic financial risks, inflation and even de-dollarisation.
However, the analysis also highlights a critical distinction: Bitcoin still behaves like a risk-on asset. It tends to fall when equity markets correct, whereas gold often holds its ground. That is an important consideration when thinking about how much and in what way to include either in a portfolio.
Looking ahead, I strongly believe regulation will be a crucial factor. And here too, we are seeing progress. The questions now are, how do we audit this asset class and how do we ensure it meets anti-money laundering requirements? And we are seeing those issues being worked on in key financial centres.
Bitcoin is already halfway down the path to broader adoption. But for it to truly go mainstream, it needs to be as easy as tapping a credit card in a store. And, that level of integration will undoubtedly take time.
So, for investors in the UAE and across the region, this is not about choosing sides, but about preparation. Gold remains the core stabiliser. But Bitcoin, handled carefully and with the right structure, has a role to play as well.
Bhaskar Laxminarayan is chief investment officer for Asia and Middle East at Julius Baer
