Bitcoin and Gold: Why Own One When You Can Own Both?
Gold bugs and bitcoiners have been bickering for years, but they should have been getting along. According to this chart, owning both bitcoin and gold in your portfolio could be a winning combination.
Bitcoin and gold: comparing $10,000 investments
This chart compares three $10,000 investments from January 1st, 2018, to September 30th, 2024. The pure gold investment (gold line) grew to $19,657, and the pure bitcoin investment (teal) grew to $48,669 over that time. But the top performer was bitcoin and gold together (white line) – with 50% in each, rebalanced back to that split at the start of each year.
I chose this time period for two reasons:
- Bitcoin grew much faster before 2018 (the chart would have looked ridiculous).
- It includes two savage bitcoin bear markets to account for its notorious volatility.
Why portfolio rebalancing matters
The portfolio is rebalanced to 50% in bitcoin and 50% in gold at the start of each year. So, when bitcoin has a better year than the yellow metal, you sell some bitcoin to buy more gold to get back to the 50:50 split. And when gold had a better year than the crypto kingpin, it’s the opposite.
Without yearly rebalancing, the bitcoin and gold portfolio would have grown by less (to $34,163 instead of $57,560). And its maximum drawdown (worst case loss from top to bottom) would have been bigger too (-56.38% vs -44.55%).
Here’s a table with all the stats comparing the different portfolios. I used data from Portfolio Visualizer to run the back-test. The greener the cell, the better the stat.
Of course, rebalancing won’t always improve the performance of your portfolio. But as John Nersesian of PIMCO (Pacific Investment Management Company) once said: “Rebalancing doesn’t work every time; it works over time”.
As usual, none of this is investment advice. If you liked this piece, check out my free newsletter for how-to guides and investment insights across crypto, stocks, metals, and more.
