NDV: A Comparative Study of Bitcoin, Gold, and US Dollar Cash

Author | NDV

The content of this article does not constitute any investment or financial advice. Readers are urged to strictly comply with the laws and regulations of their location. This article was published on September 27, and some information and data may be outdated.

The NDV research team recently conducted a systematic analysis of the price relationship between Bitcoin (BTC) and gold (XAU). The reason for focusing on this topic is that these two asset classes are often seen by the market as “stores of value” and “hedging tools”: gold has been a traditional safe-haven asset and a “safe harbor” for global investors for decades; while BTC is increasingly referred to by many investors as “digital gold” and has gained a new status amid rising macroeconomic uncertainty.

Our research starts from the point: how to balance volatility and enhance the Sharpe Ratio (a measure of return per unit of risk) by allocating gold and BTC in a portfolio with a high Crypto weight.

In other words, are the two in a substitutive relationship or a complementary relationship?

After analyzing the data and market mechanisms of the past four years, we concluded that:

· In most situations, BTC and gold exhibit a “conditionally complementary” relationship: their general direction is consistent, but there are significant differences in risk budgeting and volatility performance, complementing each other.

Under a few extreme narratives, gold possesses the attribute of “temporary substitution”: during periods of tightening liquidity, geopolitical conflicts, or exposure of financial system risks, gold's hedging function is significantly superior to that of BTC, and can partially replace its allocation.

· In terms of asset allocation logic, they should be regarded as “cross-mechanism antifragile pairs”: gold relies on central bank reserves and institutional endorsement, while BTC is driven by its total supply cap and halving mechanism. The two come from entirely different systems, but because of this, they often exhibit complementary performance in different market environments. By regularly rebalancing between the two (making adjustments during divergent trends), investors can better diversify risks and achieve more stable, risk-adjusted returns over the long term.

The following is a detailed analysis.

1. Long-term perspective: The trend of BTC is highly consistent with that of gold.

Since 2021, the price movements of BTC and gold have been highly correlated, indicating that macro liquidity and monetary policy are common drivers for both.

The phase of rising and falling together

Under the influence of macroeconomic policies and market risk sentiment, Bitcoin and gold often show synchronized rises or falls, for example:

End of 2022 to early 2023: Inflation peaks + interest rate hikes slow down → BTC and gold both rebound;

March 2023 Banking Crisis: Increased demand for safe-haven assets → Gold rises, while BTC benefits from the “decentralization” narrative and also rises;

Q1 2024: Federal Reserve turns to interest rate cut expectations + BTC ETF approved → Gold approaches historical highs, BTC breaks historical peak.

Phase of Divergence

When the market enters a phase dominated by “individual narratives,” the prices of Bitcoin and gold may diverge, for example:

Gold strong, BTC weak: Spring and summer of 2021: Gold strengthened due to inflation concerns, while Bitcoin plummeted due to Chinese regulations and Musk's comments; From late 2021 to early 2022: Geopolitical conflicts boosted gold, but BTC weakened due to Federal Reserve tightening and tech stock corrections; In the first quarter of 2025, trade frictions and Middle East conflicts → Gold breaks through 3000 dollars, while BTC enters a high-level correction after “good news being priced in.”

BTC strong, gold weak: By the end of 2024, Trump's victory + ETF capital inflow → BTC rises independently, gold remains flat.

Therefore, from a statistical perspective, BTC is highly correlated with gold in the long term, but its short-term behavior is independent. This is also the reason why it can provide additional sources of returns.

2. Why is the BTC yield higher than gold?

Although BTC and gold are highly correlated in terms of long-term price trends, BTC has a greater advantage from a return perspective. We believe there are several reasons for this:

1. Asset Attribute Comparison: Same Narrative, Different Functions

Common ground (narrative level):

· Scarcity: Gold relies on natural scarcity and high extraction costs for support, while BTC relies on a total cap (fixed at 21 million coins) and a halving mechanism (which continuously enhances scarcity) for support;

· Fiat currency hedging: During times of rising inflation or shaking of monetary credit, the narrative of “value storage” for both will be strengthened;

· Cash flow-less assets: Both gold and BTC have no cash flow, and their pricing essentially depends on market liquidity and risk appetite.

Differences (Economic Functions):

· Transactions and Settlements: Gold has strong physical attributes, a long settlement chain, but a mature system adaptation; BTC has programmable settlement on-chain, high cross-border efficiency, and decentralization, but there is a disconnection between on-chain and offline liquidity;

· Volatility and Risk Budgeting: Gold has a relatively stable annualized volatility in the mid-to-low range over long periods (historical average around 15%, data source: State Street Global Advisors); during extreme market periods, its pressure is relatively low. In contrast, Bitcoin's volatility is significantly higher than traditional assets (historically common range between 50%–80%, with extreme cases even exceeding 100%, data source: WisdomTree, The Block), thus resembling a high Beta risk asset;

· Path of Institutional Adoption: Gold is a global central bank reserve asset, with strong institutional anchoring; BTC is currently in the process of institutionalization (ETF listing, compliant custody, institutional allocation), but in the short term, it will still be periodically affected by regulatory disturbances.

Summary: In the narrative of “inflation hedging” and “store of value”, BTC and gold have a certain degree of substitutability; however, in terms of risk budgeting, institutional adoption, and settlement functions, there are significant differences between the two, thus reflecting complementarity.

Differences in capital flow: The incremental buying of gold mainly comes from central banks and some hedging positions, with limited increments; while the new funds for BTC are more explosive, covering ETF inflows, institutional allocations, and retail participation, etc. (Data source: CME Group, CoinShares flow report).

Historical performance confirms: over the past decade, the annualized return rate of gold has been approximately 4%–5% (in USD, not adjusted for inflation, data source: StatMuse); while the long-term annualized return rate of BTC is significantly higher.

Technical validation: Statistical tests indicate that the correlation between the returns and volatility of BTC and gold is close to zero (modeling methods such as DCC-GARCH and Granger did not show significance, data source: NDV internal model), indicating that the excess returns of BTC are independent of gold, which cannot provide the same high elasticity.

Therefore, in most cases, when both move in the same direction, directly holding BTC can yield higher risk compensation and excess returns; whereas the value of gold is more reflected in extreme risk environments, serving as a defensive complement to the portfolio.

[Technical Analysis Chart Description]

Return correlation: Statistical tests show that there is no significant correlation between the daily returns of BTC and gold. This indicates that the short-term fluctuations of the two are not linked, and the rise and fall of BTC are more driven by its own market events.

Volatility correlation: Through DCC-GARCH dynamic correlation modeling, it has been found that the conditional correlation coefficient between the two is below 0.1 most of the time, indicating that the volatilities are almost independent, and the linkage effect between assets is low.

Causality Test: The Granger causality test results show that there is no significance in the analysis between BTC and gold in the 1-10 day lag periods. This means that neither asset exhibits leading behavior in the return rate changes of the other, and it is not possible to better predict the future price movements of one asset based on the price trends of the other.

3. Mid-term perspective: Holding gold is more effective than cash in US dollars.

In the current macroeconomic environment, gold's hedging effect is more pronounced compared to cash in US dollars. The reason is that: the US fiscal deficit continues to expand, weakening the safe-haven status of government bonds and the dollar, with even institutional investors who have long supported dollar assets starting to reassess their allocations. Meanwhile, inflation remains high, and the market's expectations for future interest rate cuts persist, which means real interest rates are continually declining. Holding cash not only lacks interest advantages but also faces the risk of eroded purchasing power. In contrast, gold, as a “no counterparty risk” physical asset, does not rely on any credit backing, and its safe-haven demand has significantly increased against the backdrop of frequent geopolitical conflicts and trade frictions. Looking back at history, whether during the stagflation period of the 1970s or in recent years when inflation cycles have repeatedly heated up, gold has demonstrated better value preservation capabilities compared to cash.

Therefore, we believe that gold is a more effective defensive asset than cash in USD from a medium-term perspective.

4. Configuration Insights

Based on our analysis, we can derive a three-tier configuration approach:

First of all, in a normal environment, BTC is still the core position of the portfolio, as it has higher elasticity and growth potential, maintaining synchronization with gold in the broader direction, but usually with a more considerable increase.

Secondly, in extreme risk environments, such as a sudden tightening of global liquidity, escalation of geopolitical conflicts, or uncertainties in the financial system, gold's defensive properties are significantly superior to BTC. During these phases, moderately increasing gold positions to replace a portion of BTC can help reduce drawdowns and enhance robustness in the portfolio.

Finally, more broadly speaking, under the current macro background, gold can play a more effective hedging role compared to cash in USD. Rather than passively holding cash and waiting for devaluation, it is better to achieve defense and value preservation through gold allocation. This dynamic allocation approach reflects our continuous improvement of the investment framework and optimization of the risk-return structure.

V. Conclusion

The relationship between BTC and gold is essentially long-term synchronization and short-term divergence.

We firmly believe that BTC remains the core asset of the portfolio, carrying higher growth and resilience; while gold exhibits unique defensive value in extreme risk environments, outperforming cash as a hedging tool. The two are not substitutes, but complementary. This dynamic allocation approach allows us to grasp growth while ensuring that the portfolio remains robust in an uncertain macro environment.

More importantly, we have a strong belief in the long-term value of BTC. Historically, BTC has experienced significant cyclical volatility, but long-term returns have significantly outperformed any traditional asset. If BTC increases tenfold in the next decade, we are confident that through active management strategies, we can seize cycles, capture volatility, and continuously create α above β, resulting in the overall performance of the fund significantly surpassing simply holding BTC.

The value of gold lies in its supplementation and defense, while the value of Bitcoin lies in long-term growth. For us, the direction is clear: BTC is superior to gold, and the NDV fund aims to outperform BTC. Through rigorous risk control, flexible allocation, and in-depth research, we not only follow the rising cycle of this generation of digital assets but also strive to continuously deliver long-term returns that exceed the assets themselves for our investors.