Author Details

Daniel Barrera

Daniel Barrera

Senior Associate, MSCI Research

Simon Minovitsky

Simon Minovitsky

Vice President, Equity Research Team

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Bitcoin: Good as Gold?

  • The popularity and trading activity of cryptocurrencies have exploded. As of March 31, 2021, there were over 9,000 cryptocurrencies, and the combined market cap increased 10 times to over USD 1.96 trillion since March 2020.
  • To test if cryptocurrencies would have been an effective hedge for an equity portfolio, we examined their relationship to the equity market and found the correlation averaged near zero.
  • We also found, however, that cryptocurrencies tended to fall with, or more than, equities when equity markets declined. In contrast, gold usually gained when equities declined the most.

Gold has historically been used by investors for diversification and as a hedge against inflation, as it’s tended to perform well, or at least keep its value, in inflationary periods when equities have tended to perform poorly. The limited supply of popular cryptocurrency Bitcoin and others resembles the limited availability of gold. Only 21 million units of Bitcoin can ever be mined and there were already more than 18.67 million units in circulation as of March 25, 2020. But what are the empirical characteristics of the returns of cryptocurrencies, and did they zig when equities zagged?


Would Cryptocurrencies Have Worked as a Hedge for a Traditional Equity Portfolio?

The short answer is no. Even though prices of cryptocurrencies had no direct economic linkage with equities, our analysis of volatility, correlations and drawdown behavior suggests that these digital assets are quite different from gold and, perhaps, not different enough from equities.

Cryptocurrencies also still face limited acceptance as a medium of exchange, although this has increased dramatically in the last 12 months. A number of large financial institutions, including Morgan Stanley, JPMorgan Chase & Co., Goldman Sachs Group Inc., BlackRock Inc. and Fidelity Investments Inc., recently announced they will start offering Bitcoin exposure to wealthy clients. In addition, a few high-profile nonfinancial companies such as Tesla Inc., MicroStrategy Inc. and Square Inc., have taken large positions in Bitcoin, and the number and total market cap of cryptocurrencies, generally, continue to grow. We show the top 30 by market cap in the exhibit below. As of March 31, Bitcoin was by far the largest, with a market cap of USD 1.112 trillion, which was 10 times larger than Ethereum, the next largest coin.


Top 30 Cryptocurrencies by Market Cap as of March 31, 2021

Volume is daily (24 hours). Source:


Assessing Volatility

We start our analysis comparing volatilities. For equities, we used the MSCI ACWI Investable Market Index (IMI) (representing 99% of the global equity investment opportunity); for cryptocurrencies, the MVIS CryptoCompare Digital Assets 100 Index (a capitalization-weighted index tracking the 100 largest cryptocurrencies) and the MVIS CryptoCompare Bitcoin Index in USD (to isolate Bitcoin returns); and for gold, we used the spot price. We confirmed the common perception that cryptocurrencies have been more volatile than equities and gold over the last five years by factors of six and five times, respectively, as shown in the following exhibit.


Rolling Volatility of Cryptocurrencies, Gold and Equities

Logarithmic scale. Standard deviation calculated with a rolling window of three months. Source: MSCI and Refinitiv Datascope for both MVIS® Investable Indices and gold spot price. All third-party data provided for informational purposes only and may be subject to additional terms and conditions found here.


Correlations of Top Cryptocurrencies with the Equity Market

We next calculated correlations of 12 cryptocurrencies versus the MSCI ACWI IMI over the last five years, and found they averaged near zero with frequent oscillations that have gone as low as -0.3 and as high as +0.3. These findings indicate there were periods when cryptocurrencies would have been a weak hedge but others when it wouldn’t have worked as one at all.


Rolling Correlations of Cryptocurrencies and Equities

Rolling correlations calculated with a rolling window of one year and a half-life of three months. Source of returns data: MVIS Investable Indices from Refinitiv Datascope and MSCI. All third-party data provided for informational purposes only and may be subject to additional terms and conditions found here.


The Upshot on Drawdown Behavior

Last, we examined how much downside protection cryptocurrencies would have provided over the last six years during the times when an equity investor needed it the most — when equity markets fell the farthest.1 We found that in the months when equity markets fell more than 3%, Bitcoin also fell (in eight out of 12 instances) and tended to fall even more than equities. In contrast, gold tended to have positive returns (in eight out of 12 instances) during these drawdown periods.


Cryptocurrency, Gold and Equity Returns During Equity Drawdowns

Occasions when the equity market’s monthly return fell below -3%, and how gold, Bitcoin and the top 100 cryptocurrencies performed. Source: MVIS Investable Indices from Refinitiv Datascope and MSCI. All third-party data provided for informational purposes only and may be subject to additional terms and conditions found here.


Cryptocurrencies Lacked Gold’s Shine

We found that while cryptocurrencies have had low correlation to equities over the last five years, on average, those correlations varied greatly over time. Furthermore, cryptocurrencies would not have provided downside protection to an equity investor when she needed it most — as gold did. In short, cryptocurrencies were not as good as gold when it came to hedging a traditional equities portfolio.



1We calculate drawdowns for one year longer than correlations in this analysis, as correlations require a “warmup” period to collect enough history; in this case, approximately one year.



Further Reading

Hedging Inflation: A Scorecard

Is There an Options Sentiment Factor?

MSCI Integrated Factor Crowding Model

MSCI FactorLab

Anatomy of Hedge Fund Portfolios