Bitcoin and Gold Allocation Outperforms Traditional Portfolios, Backing Ray Dalio's 15% Hedge Thesis

Bitwise analysts have demonstrated that a combined allocation to bitcoin and gold can significantly improve the risk-adjusted returns of a traditional 60/40 portfolio. The study found that a 15% allocation to these assets produced a Sharpe ratio of 0.679, nearly three times the 0.237 of the traditional portfolio. This aligns with the hedge recommendation by Ray Dalio, a prominent figure in the hedge fund industry.

During major market downturns from 2018 to 2025, gold provided a cushioning effect, while bitcoin often experienced sharper declines than equities. However, in recovery phases, bitcoin demonstrated strong upside potential, outperforming both gold and equities in most instances.

The research suggests that portfolios containing both assets benefit from the defensive qualities of gold and the offensive potential of bitcoin. According to Bitwise, this combination offers a balanced approach to hedging against inflation and economic uncertainty.

Why Did This Happen?

Ray Dalio's 15% hedge recommendation focuses on protecting against the debasement of the US dollar due to federal debt and deficit spending. The Bitwise analysis supports this by showing how gold and bitcoin historically performed in drawdowns and recoveries, offering both protection and growth potential.

During the 2018 market downturn, equities fell by 19.34%, while bitcoin dropped by 40.29%. Gold, in contrast, gained 5.76%. In 2020, the equities dropped 33.79%, bitcoin fell 38.10%, but gold only declined by 3.63%.

Following these downturns, bitcoin led strong rebounds. In 2018, bitcoin gained 78.99% in the subsequent year, while gold rose by 18.14%. The pattern repeated in 2020 and 2022, with bitcoin outpacing both equities and gold in recovery phases.

What Are Analysts Watching Next?

The ongoing recovery from the 2025 drawdown is still unfolding. As of now, equities are up 38.65% from their low, and gold has gained 44.79%. Bitcoin's recovery is lagging, up only 14.04%, with the full one-year post-drawdown period not concluding until April 2026.

Analysts are closely watching whether this historical performance pattern continues. A full evaluation of the 2025 downturn and its recovery could provide further validation of the combined allocation strategy.

The Sharpe ratio of 0.679 for a portfolio with both bitcoin and gold is significantly higher than the traditional 60/40 portfolio, which had a ratio of 0.237. A gold-only portfolio recorded a Sharpe ratio of 0.436, indicating that the combination provides a better balance.

Bitwise analysts conclude that the best approach historically is a combined allocation to both assets. This challenges the traditional either/or framework and supports a more nuanced investment strategy.

Investors seeking to hedge against inflation and economic uncertainty may find value in incorporating both gold and bitcoin into their portfolios. This strategy offers the defensive characteristics of gold and the growth potential of bitcoin, potentially enhancing risk-adjusted returns.