In economics and finance, the attractiveness of an asset is determined by several factors, including liquidity, risk of loss, and the expected rate of return on investment (increased value). Therefore, many investors diversify their investments because the economy is cyclical, and some investments do well during recessions or periods of economic instability. Investments that do well during downturns or periods of instability are known as hedges, and they tend to increase in value when typical investments decline in value.
Historically, precious metals, especially gold, have been a popular hedge investment. Gold has traditionally been a hedge against inflation or the decline in the purchasing power of money. Many Western countries, including the United States, used a gold standard between the 1800s and early 1900s to maintain the value of paper currency. This maintained public confidence in paper currency, which had replaced precious metal (gold and silver) coinage.
Modern hedge investments such as cryptocurrency–which was invented in 2009 with the emergence of Bitcoin–became popular with investors due to its mathematical limit of creation (tokenomics). Only a fixed amount of Bitcoin (or other crypto assets) can be ‘mined’ digitally using blockchain technology. Over time, it becomes harder and harder to ‘mine’ a Bitcoin, slowing the rate of expansion and making it a popular hedge against inflation. Billionaire Ricardo Salinas–one of the five richest people in Mexico right now–refers to Bitcoin as the ‘hardest asset in the world’–even harder than gold.
“Bitcoin is no different than what gold represented over thousands of years. It is an asset class that protects you.”
–Larry Fink, co-founder, chairman and CEO of BlackRock
However, A 2022 study revealed that Bitcoin was limited as a strong inflation-hedging instrument as it is seen as a risk-on asset that trades more in a 24/7 market that is open while other markets remain closed. In the case of a recession, the short-term volatility associated with Bitcoin will likely mean downward price pressure.
Other studies found that Bitcoin either could not hedge against inflation or could hedge against inflation only in the short run, especially after some economic shocks in some specific countries. On the other hand, gold may gain value due to a combination of governments using it to hedge from US dollar dominance and the effect of tariffs.
Using gold and silver as hedging assets
Direct investment in physical metals like gold and silver is one of the most well-known ways of introducing them into a portfolio. These metals traditionally hold their value over time, effectively providing a counterbalance during periods of currency devaluation and economic uncertainty.
Gold is the preferred choice for many investors seeking to hedge against inflation risks, and physical investments are commonly available in the form of coins or bars. However, silver is mostly industrial, and it is heavily weighted down by governments, manufacturers, and stock markets who want to keep its value low.
The dual role of gold as an inflation hedge and deflation safeguard makes it uniquely resilient. Gold demonstrated consistent outperformance during economic turmoil, with significant breakouts occurring alongside recessions in the 1990s, 2000s, and 2020s.
The precious yellow metal surged 25% during the 2008 financial crisis, while the S&P 500 plummeted 38%, highlighting gold’s countercyclical appeal. Similarly, gold prices rose 24% as equities faced extreme volatility during the 2020 COVID-19 recession. Previously, gold returned 35% annually during the 1970s stagflation, overshadowing stocks and bonds. These patterns emphasize the role of gold as a reliable, safe haven asset during systemic stress.
Capital flows into gold-backed ETFs reached $12 billion in Q1 2025, the highest since 2020, as investors sought refuge from equity volatility. Gold ETF allocations currently stand at 2.3% of global ETF assets, below the COVID-19 peak of 3.8% and far under the 5.2% seen during the 2011 bull market. The gap implies significant upside potential, whereby a reversion to 2011 levels would require roughly $230 billion in additional inflows.
Investing in Bitcoin (or crypto) as hedging assets
Bitcoin has become the most popular crypto asset, and many businesses accept it as a form of payment. Additionally, the perception that Bitcoin can be used as a store of value like gold has contributed to its current popularity. However, despite Bitcoin being often viewed in the same light as a debit card, it is not legal tender and is not accepted as payment by most government agencies, including the U.S. Internal Revenue Service (IRS). It is, therefore, important to understand the unique characteristics and features of Bitcoin.
Essentially, the total lifetime supply of Bitcoin is capped at 21 million coins, and nearly 20 million coins have already been minted. Theoretically, that means Bitcoin has tremendous scarcity since almost all the Bitcoin that will ever exist is already in circulation. Bitcoin investors store their coins in digital wallets, which can either be online (hot wallets) or on portable hard drives (cold wallets).
Bitcoin is completely decentralized, meaning that no central bank, sovereign government, or Wall Street investment bank can alter its algorithm. The token is also highly resilient against government expropriation or other forms of asset seizure due to the cryptographic nature of blockchain technology.
Another unique feature of Bitcoin’s algorithm is the halving mechanism, where the rate of new Bitcoin supply is cut in half every four years, making it a disinflationary asset in the long run. Many people believe this is one of the key reasons why Bitcoin can be a powerful hedge against inflation.
However, hedging a crypto portfolio is not as hands-off as other crypto trading strategies like the HODL method. Traders must feel comfortable monitoring the crypto market and adjusting their positions frequently. To hedge effectively, holders need to understand the tools available and the correlations between assets. Exchanges like BTCC offer traders a simple way to hedge their positions with Bitcoin and altcoin derivatives.
BTCC tools for crypto portfolio diversification and safe hedging
The BTCC exchange began operations in 2011 as one of the most established exchanges. BTCC is also registered and regulated in the U.S. by the Financial Crimes Enforcement Network (FinCEN), in Canada by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), and in Europe by the Registrar of Legal Entities of Lithuania.
BTCC offers an inviting platform backed by strong security, fast customer support, and regular bonuses for new and active users–whether looking for daily trading opportunities or just starting with crypto. So far, the exchange has over 6.8 million registered users with an average of over $28 billion in 24-hour trading volume, 600,000+ total copy traders, over 220 million successful copy trades, and has generated over $420 million in profits.
Combining a variety of trading products designed to cater to both beginners and professional traders, BTCC offers flexibility and opportunities for profit and safe hedging. The platform features over 370 perpetual futures, more than 250 spot pairs, and 37 tokenized stocks and commodities (including gold, silver, US stocks, and indices).
Despite not being a typical broker, BTCC allows users to access both crypto and traditional financial markets through tokenized assets. Users can trade popular stocks such as Intel, Microsoft, Apple, and Amazon with up to 20x leverage, while commodities like gold and silver can be traded with up to 150x leverage. BTCC also offers copy trading, enabling less experienced investors to mirror successful trading strategies.
BTCC provides real-time market data and analytics tools that can help users make informed decisions. Users can adjust their hedging strategies as needed by keeping a close eye on market movements to respond to changing conditions. Staying informed about market trends is crucial for effective hedging.
Effective risk management is at the heart of successful hedging, and BTCC offers a range of tools and features that can help users manage their risk effectively. However, the key to successful hedging is not to eliminate risk entirely but to manage it in a way that aligns with your investment goals and risk tolerance.
Hedging with crypto assets can be a complex process, but with the right BTCC tools and strategies, it can be a valuable way to protect your investments.
