Understanding Bitcoin as a Financial Asset

A friend recently told me they’ve added Bitcoin to their portfolio as a hedge. I hear this a lot, and given Perfectly Hedged LLC's education platform, I figured it was worth investigating—does Bitcoin actually function as a hedge against traditional financial instruments? For something to be a hedge, it should move inversely to the asset it’s protecting against. If Bitcoin rises, the other should fall, and vice versa. So, I analyzed five years of price data (excluding its early years to reduce noise) to see if Bitcoin holds up as a hedge. Here’s what I found (charts attached): 📈 𝗕𝗶𝘁𝗰𝗼𝗶𝗻 𝘃𝘀. 𝗦&𝗣 𝟱𝟬𝟬 The data shows Bitcoin has a 𝘀𝘁𝗿𝗼𝗻𝗴 𝗽𝗼𝘀𝗶𝘁𝗶𝘃𝗲 𝗰𝗼𝗿𝗿𝗲𝗹𝗮𝘁𝗶𝗼𝗻 with equities. When stocks rally, Bitcoin tends to rise. When markets drop, Bitcoin usually follows. This suggests Bitcoin acts more like a risk asset than a hedge against stock market declines. 💸 𝗕𝗶𝘁𝗰𝗼𝗶𝗻 𝘃𝘀. 𝗜𝗻𝗳𝗹𝗮𝘁𝗶𝗼𝗻 (𝗖𝗣𝗜) If Bitcoin were a hedge to protect holders against inflation, we’d expect the price to rise when inflation spikes. The reality? Mixed. Bitcoin surged from 2020 to mid-2021 when inflation was rising—but from late 2021 through peak CPI in 2022, it suffered its 𝘄𝗼𝗿𝘀𝘁 𝗱𝗿𝗮𝘄𝗱𝗼𝘄𝗻 𝗶𝗻 𝗳𝗶𝘃𝗲 𝘆𝗲𝗮𝗿𝘀. More recently (late 2024–2025), Bitcoin is gaining while inflation stays stable. The inconsistency weakens the argument that it’s a reliable inflation hedge. 💰 𝗕𝗶𝘁𝗰𝗼𝗶𝗻 𝘃𝘀. 𝗨𝗦 𝗗𝗼𝗹𝗹𝗮𝗿 (𝗗𝗫𝗬) Some argue Bitcoin could replace the dollar as the global reserve currency. Its relationship with the dollar index (DXY) is inconsistent. From 𝗠𝗮𝗿𝗰𝗵 𝟮𝟬𝟮𝟮 𝘁𝗼 𝗠𝗮𝗿𝗰𝗵 𝟮𝟬𝟮𝟯, Bitcoin had a clear inverse correlation with the dollar. But over longer periods, Bitcoin and the dollar have moved in the same direction at times. The data doesn’t support Bitcoin as a consistent hedge against the USD. So what about comparing it to an asset that is the world’s go-to hedge to protect against market downturns? 🥇 𝗕𝗶𝘁𝗰𝗼𝗶𝗻 𝘃𝘀. 𝗚𝗼𝗹𝗱 Gold is the world’s go-to hedge, can Bitcoin be the same? Maybe one day—but not yet. While Bitcoin has had a 𝗵𝗶𝗴𝗵 𝗰𝗼𝗿𝗿𝗲𝗹𝗮𝘁𝗶𝗼𝗻 𝘄𝗶𝘁𝗵 𝗴𝗼𝗹𝗱 in the last two years, it remains too volatile, and doesn't (yet) have the same track record to be classified as a true hedge. 𝗦𝗼, 𝗜𝗳 𝗕𝗶𝘁𝗰𝗼𝗶𝗻 𝗜𝘀𝗻’𝘁 𝗮 𝗛𝗲𝗱𝗴𝗲, 𝗪𝗵𝗮𝘁 𝗜𝘀 𝗜𝘁? In my view Bitcoin behaves more like a 𝗿𝗶𝘀𝗸 𝗮𝘀𝘀𝗲𝘁 similar to equities, a speculative vehicle for risk/volatility exposure rather than a hedge against any particular asset class. We’re still extremely early in cryptocurrency adoption. If central banks and institutions increase holdings, Bitcoin could see massive growth. But for now, it remains a 𝗵𝗶𝗴𝗵𝗹𝘆 𝘃𝗼𝗹𝗮𝘁𝗶𝗹𝗲 𝗮𝘀𝘀𝗲𝘁. What do you think? Is Bitcoin a hedge—or just another speculative play? Drop your thoughts below! 👇 #Bitcoin #Investing #Hedging #Markets

Portfolio diversification is top of mind for investors right now – and bitcoin’s potential as a portfolio diversifier is driving investor interest in the cryptoasset. Bitcoin investors are deeply focused on several of its key attributes: the uncorrelated nature of bitcoin and its interplay with geopolitics. But what about risk? Is bitcoin a “risk on” or “risk off” asset? Our answer: it’s not that simple. We explore this issue in our latest insight as part of our commitment to help educate investors about this new asset class. What we’ve found is that, in short, bitcoin can be a unique portfolio diversifier. We believe its nature makes it unsuitable for the risk on/risk off framework, and most other traditional finance frameworks. On a standalone basis, bitcoin is a risky asset. But we believe that bitcoin is an asset with risk and return drivers that are distinct from traditional asset classes and that, over the longer-term, its fundamental drivers have been starkly different, and in many cases inverted, versus most traditional investment assets. And yes, we maintain this conviction even as short-term market trading behavior diverges from what bitcoin’s fundamentals would suggest. We recognize that bitcoin is in the early stages of its journey. I encourage you to read our latest insight to better understand the very unique nuances of this new asset class. https://1blk.co/3TAErHS

In our latest insight, we explore how bitcoin, via its nature as a decentralized, fixed supply, non-sovereign asset, has distinct risk and return drivers that have been fundamentally uncorrelated to traditional assets over the long term. Our key takeaways: -We believe many of the risk and potential return drivers bitcoin faces are fundamentally different from traditional “risky” assets, making it unfitting for most traditional finance frameworks – including the “risk on” vs. “risk off” framework employed by some macro commentators. -Bitcoin’s nature as a scarce, non-sovereign, decentralized asset has caused some investors to consider it as a place to put financial assets in times of fear and around certain geopolitically disruptive events. -Over the long term, bitcoin’s adoption trajectory is likely to be driven by concerns over global fiscal and political stability, which is the inverse of the relationship that is generally attributed to traditional “risk assets” with respect to such forces. Learn more in our latest insight: https://lnkd.in/ez-AgqKy

Bitcoin isn’t a currency, a share price, a physical asset, a commodity, or a fixed deposit. Like gold or diamonds, it doesn’t generate interest, dividends, or coupons. It isn’t backed by anything tangible, its value relies entirely on the belief that someone else will buy it. Unlike stocks, it is not a value-generating asset. Owning Bitcoin doesn’t mean owning a piece of a business that creates products, services, or profits. At its core, Bitcoin reflects sentiment, much like a stock market index. Investing in it is essentially betting on what others think it will be worth. It’s a stake in a collective belief system or perception. In this sense, Bitcoin is closer to art, collectibles, or even the influence of a social figure than to traditional investments. Intangible assets, like goodwill or reputation, can hold value for a long time, just like inflated property prices. Demand fuels demand, and scarcity drives up price. Here, price is less about utility and more about perception, scarcity, belief, and branding. Ultimately, the value of anything depends on enough people agreeing it has value. Bitcoin, like goodwill or a brand, thrives on that shared belief. But just as belief can create value, it can disappear making it valuable only until it’s not.