Bitcoin’s rise above US$120,000 and gold’s stunning 26% per annum rally since the start of 2024 to early July 2025 has captured the imagination of investors the world over and brought terms like ‘currency debasement’ and ‘bitcoin strategic reserve’ into the mainstream vernacular. Both institutional and retail investors have been pouring funds into digital currencies and gold over the last few years, with the former particularly accelerated by the US securities regulator approving the launch of spot bitcoin exchange traded funds (ETFs) in January 2024 and a slew of recently passed crypto-related legislation in the US aimed at standardising stablecoin regulations in July 2025.
In this Observations piece, we provide an overview of the key reasons driving the increasing focus on gold and digital currencies, drawing out investors’ concerns around fiscal profligacy, currency debasement and financial repression, and (in the case of bitcoin) a rapidly maturing new asset class. We reflect on the outlook for the fiat US dollar and consider more conventional investment options for investors who share longer-term concerns around currency debasement. We then analyse gold and bitcoin through the lens of our proprietary multi-asset risk factor framework and consider how investors should go about sizing potential allocations to gold, bitcoin, and/or other digital currencies.
We recognise that digital currencies encompass a broad and varied range of subjects, from blockchain technology and its broader application to the rise of stablecoins and their implications for economic policy, each of which warrant their own detailed and extensive discussions. For conciseness and practicality, we limit the scope of this Observation to the use of bitcoin and other digital currencies as an investable asset.
Gold and bitcoin have been the asset classes du jour for the last few years.
2024 was a great year for investors in gold and bitcoin (and certain other digital currencies). The yellow metal rose 26% in US dollar terms over the year, while bitcoin surged 121% and breached the psychological milestone of US$100,000. So far in 2025 both assets have continued to rally, with gold up another 26% in the first half of 2025 and bitcoin pushing past the US$120,000 barrier.
Bitcoin, the world's first, largest, and most popular digital currency, also gained significant credibility over the course of the year. The US Securities and Exchange Commission (SEC) greatly improved institutional and retail investor access after it formally approved a range of spot bitcoin ETFs in January 2024. Investors duly obliged, with Bloomberg reporting in November 2024 that these funds already hold over US$100 billion in bitcoin, whose total market value now sits close to US$2 trillion.
Increased investor concerns over fiscal profligacy, currency debasement, financial repression, and the multi-polar world we are entering have all driven the significant outperformance of these two asset classes.
Institutional investors are becoming increasingly comfortable with digital currencies, with The Economist writing in August 2024 that 70% of institutional investors planned to increase exposure to digital assets over the following three years, which may see institutional allocations rise to 7% by 2027 compared to current allocations of 1–5%. Donald Trump's re-election has further stoked the hype and visibility of digital currencies.
Meanwhile, gold marked multiple record highs over the year and is trading above USD 3,300 per ounce, outperforming the US S&P 500 equity index and (on a risk-adjusted basis) even outperforming bitcoin. While some point to monetary policy shifts and other idiosyncratic factors, we believe there are deeper drivers behind the superlative gains in both gold and bitcoin over recent years.
At a high level, these concerns are justified - fiscal spending has accelerated since the COVID-19 pandemic, with few signs of discipline on the horizon.
We talked about the secular shift towards fiscal populism in our October 2023 Observation Asset Allocation in a Changing World. This kicked off in earnest in 2016 with Donald Trump's first term and the Tax Cuts and Jobs Act-the first pro-cyclical US fiscal stimulus since the Lyndon Baines Johnson era.
Western governments' response to the COVID-19 pandemic turbocharged this trend. Though their intentions were good, with the benefit of hindsight it is now clear that most developed economies over-stimulated their economies in 2020 and 2021, exacerbating the inflation and subsequent interest rate tightening cycle in 2022.
The extent of the stimulus was historic: the US government spent more money (even adjusted for inflation) on COVID-19 relief programmes than it spent fighting World War II, according to the Associated Press. The International Monetary Fund (IMF) estimated in 2021 that governments globally had spent USD16.9 trillion (around 17% of total global GDP in 2021) on pandemic-era fiscal programmes.
Importantly, populist pressures continue to put spending pressure on fiscal policymakers. The recently passed One Big Beautiful Bill Act is expected to leave US budget deficits mired at around 6% of GDP, with no sign of long-term fiscal repair on the horizon. Even in Australia, the government's budget outlook projects underlying cash deficits through the 2035 financial year, with risks to the downside given the runaway growth in spending on aged care, the National Disability Insurance Scheme (NDIS), and other entitlements.
This troubling set of fiscal circumstances globally has raised concerns that governments may be tempted to go down an age-old pathway that stretches back to the Roman Empire: currency debasement.
Currency debasement and financial repression have been used by political classes throughout our history…while the reality of a multi-polar world is rapidly dawning on the global community, prompting a move to diversify reserves away from a waning (and disruptive) US hegemon.
Politicians being irresponsible with state monies is a tale as old as time. We have detailed archaeological records showing that the percentage of silver in the denarius (the currency of the Roman Empire) fell from nearly 100% during the reign of Augustus Caesar to under 5% by the late 200s CE, as successive emperors diluted the coin to pay for ever increasing state expenditures on military, infrastructure, and social welfare.
Sound familiar? This cycle has reliably repeated itself over the eras of history, including our own. Compared to the height of the gold standard in the early 1900s, the US dollar has lost 99.2% of its purchasing power relative to gold, with significant devaluations occurring during the Great Depression and the 1970s, when President Nixon unilaterally terminated US dollar convertibility into gold and we entered the fiat money era.
Since the 2000s, we have seen the rise of quantitative easing, modern monetary theory (and its practical implementation during the pandemic), and ever-increasing structural deficits across major developed markets. These can easily be interpreted as signs that we may be marching once more towards a significant debasement of currency, or at the very least, an era of financial repression where governments artificially suppress real interest rates to 'inflate away' ballooning government debt burdens. Given this, the appeal of gold as a proven historical store of value and bitcoin with its limitation on supply (a hard limit of 21 million bitcoins is wired into its protocol) appears clear (notwithstanding a surplus of other digital currencies).
As we wrote in our February 2025 Observation The New Great Game, our central case outlook is that we have entered are entering a multi-polar world, with multiple powers (the US, China, the EU, India, Russia, and the broader Global South) competing to achieve their national goals and objectives. As power gradually shifts away from the US as the sole global hegemon, other nations have been diversifying their sovereign reserve holdings away from US dollars into gold and (in some cases) bitcoin and other digital currencies.
While the US dollar maintains the lion's share of official global reserves at 57%, this has been steadily trending lower from a peak of 73% in 2001, as reported by the IMF. In contrast, central bank holdings of gold have risen significantly over the same period, primarily driven by emerging markets, with the IMF noting total bullion holdings (by weight) nearing their highest level since the 1970s. In addition, many countries are also growing wary of the US' weaponisation of its global reserve currency status-most clearly illustrated by the range of sanctions against Russia following its invasion of Ukraine in 2022. This includes being banned from the SWIFT global payment system and the forced seizure and appropriation of Russian central bank assets held in Western jurisdictions.
US President Trump's April 2025 Liberation Day trade aggression has further cemented the reality of a multi-polar world amongst the global community, introduced sovereign risk to US assets, and galvanised global investors to review what their appropriate long-term allocations to the US should be.
We think it’s still a bit too soon to be sounding the bell on the US dollar’s global reserve currency status…and investors worried about inflation or currency debasement should not overlook good old fashioned equity risk exposure.
In the case of bitcoin (and other digital currencies), rapidly growing retail and institutional investment uptake has also been fuelling a secular rise in prices as this new asset class matures. Recently, BlackRock's spot Bitcoin exchange traded fund (ETF) reached US$80 billion in invested assets, making it the fastest-growing ETF in history, reaching this milestone in just 374 days (the next fastest growing ETF took 1,814 days to reach the same figure). Bitcoin and digital currency enthusiasts strongly expect such growth to continue, particularly as society increasingly utilises the broader benefits of the blockchain technology that underpins most modern digital currencies. Before we detail our strategic investment framework for gold and bitcoin, we first lay out our outlook for the US dollar and discuss a surprisingly conventional 'hedge' for those worried about currency debasement, financial repression, and policy-induced inflation.
Is the era of the US dollar over? Not yet, and likely not any time soon.
While history tells us that currency debasement is the ultimate pathway of least resistance for politicians globally,
we still think there is a long and winding path from today to any potential collapse in the fiat currency system established in 1971. In particular, the US retains the largest, highest quality, and most dynamic economy and military in the world, and still underpins global commerce and trade.
It took many decades and two world wars for the British pound to lose its primacy as a global reserve currency, and similarly significant global social and political turmoil would likely be required to dethrone the US dollar. Perhaps history may eventually view US President Trump's 'Liberation Day' trade aggression as a potential catalyst of this, but in the grand scheme of things, we think many more straws will be needed before the US dollar's back breaks. We don't see a material risk of the US dollar system collapsing anytime soon, and the breadth and magnitude of the ensuing economic, political, social, and human cataclysm that would follow such a collapse is something that no investor (nor human) should wish for!
Two of the most common investor concerns we hear driving interest in gold and bitcoin surround their potential roles as inflation and currency debasement hedges. This is true in gold's case, and the jury is still out on bitcoin's longer-term potential here, but if inflation and currency debasement are an investor's primary concerns, we would argue that they shouldn't forget the foremost tool in their toolkit: equity risk exposure. As the chart below shows, equity exposure, as measured by the S&P 500 index, has outperformed gold by more than an order of magnitude over the past 100 years, even accounting for the various savage market declines and various US dollar debasements over the period.
A multi-asset risk factor framework can help investors appropriately assess gold and bitcoin on their own merits, rather than headline noise or speculation.
Why? Simply put, investing in equity risk (whether public or private) means investing in human ingenuity: someone has a great idea, they start a business, it does well, and they sell it to the public. This ongoing process of creative construction compounds over time and across generations. In the meantime, corporations also pay out dividends, complimenting this capital growth with income. In addition, because corporations earn nominal revenues, they can adjust their prices with inflation as and if currencies debase. This aspect provides the key source of equity markets' inflation protection.
Exposure to human ingenuity, income through dividends, and long-term linkage to inflation are all key aspects of equity risk exposure, and are key reasons why we maintain meaningful exposure to equity risk through public, private, and alternative markets across our client portfolios.
This also means that most growth-oriented investors already have a sizeable hedge against financial repression and currency debasement via their equity risk exposures. In other words, rather than feeling rushed into buying gold and bitcoin for these reasons, prudent investors have the time and space to think more fulsomely about the potential role these two assets could play within the context of their broader portfolios and investment objectives.
Our analysis corroborates gold’s inflation-hedging and safe haven characteristics and indicates that for all its technological appeal and popular support, bitcoin effectively screens as a levered play on global risk sentiment.
We acknowledge that there are copious publicly available resources and primers discussing the various theoretical and technological underpinnings behind both bitcoin and gold, including blockchain technology, as well as abundant debate around whether bitcoin fulfils the three primary roles of a currency: act as a store of value, a unit of account, and a means of exchange.
With this in mind, we have run a detailed analysis of gold and bitcoin through the lens of our proprietary multi-asset risk factor framework. We laid out the thinking and development of this framework more comprehensively in our June 2024 Observation Splitting the investment atom.
This framework seeks to determine the underlying drivers of risk and return behind an asset class across a range of intuitive macro-economic and market factors. It underpins our entire asset allocation process, and allows us to compare various traditional, alternative, and exotic asset classes equitably. Our analysis is based on the empirical sensitivities of gold and bitcoin to our fundamental macro risk factors measured over the last 35 years (14 for bitcoin) and is laid out in the table below.
| GDP | Inflation | Equity | Interest rate | Credit | Small-cap | Emerging markets | Currency | Idiosyncratic risk | Illiquidity |
Diversified fixed income |
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Global equities |
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Private equity |
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Private debt |
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Real assets |
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Hedge funds |
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Gold |
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Bitcoin |
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Source: LGT Crestone. Values are indicative and for illustrative purposes only.
There are a few observations we can make from this analysis. Firstly, gold demonstrates strong positive sensitivities to inflation and interest rates. These are logical, given gold's historical and current role as an inflation (and currency debasement) hedge, as well as the historical sensitivity of gold to real interest rates, though there is debate as to how strong this relationship might be going forward. Our model also finds a slight negative sensitivity to equity risk, which is related to gold's safe-haven nature, which was fully on display during the trade and geo-political volatility that rocked markets in the first half of 2025. Finally, we find a slightly negative 'idiosyncratic' drag, which we interpret as relating to the storage costs of gold.
Armed with this understanding, we run the numbers on how much gold and/or bitcoin investors should own…we find that gold should be viewed and sized as a defensive alternative asset…and bitcoin (and other digital currencies) should be viewed and sized as (speculative) growth alternative assets.
All in all, gold screens (as we expect) as an inflation hedge, an alternative exposure to interest rate risk, and a downside risk hedge. Comparing gold to the broader suite of asset classes in our risk model implies that there could be a diversifying role for the yellow metal to play in the context of a multi-asset portfolio.
Our analysis of bitcoin tells a very different story. We caveat this by acknowledging that bitcoin and other digital currencies are still very much maturing as investable assets, and like any adolescent their fundamental characteristics are likely to change significantly in coming years, as the asset class matures and adoption spreads. Therefore, this analysis should be viewed as current only at a point in time, and prudent investors should look to update their thinking on bitcoin and other digital currencies frequently.
That said, our analysis indicates that bitcoin remains very much a proxy for global risk appetite, with an extreme sensitivity to equity risk. We saw this most clearly during the 'Liberation Day' market volatility in April 2025. Gold did its job and rallied during the crisis but bitcoin was down as much as 28% from its prior peak. Indeed, the correlation between bitcoin and the S&P 500 Index has hovered around 0.5–0.6 since 2020—a relatively strong relationship. We also find that idiosyncratic risk drives a large portion of bitcoin's behaviour which is likely related to specific technical and technological factors (such as Bitcoin forks and halvings).
Our initial view is that gold could play a role as a diversifying inflation hedge in multi-asset portfolios, while investors enamoured by bitcoin should be aware that they are currently investing in what is effectively a levered play on equity risk and global risk appetite.
We have used our risk factor analysis above to generate forward-looking expectations for both gold and bitcoin, not based on any view on each individual asset, but based on their sensitivities to our underlying risk factors. This is the same approach we take for constructing all of our forward-looking capital market assumptions, and allows us to investigate the effect of allocations to gold or bitcoin on multi-asset portfolios on a level, forward-looking playing field.
To do this, we analyse the impact of incrementally introducing gold and bitcoin to three model multi-asset strategic asset allocations (SAAs). The first is a growth-orientated SAA with only public market exposures (listed equities and fixed income). The second is LGT Crestone's growth-oriented SAA with a 22% allocation to a diversified portfolio of alternative assets (which include private markets, real assets, and hedge funds and other diversifiers). The third is LGT Crestone's Endowment SAA with 45% in alternative assets.
To simplify the analysis, we focus on the net impact of adding gold and bitcoin on the Sharpe Ratios of each portfolio. This ratio measures the risk-adjusted return of each portfolio relative to the risk-free rate (cash) and the expected portfolio risk and is a useful (though not comprehensive) measure of portfolio efficiency.
The results of our analysis marry up broadly with our expectations based on the risk factor analysis—adding gold improves the efficiency of all three model portfolios by reducing risk through its inflation-hedging and safe-haven characteristics. Notably, it is much more efficacious at improving portfolios without any prior alternative asset exposure, and has a more marginal benefit on the Growth and Endowment SAAs which already have exposures to alternative assets.
Given its characteristics, we see gold as a defensive alternative asset held within a real asset or diversifier classification (some investors also choose to view it as part of their currency allocation). Notably this refers to gold bullion rather than gold miners both listed and unlisted.
Importantly, investors who already hold a well-constructed alternatives portfolio have already done the hard yards in improving their portfolio’s efficiency. While we see marginal improvements from incorporating a 1–5% allocation to gold in their portfolios, they shouldn’t lose sleep over it. Investors who are primarily invested in listed markets do stand to benefit more strongly from an added gold exposure but would also benefit from considering an allocation to alternative assets.
Our asset allocation analysis of bitcoin tells a different story because of the still-high levels of expected volatility and strong equity sensitivity currently present in this asset class, incorporating bitcoin reduces portfolio efficiency across all three model portfolios. This is not saying that bitcoin is a bad investment! Rather, investing in bitcoin screens as a levered play on equity risk, and should be viewed as such.
Bitcoin is quite different from gold however, and investors should be very cognisant of its characteristics and risk before investing. In other words, we’d encourage investors to view and size bitcoin allocations the way they would any other high risk, high reward asset class (such as a venture capital investment or small cap investment). For investors who believe in the growth of the digital currency ecosystem or who have particular interest in the asset class, a (<5%) allocation to bitcoin or other digital currencies may form part of their growth alternatives bucket.
The stellar performances of gold and bitcoin in recent years have captured the imagination of investors the world over and raised challenging and profound questions about what role they should play in long-term portfolios. In this Observations piece, we have laid out our framework for appraising these assets and determining whether, where, and how much of a role they should play in a multi-asset portfolio. In closing, we encourage all investors to consider the following key takeaways:
This document has been prepared by LGT Crestone Wealth Management Limited (ABN 50 005 311 937, AFS Licence No. 231127) (LGT Crestone Wealth Management). The information contained in this document is of a general nature and is provided for information purposes only. It is not intended to constitute advice, nor to influence a person in making a decision in relation to any financial product. To the extent that advice is provided in this document, it is general advice only and has been prepared without taking into account your objectives, financial situation or needs (your Personal Circumstances). Before acting on any such general advice, we recommend that you obtain professional advice and consider the appropriateness of the advice having regard to your Personal Circumstances. If the advice relates to the acquisition, or possible acquisition of a financial product, you should obtain and consider a Product Disclosure Statement (PDS) or other disclosure document relating to the financial product before making any decision about whether to acquire it.
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