Decoding the relationship between gold and Bitcoin will be vital for institutional portfolios in 2026
While gold remains the time-tested defensive anchor, Bitcoin, for all its volatility and structural immaturity, offers something else
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AFTER peaking in late 2025 – specifically October, when it hit an all-time high above US$126,000 – Bitcoin, the world’s largest digital asset, slid sharply, briefly testing US$60,000 in February before clawing its way back to US$70,000 later that month.
From peak to trough, the drawdown reached roughly 50 to 52 per cent at the lows.
The immediate temptation is to interpret any violent sell-off as an existential threat to institutional adoption of Bitcoin, and even to the prospect of a rally past all-time highs.
Yet, history suggests otherwise. Mid-cycle retracements of this magnitude have been a recurring feature of Bitcoin’s bull markets rather than their obituary. New entrants to the space will fixate on the speed of the fall, but having experienced multiple cycles, we are paying attention to the character of the rebound.
The sharp bounce from near US$60,000 hints that long-term holders and institutions remain willing to absorb supply at stress levels. Miners exiting the space amid declining mining profitability have created a persistent supply overhang as they liquidated Bitcoin holdings.
Weaker hands, particularly newer entrants, likely capitulated as prices fell below “Liberation Day” (Apr 2, 2025) levels. In our opinion, this is a reset towards longer-term institutional holders.
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Crucially, there has been a confluence of idiosyncratic crypto factors and macroeconomic uncertainty leading to the recent spate of weakness. US equity prices have stalled after the artificial intelligence (AI) fervour that took global markets by storm.
The tension created by AI productivity leading to a feared dystopian future of mass layoffs has prompted investors to reassess portfolio positioning. Investors will be hard-pressed to sell their tech exposure, as the potential upside to future AI developments outweighs the potential downside at this current juncture.
Weaker narratives will have to go. Bitcoin – for the lack of having exhibited any real use case thus far, combined with limited regulatory clarity from Capitol Hill around the Genius (Guiding and Establishing National Innovation for US Stablecoins Act) and Digital Asset Market Clarity Act – was probably the first to be trimmed from institutional portfolios.
Bitcoin: an asset for illiquid periods?
It is exactly because Bitcoin has become more deeply embedded in institutional portfolios through exchange-traded products, derivatives and macro funds, that it now exhibits higher sensitivity to the same forces that buffet high-beta equities (those with greater volatility than a broader market index like the S&P 500).
Since 2020, Bitcoin’s correlation with risk assets has strengthened when liquidity dried up. Highly sensitive to liquidity conditions, it has even exhibited signs of a leading indicator for changes in liquidity conditions. However, this relationship is spurious, given Bitcoin’s short trading history and its even shorter period as an asset traded by institutional investors.
This relationship may be attributed to Bitcoin’s limited supply of 21 million coins, which has led some to dub it “the world’s hardest asset”. Thus, in periods defined by excessive monetary expansion or fiat currency debasement, Bitcoin tends to outperform as a store of value, not unlike gold.
Despite all that, Bitcoin still has a long way to go before it can genuinely serve as a store of value. Current market structure reinforces the high-beta characteristic of Bitcoin, which may deter investors seeking a steady hedge. Bitcoin is traded 24/7, and this makes it especially susceptible to moves during illiquid periods.
When prices move against consensus trades, forced liquidations can cascade rapidly, transforming modest macro shocks into outsized price swings. This behaviour is especially amplified over the weekends or holidays, when markets are closed, and when liquidity is thin and the only available market is the crypto one.
Unlike gold, Bitcoin’s spot and derivatives markets remain comparatively shallow, despite record exchange-traded fund inflows following their US launch. Over time, deeper institutional interest will induce deeper liquidity, which will spur greater institutional ownership.
Clear framework needed
As it currently stands, regulatory uncertainty is preventing institutions from fully accepting Bitcoin in their portfolios. The absence of a universally accepted framework defining Bitcoin’s treatment in balance sheets and financial reporting causes many institutions to treat it as tactical exposure, rather than strategic allocation. Or they stay away altogether.
Clearer regulatory architecture and integration into formal risk-management frameworks would be prerequisites for broader involvement in the asset.
To drive adoption, other structural issues must also be resolved: deeper spot and derivative liquidity, a larger base of non-levered, long-duration holders, and broader ownership by investors with liability-driven or defensive mandates.
A further question remains: Who is the marginal buyer? Current flows are largely attributed to digital asset treasuries, but these flows alone are insufficient to signal true market maturity.
The relationship between gold and Bitcoin will be one of the defining allocation questions of this cycle. Gold remains the time-tested defensive anchor – deeply liquid, universally accepted, and battle-hardened across decades of crises.
Bitcoin, for all its volatility and structural immaturity, represents something gold cannot offer: asymmetric upside tied to the ongoing digitisation of capital markets, and the long-term consequences of post-2008 monetary expansion and growing debt levels post Covid-19.
The disciplined institutional response is not to choose one over the other, but to size each according to its current stage of maturity. Gold deserves its strategic allocation. Bitcoin, at this juncture, warrants a deliberate and risk-managed position that reflects both its high-beta reality today and its store-of-value potential tomorrow.
Waiting for perfect regulatory clarity or flawless market structure before building a framework for Bitcoin exposure risks arriving after the market has already priced in the very catalysts investors were waiting for.
The window to position thoughtfully is now – not when headlines turn euphoric again.
The writer is a trader at QCP, a digital asset partner in Asia
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