Does Bitcoin Have a Role in My Portfolio?
Bitcoin and other cryptocurrencies represent a relatively new asset class on the financial scene that has seen growing interest recently. But how should bitcoin be viewed within the broader investment framework? Here we'll explore bitcoin's relationship with many common investment concepts to help establish a sense of where it fits within the investment world.
Why was bitcoin invented?
Bitcoin is a digital currency (bit = digital + coin = currency) whose genesis can be traced back to the turmoil of the Great Financial Crisis in 2008. Bitcoin was designed to address many of the problems associated with fiat currency (a national currency that isn't backed by a tangible asset like gold or silver) and replace the necessary trust in government and financial institutions with transparency. The purpose of bitcoin and other cryptocurrencies is to provide a new payment structure that allows peer-to-peer transactions without the need for a financial intermediary such as a bank. Bitcoin's embedded source code sets a hard cap of 21 million coins, designed to prevent its value from being compromised over time due to inflation (as often happens with fiat currency). In addition, the code also limits the supply of newly minted bitcoins through a programmed event known as "halving," which cuts the mining rewards in half roughly every four years. Bitcoin's hard-coded halving process is an intentional disinflationary mechanism which is intended to limit the new supply of bitcoin into circulation over time. Bitcoin miners are specialized computers that validate transactions and help secure bitcoin's network by solving hash puzzles which create blocks that form the chain. The reward for "mining" these newly created blocks was 50 bitcoin back in 2009, but is currently only 6.25 bitcoin due to the halving process.
If you're considering investing, you should remember that bitcoin and other cryptocurrencies are relatively new and may be subject to illiquidity and increased risk of loss, including price declines, theft or encryption breaking. Additionally, because cryptocurrencies are typically not registered under federal securities laws, the disclosures that are usually available for securities like stocks—for example, information about the issuer, conflicts of interest, standards of conduct—may not be available.
Investing in cryptocurrencies involves risk, including the risk of total loss of principal invested.
Cryptocurrencies such as bitcoin are highly volatile, are not backed or guaranteed by any central bank or government; are not deposits; are not FDIC insured; are not SIPC protected; and lack many of the regulations and consumer protections that legal-tender currencies and regulated securities have. Spot markets on which cryptocurrencies trade are relatively new and largely unregulated, and therefore, may be more exposed to fraud and security breaches than established, regulated exchanges for other financial assets or instruments. Due to the high level of risk, investors should view digital currencies as a purely speculative instrument. Additional risks apply.
Now that we've covered a bit of background, let's look at how bitcoin has performed.
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Has bitcoin acted as an effective hedge against inflation?
In finance, a hedge is a strategy that involves the purchase of an asset that is intended to move in the opposite direction from an existing investment in your portfolio to limit potential losses from that investment. An inflation hedge involves purchasing an asset or employing an investment strategy designed to protect against a decrease in the purchasing power of money over time. The purchasing power of the U.S. dollar has steadily decreased due to inflation, while prices generally have increased over time due to increasing money supply. An effective inflation hedge therefore would match or exceed the rate of inflation over time, thereby preserving its value in inflation-adjusted, or "real," terms.
Some common examples of inflation hedges include real estate, gold and other hard assets that have a finite supply. Note the relationship between an asset that has a fixed supply, such as gold or real estate, versus a fiat currency, which has no supply limit. History has demonstrated that these types of hard assets have appreciated over time when priced in a fiat currency—it takes more money to purchase the same amount of these hard assets because the supply of money has continued to increase over time. Of course, the demand side of the equation must also remain intact, meaning investors must continue to perceive these hard assets as valuable over time.
As referenced above, bitcoin has a fixed supply of 21 million coins, which is not true for all cryptocurrencies. Bitcoin's value, priced in U.S. dollars, has increased substantially over time. It has been one of the best-performing assets, if not the best, over the past 15 years, with the value of one bitcoin increasing from pennies back in 2010 to the current price of $69,271 as of 3/09/2026.1 Certainly, the value of bitcoin over that time frame has outpaced the corresponding rate of inflation, but does that make it an inflation hedge?
In order to qualify as such, there would need to be evidence that bitcoin's value directly increases in response to rising, or accelerating, inflation, be it reported or anticipated. However, when examining the relationship between Bitcoin's price and reported inflation as derived from the consumer price index (CPI), the correlation—that is, the relationship between two variables—is weak. As you can see in the chart below, the correlation between bitcoin and CPI on a rolling 12-month, 36-month and 60-month basis since 2020 has averaged less than 0.4 (perfect correlation is 1.0) and often has been negative. This suggests that bitcoin's price appreciation hasn't been driven by higher reported inflation, at least not predominately. Also, keep in mind that correlation does not equal causation, it simply helps define a relationship between two variables.
Rolling correlations in monthly changes between bitcoin and inflation
Source: Schwab Center for Financial Research with data provided by the U.S. Bureau of Labor Statistics (BLS) and Bloomberg.
Monthly data from 1/1/2020 to 2/28/2026.
Inflation is calculated as the change in the Consumer Price Index for All Urban Consumers. Bitcoin represented by its spot price. Note on October 2025 CPI: missing data was estimated by multiplying September 2025 value with November 2025 and taking the square root of the multiplication. This methodology is recommended by the BLS. Correlation is a statistical measure of how two investments have historically moved in relation to each other, and ranges from -1 to +1. A correlation of 1 indicates a perfect positive correlation, while a correlation of -1 indicates a perfect negative correlation. A correlation of zero means the assets are not correlated. For illustrative purposes only and are no guarantee of future performance or success. Not intended to be reflective of results you can expect to achieve and are not intended to be, nor should they be construed as, a recommendation to buy, sell, or continue to hold any investment. Past performance is no guarantee of future results.
Looking at the relationship between bitcoin's price and one-year inflation expectations also conveys a similar message. In fact, over the past five years the correlation graph has shown a negative slope, suggesting an inverse relationship. Given the above-average inflation the global economy experienced during this time period due to the COVID-19 pandemic-induced supply shocks, this would have been a good opportunity for bitcoin to reveal itself as an inflation hedge, but it has yet to do so. Perhaps a more sustained extreme inflationary environment would yield a different result. In recent years people in some countries that have experienced hyperinflation, which is a rapid and uncontrollable rise in prices, resulting in a drastic loss in a currency's purchasing power. Some countries, such as Venezuela, have used their local currency to purchase bitcoin in an effort to offset the rapid decline in purchasing power, and this may provide additional data over time.
Inflation forecasts vs. subsequent 12-month Bitcoin return
Source: Schwab Center for Financial Research, 1/1/2020 to 2/28/2026.
Bitcoin prices are represented by its spot price. Inflation expectations are from the Federal Reserve Bank of Cleveland, which uses data including Treasury yields, inflation data, inflation swaps and survey-based measures of inflation expectations. Past performance is no guarantee of future results. For illustrative purposes only and are no guarantee of future performance or success. Not intended to be reflective of results you can expect to achieve and are not intended to be, nor should they be construed as, a recommendation to buy, sell, or continue to hold any investment. Correlation is a statistical measure of how two investments historically have moved in relation to each other, and ranges from -1 to 1. A correlation of 1 indicates a perfect positive correlation, while a correlation of -1 indicates a perfect negative correlation. A correlation of zero means the assets are not correlated.
Can bitcoin become a viable currency?
While the popularity and price of bitcoin have continued to increase over time, it still does not appear to be a viable replacement for other established national currencies. For a currency to be an effective, viable medium of exchange within an economy, it generally exhibits set characteristics, such as: It's inexpensive to transact with; widely accepted as a medium of exchange; a good store of value; maintains relative price stability; and is a broadly adopted unit of account (that is, something that can be used to value goods and services or record debts).
Yet bitcoin's price historically has been highly volatile and transaction fees are still relatively high versus other alternatives. Bitcoin is also subject to slower transaction times, which makes it less practical for smaller, everyday purchases. Additionally, each time bitcoin or other cryptocurrency is used to purchase a good or service in the United States it represents a taxable event that consumers would be required to report to the IRS.
Does it make sense to use bitcoin to purchase certain goods and services in the U.S. economy? Perhaps, but currently its economic inefficiencies prevent it from qualifying as an appropriate money substitute for countries with a relatively stable currency. For consumers in countries experiencing hyperinflation with their national currency, transacting in an alternative medium of exchange, such as bitcoin, may make more economic sense.
Does bitcoin meet the definition of a commodity?
In 2015, the U.S. Commodity Futures Trading Commission (CFTC) declared bitcoin a commodity under the U.S. Commodity Exchange Act. While the CFTC's definition of commodities is broad, it believes that some of bitcoin's characteristics, such as being fungible, traded freely in markets, and its price being driven by supply and demand, make it a good fit. Because of this classification, the CFTC has regulatory oversight of any derivatives contracts related to bitcoin, such as futures, options, or swap contracts.
Bitcoin appears to behave like a commodity when you consider that it doesn't produce any cash flows (other than when it is sold) and its price is determined by supply and demand. Bitcoin's limited supply (21 million coins, as noted above) and increasing demand driven by wider adoption, usage, and accumulation over the years, has translated into higher prices. If supply is further reduced by incremental demand from investors, or through the creation of bitcoin strategic reserves by corporations or government entities (such as state governments), then the laws of supply and demand suggest this could also result in higher prices. And in this regard bitcoin acts like traditional, physical commodities, such as corn, wheat, or oil. (Note that commodity-related products carry a high level of risk and are not suitable for all investors; they may be extremely volatile, may be illiquid, and can be significantly affected by underlying commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions.)
When there are supply disruptions, caused by natural disasters for example, or anticipated increases in demand in these types of commodities we see this type of price behavior in commodity markets. However, bitcoin lacks the tangible nature typically associated with those physical (real world) goods, and bitcoins do not get consumed, they are traded, so there are some differences.
Has bitcoin been a good store of value?
You may have heard the claim that bitcoin doesn't have any intrinsic value. What is meant by that is that this asset is digital (no physical presence and no industrial application), decentralized (not backed by a government or central authority), and doesn't provide cash flow or dividends. However, bitcoin's meteoric rise in price suggests that society has collectively deemed that it does have value. This suggests that the value of this cryptocurrency is primarily determined by the collective supply and demand from the world's investing community. But where does bitcoin stand as a store of value?
Like the concept of an inflation hedge, an asset is said to be a store of value if it preserves wealth over time, regardless of inflationary or deflationary environments. The preservation aspect implies that the value of the asset remains relatively stable over time. Bitcoin's historical price performance, as well as its limited supply, certainly support the notion that the asset could be a good store of value, but what about the stability of its value?
While bitcoin has been one of the best-performing assets in recent history, it has experienced substantial price volatility. This characteristic is likely the single biggest deterrent keeping risk-averse investors from considering it as an investment. It also hinders the case that bitcoin is a consistent store of value. Bitcoin's price has in the past recovered from all these significant selloffs, but past performance does not guarantee future results. On March 9, 2026, bitcoin's price was roughly 45% below its October 2025 all-time peak.2 Having said that, based on bitcoin's historical price appreciation since inception, the case for bitcoin being a good store of value over the long term, rather than the short term, appears to hold more weight. Purchasing bitcoin with the belief that it is a good store of value but with the intention of holding for a relatively short timeframe subjects the investment to the potential for higher volatility.
Bitcoin has experienced significant volatility
Source: Schwab Center for Financial Research with data provided by Bloomberg, daily data from 1/1/2017 to 3/10/2026.
Bitcoin is represented by its spot price. Past performance is no guarantee of future results. For illustrative purposes and are no guarantee of future performance or success. Not intended to be reflective of results you can expect to achieve and are not intended to be, nor should they be construed as, a recommendation to buy, sell, or continue to hold any investment.
Does bitcoin provide portfolio diversification?
Diversification is a core investment principle that involves allocating invested capital across various asset classes, sectors or geographic regions to reduce the overall risk of the portfolio. It is a risk-management strategy that is intended to limit exposure to the performance of any single investment by investing in a broad range of asset classes that have a low or negative correlation. For example, instead of purchasing a single stock or index exchange-traded fund (ETF), an investor might diversify the portfolio by purchasing a mixture of large- and small-cap stocks, international stocks, bonds, commodities, and a certain percentage of cash. Investing offers both the potential for returns as well as risk, and diversification is meant to hedge the potential risk from investing in a single asset. However, it should also be understood that diversification does not guarantee a profit or protect against loss of principal during periods of broad market selloffs.
Is Bitcoin an effective portfolio diversifier? If so, this would suggest that it historically has a low or negative correlation with traditional assets such as stocks or bonds. The answer may depend upon the timeframe and stock/bond composition, but based on our research, from January 2015 through October 2025 there appears to be only a moderate correlation between bitcoin and equities and a relatively low correlation with core bonds. While not a negative or low-correlation asset, Bitcoin can still provide some diversification benefit.
Is bitcoin a good trading vehicle?
A speculative asset is sometimes identified as a nonproductive asset, exhibiting high price volatility and offering the potential for both substantial gains and losses (high risk/reward) in a relatively short period of time. Generally, speculators are active market participants who seek to earn a profit from anticipated near-term price volatility of an asset, be it higher or lower. Conversely, fundamental investors are generally patient, perform due diligence on investment opportunities, and hope to grow their wealth over time through both price appreciation and income. So where does bitcoin fall on the spectrum of investing?
On the one hand, bitcoin's historical price volatility suggests that it belongs in the category of speculation. Bitcoin's beta, which is a measure of volatility relative to a benchmark such as the S&P 500 index, has been relatively high, suggesting large relative movements both higher and lower. Bitcoin's roller-coaster ride over the past decade has provided ample opportunities to play both sides of abrupt price swings, which suggests that it can be a good trading vehicle for speculators. However, its historical price appreciation and potential to find more utility within the economy in the future increasingly have attracted the interest of institutional and longer-term focused investors. Cryptocurrency enthusiasts believe that bitcoin provides more than just price volatility, such as potentially acting as a hedge against currency debasement or as a widely adopted decentralized medium of exchange.
Relative risk for select investments vs. S&P 500 (January 2015-January 2026)
Source: Bloomberg, Morningstar Direct, 1/1/2015 to 2/28/2026.
Asset classes are represented by the following indices: Cash = FTSE Treasury Bill 1 Month Index; Core Bonds = Bloomberg US Aggregate Bond Total Return Index; Gold = S&P GSCI Gold Spot Index; NASDAQ = NASDAQ Composite Index; and Bitcoin = bitcoin spot price. TR means "total return," which is the return an investment produces in all forms, including capital gains, dividends and interest.
Beta indicates the price volatility of a stock or other asset in comparison with the broader market, in this case represented by the S&P 500 index. It suggests the relative level of risk that an investor takes on in owning the asset versus owning the benchmark asset—the higher the beta, the higher the risk. The benchmark always has a beta of 1.0, so a number above 1.0 indicates the stock's price swings more, up or down, than the market in general, and a number below 1.0 indicates its price is more stable. Downside beta measures an asset's association with the broader market only on days when that market’s return is negative. Indexes are unmanaged, do not incur management fees, costs, and expenses and cannot be invested in directly. Past performance is no guarantee of future results. For illustrative purposes and are no guarantee of future performance or success. Not intended to be reflective of results you can expect to achieve and are not intended to be, nor should they be construed as, a recommendation to buy, sell, or continue to hold any investment.
While all stocks are not necessarily considered speculative investments, they are collectively deemed a risk asset, since their returns are not fixed, entire loss of principal is a possibility, and they are subject to earnings volatility, as well as driven by outside factors such as the economy or geopolitics. When looking at the relationship between bitcoin and the stock market—as represented by the S&P 500 index in this example—bitcoin does exhibit some moderate correlation since June 2020. Given the substantial appreciation of bitcoin's price since inception, the roughly six-year window that was selected below to capture a reasonable representation of bitcoin's price performance along with several significant drawdowns in bitcoin's price. More notably, when stocks have encountered corrections or bear markets, bitcoin has experienced significant drawdowns over the past decade. The higher correlation with recent bearish pullbacks in stocks suggests the cryptocurrency becomes a source of liquidity for investors who are looking to reduce risk exposure.
Correlation in daily returns between bitcoin and the S&P 500
Is bitcoin an innovation asset?
At the core of bitcoin's foundation lies blockchain technology. The blockchain provides the necessary framework for bitcoin to function as a secure, transparent, and decentralized digital currency. Blockchain technology along with token-based economics represent the next iteration of the internet, also known as Web 3.0. Tokenization refers to the process of converting sensitive data or real-world assets into a non-sensitive digital replacement, called a token, that can be represented on a blockchain. Token-based economics refers to the utilization of blockchain technology to efficiently exchange these tokens. The application and integration of this new technology into the digital economy appears to be just as significant as the internet, and investors have been seeking out ways to participate in the potential growth. While the path for increased adoption of Web 3.0 technologies appears to be a near certainty, this does not necessarily guarantee higher prices for bitcoin. While bitcoin's supply-and-demand dynamics seem to favor the potential for higher prices, investor sentiment, which drives demand, can change over time. And with the increasing introduction of new crypto-related securities comes an increasing supply of alternatives for investors to get exposure to the space.
Bitcoin's characterization summary
- Inflation hedge: Bitcoin has not shown much correlation with increases in CPI, but it remains to be seen whether it might behave differently during sustained periods of hyperinflation.
- Currency: Not in its current state, due to relatively high transaction fees, slow processing time and limited acceptance as a payment option.
- Commodity: Technically defined as a commodity by the CFTC, Bitcoin possesses several commodity-like characteristics such as fungibility and a price that is primarily driven by supply and demand.
- Store of value: Historical price performance and limited supply suggest bitcoin preserves value over time, but from a near-term perspective it lacks stability of value due to price volatility.
- Portfolio diversifier: Our analysis suggests that bitcoin has exhibited diversification potential.
- Trading vehicle: Elevated historical price volatility potentially provides opportunities for traders using either long or short strategies.
- Innovation asset: Bitcoin qualifies as such due to the underlying blockchain technology and potential to disrupt traditional finance. However, further adoption of blockchain technology does not guarantee a higher bitcoin valuation.
Conclusion
While bitcoin may not fall into one categorization perfectly, its identity may need more time to develop given its limited history. For now, bitcoin exhibits characteristics of both a store of value and as a good trading vehicle given its historical volatility. As an investor, it can be exciting to witness the innovation and increased adoption of blockchain technology within the global economy, but you should also be open-minded to your beliefs surrounding the future value of bitcoin and/or other cryptocurrencies. While bitcoin may not be right for every investor, if you believe bitcoin can play a role in your portfolio, be prepared for higher volatility and only risk an amount that you can comfortably lose.
1 Source: Bloomberg and Schwab Center for Financial Research
2 Source: Bloomberg and Schwab Center for Financial Research
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