Digital Pyrite: A Comparative Empirical Analysis of Cryptocurrency and Gold as Risk Mitigation Assets

Abstract

Throughout the past several years, digital assets have experienced widespread adoption, as exemplified by the proliferation of new cryptocurrencies, groundbreaking court rulings, and institutional cryptocurrency initiatives. Given this growing acceptance and cryptocurrency’s contested label as “digital gold,” this paper empirically investigates whether the five largest cryptocurrencies by market capitalization, Bitcoin, Ethereum, Tether (USDT), Binance (BNB), and XRP, can serve as effective hedges or diversifiers against U.S. stock market risk, interest rate risk, and the Fama-French equity risk factors in comparison to gold. Furthermore, due to limited academic research on cryptocurrency’s risk reduction capabilities during peak adoption phases, this exploration employs time-series OLS regressions over a 2018 - 2025 period to assess the co-movements between the digital asset class and gold returns relative to the three specific risk domains. With respect to U.S. equity market risk, the findings indicate that cryptocurrencies exhibit broad diversifying potential, despite the statistically significant positive correlation of ETH and XRP with the S&P 500, partially limiting this claim. For interest rate risk, persistently negative estimated betas suggest that cryptocurrencies amplify rather than offset this risk. Regarding the Fama-French framework, the most notable result arises from the profitability factor, which reveals that BTC, ETH, and BNB possess characteristics similar to weakly profitable companies and provide diversification benefits for investment portfolios concentrated in high-profitability firms. Together, the evidence establishes that gold remains the more consistent and comprehensive downside protection asset, while cryptocurrency emerges as a situational diversifier with a complex risk profile.