Behind the sharp drop in gold and the collapse of Bitcoin - the real logic of asset reallocation

The market in the past day has played a classic show: when geopolitical frictions escalated, Trump imposed tariffs on Europe, and the EU launched countermeasures, gold was frantically sold, but Bitcoin was sold ruthlessly. Ironically, everyone says that BTC is “digital gold”, but in the face of the same risk event, their performance is diametrically opposed. What is going on behind this?

If you only look at it from the surface, it seems that the funds are doing a simple multiple-choice question. But in fact, the market is telling us a long-ignored truth in the language of price:Gold and Bitcoin are not hedging the same risk at all, nor are they in the same time dimension。

Why is gold preferred while Bitcoin is dumped?

The market reacts most honestly when there is an urgent risk. Yesterday’s capital flow was very clear: gold was bought for the first time, Bitcoin was smashed, US stocks fell, the dollar began to flow, and US bond yields briefly fell. There is no complex logic behind this chain reaction, only a naked risk-averse instinct.

What’s even more interesting is that if you ask ten investors why BTC is falling, at least eight will say “gold has robbed safe-haven funds.” This answer sounds decent, but it’s actually only superficially correct. The real reason is much more complex.

The current price of BTC is around $84,490, with a 24-hour decrease of -5.36%. This decline is not particularly drastic, but the logic behind the withdrawal of funds is worth pondering. When liquidity expectations change, BTC, as an institutional asset, is immediately included in the list of risk assets.

Risk attributes are very different - event hedging vs. institutional hedging

If you take this issue apart, you will find a key thing:Gold hedges short-term event risk, while Bitcoin hedges long-term institutional risk。 These two are not the same concept at all.

What is event risk? Geopolitical frictions, tariff wars, international sanctions, regional conflicts - these are all part of it. They are characterized by rapid outbursts, concentrated impacts, and the need for immediate risk avoidance. The market does not like complexity at such moments and only wants certainty. Gold meets this need perfectly: it doesn’t need credit endorsements, it’s not bound by central bank policies, and it doesn’t have to rely on complex narratives to justify itself. Gold is gold, it has existed for thousands of years, and it is a hedging tool that does not need a reason.

And what about Bitcoin? It wasn’t built to deal with contingencies from the beginning. The buying logic of BTC has always been: “This financial system has long-term structural problems, and I need to seek a reserve option outside the system.” It’s hard to see someone rushing to increase their BTC positions due to a sudden geopolitical conflict, but you will see a steady stream of institutional funds treating BTC as a long-term bargaining chip because U.S. bonds are unsustainable, the dollar reserve system is shaken, and the de-dollarization of various countries is accelerating.

Gold hedges “uncertainty”, while BTC hedges “irreversibility” - this is the fundamental difference between the two.

Liquidity repricing, risk assets are the first to be under pressure

Now back to the most direct question: Why is Bitcoin falling?

The answer is actually much simpler than “gold competition”: liquidity expectations have changed.

What is the essence of a trade war? Imported inflation. Tariffs mean rising commodity costs and inflation expectations are starting to rise. Once inflation expectations rise, the Fed’s interest rate cut path may become slower, shallower, or even uncertain.

One of the biggest drivers driving BTC’s rise in the past six months is not the story of spot ETFs or institutional entry, but a market consensus: “A rate cut cycle is coming.” The most direct meaning of interest rate cuts is abundant liquidity, which means investors are willing to take risks. This is an extremely concise logical chain.

Now this chain is broken. Interest rate cut expectations have been lowered, liquidity expectations have been lowered, and the pricing of risk assets will inevitably have to be recalculated. In the process of repricing, risk assets will always be the first to be stabbed.

Here’s a detail that’s often overlooked: in short-term market pricing logic, Bitcoin is actually a liquid asset rather than a pure safe-haven asset.

Why is this happening? Because BTC has been integrated into institutional asset management systems. In the past two years, we can clearly see that institutions have placed BTC in the same risk management basket as technology stocks, growth stocks, and non-profit technology when adjusting risk exposure. This is not to say that institutions are not optimistic about BTC, but that BTC has changed from an “alternative asset that cannot be included in the risk control system” to a “standard asset that can be actively adjusted”.

This may sound like a neutral evaluation, but there is actually a profound sign of maturity behind it: truly mature assets do not rise forever, but can be included in a systematic risk management framework. This is how tech stocks have come this way, and BTC is now replicating the same path.

Looking at the Pattern from Market Memory - Three Classic Cases

If you want to understand why this logic holds, the best way is to go back to history. The market has experienced at least three similar asset rearrangement scenarios over the past few years.

The first time: the Russia-Ukraine conflict in 2022

On the day the war broke out, the market reacted surprisingly quickly: BTC was smashed, gold was robbed, US bonds were robbed, and the US dollar strengthened. Nothing unexpected. But an interesting twist occurred in the second stage. When the United States and the European Union began to freeze Russia’s foreign exchange reserves, the global market began to seriously discuss for the first time: “What assets are real national reserve assets that cannot be frozen?” Gold, of course, but the dollar’s “absolute safety” aura suddenly became less dazzling. From that moment on, BTC entered the discussion field of “reserve asset candidates” for the first time. This marks a significant shift in Bitcoin’s narrative.

The second time: the liquidity crisis at the beginning of the epidemic

When the pandemic first hit, financial markets experienced a textbook liquidity collapse. Investors frantically sold everything that could be exchanged for US dollars, and gold and BTC were not spared and were smashed together. This is the first time many people realize that “gold will also plummet”. But then the Fed turned on the faucet, QE continued to flow, interest rates fell all the way to zero, and coupled with the huge amount of fiscal stimulus, gold and BTC began to rise. It’s just that the driving forces are completely different: gold rises because inflation expectations rise, and BTC rises because currency dilutes expectations. These two logics do not conflict, they can coexist peacefully within the same time window.

The third time: the interest rate hike cycle from 2022 to 2023

This is the best time to examine the properties of your assets. Interest rates rose rapidly, BTC was pressed to the ground and rubbed, and growth and technology stocks also suffered. And what about gold? It strengthened later in the cycle as the market began to worry about a recession. After this round of repeated tossing, the asset label of BTC has basically completed the final characterization: in a short period, it is a liquid risk asset; In the long term, it is a reserve narrative asset.

These three market memories are enough to illustrate a pattern:Gold is always the first stop for short-term hedging, while BTC is always the long-term answer to institutional problems.

In other words, when an event breaks out, the market will choose gold; When there are cracks in the system, the market will discuss BTC. This trade war belongs to the former, so it is not surprising that BTC fell and gold rose.

The long-term track is still clear

But that’s just a short-term story. If you stretch the time horizon, you will find one more noteworthy thing:BTC’s reserve asset narrative has not weakened, but continues to strengthen.

Looking around, the U.S. fiscal deficit is accumulating, the supply of U.S. bonds is increasing, the interest burden of U.S. bonds is inflating, the global reserve system is fragmented, many regions are accelerating de-dollarization, central banks are increasing their holdings of gold, and the United States is raising taxes and regulations and trade barriers. In this macro context, gold is more like a short-term safety belt, while BTC is more like a parallel long-term track.

If I had to summarize the difference between gold and BTC in one sentence, I would say this:

Gold avoids conflict, and BTC avoids systems.
Gold supports the present, and BTC bets on the future.
Gold is within the financial system, BTC is outside the system.

This incident of gold rising sharply and Bitcoin falling sharply essentially reflects the market’s choice in a time dimension. In the short term, liquidity expectations have changed, and gold has got a safe-haven ticket. But in the long run, as long as the problems at the institutional level are not solved, the BTC narrative will always have vitality.

The real question is not “why gold is rising and BTC is falling”, but:When will BTC completely switch from a liquid asset to a reserve asset? No one may be able to give a definitive answer to this question, but every geopolitical event like this actually suggests that the answer is on the way.