A surge in interest surrounding bitcoin exchange-traded funds (ETFs) is prompting some investors to shift their focus from gold-backed ETFs, although analysts and fund managers suggest that in the long term, they are unlikely to challenge the dominance of bullion.
Spot bitcoin ETFs could potentially provide investors seeking to hedge against inflation with an alternative to gold.
ETFs, which track various assets such as indices, commodities, bonds, or a basket of assets akin to an index fund, have garnered attention for their potential to offer exposure to the cryptocurrency market.
The recent regulatory approval in the United States for ETFs tracking the price of the world’s largest digital asset has poised the ETF market, valued in trillions of dollars, for further expansion.
The introduction of gold ETFs in the early 2000s significantly bolstered the market by generating fresh demand, leading to subsequent years of soaring prices.
“We anticipate that bitcoin could substitute for gold in some investor portfolios. It may serve a similar role as a hedge against global disorder and financial system dysfunction,” remarked Jason Benowitz, senior portfolio manager at CI Roosevelt.
Following the U.S. approval on January 10, two prominent new spot bitcoin ETFs, namely iShares Bitcoin Trust and Fidelity Wise Origin Bitcoin Fund, amassed assets of $5.45 billion and $4.13 billion respectively as of February 14, according to LSEG Lipper data.
Meanwhile, during the same period, the largest gold-backed ETF, New York’s SPDR Gold Trust, experienced outflows of $768.9 million, and the iShares Gold Trust saw outflows of $284.6 million.
The unveiling of these new products coincides with a rally in crypto token prices. Bitcoin surged by over 150% in 2023, whereas gold saw a more modest climb of 13%.
“Overall, the crypto industry is maturing and… with more regulatory approval and a new legitimized product, it’s a growing threat to older havens like gold in some regions,” noted Nicky Shiels, head of metals strategy at MKS PAMP SA.
However, despite the allure of bitcoin, some fund managers and analysts counselled prudence, highlighting bitcoin’s volatility compared to gold, which has been valued for millennia.
“Given that gold doesn’t pay dividends like many stocks, it’s more useful for wealth preservation than wealth generation,” remarked Susannah Streeter, head of money and markets at Hargreaves Lansdown.
“Bitcoin speculators have vastly different aims and appear willing to gamble on rapid price rises in a search for hot returns, which are by no means guaranteed,” Streeter added.