Bitcoin ETFs test investors’ devotion to gold-backed paper

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Bitcoin ETFs test investors' devotion to gold-backed paper
Bitcoin ETFs test investors' devotion to gold-backed paper

A surge in interest in bitcoin exchange-traded funds has pushed some investors to sell their gold-backed ETF holdings, but analysts and fund managers say they are unlikely to challenge bullion in the long run.

A surge in interest in bitcoin exchange-traded funds has prompted some investors to sell their holdings in gold-backed ETFs, but analysts and fund managers say they are unlikely to challenge bullion in the long run.

Spot bitcoin ETFs could provide an alternative to gold for investors seeking to protect against inflation. Similar to an index fund, ETFs track an index, commodities, bonds, or a basket of assets.

And the U.S. regulatory approval in January of ETFs that track the price of the world’s largest digital asset has positioned the trillion-dollar ETF industry for additional growth.

The introduction of gold ETFs in the early 2000s provided a significant source of support to the market by creating fresh demand, causing prices to skyrocket in future years.

“We believe that bitcoin might replace gold in some investor portfolios. It might play a similar role as a hedge against global chaos and financial system dysfunction,” said Jason Benowitz, senior portfolio manager at CI Roosevelt.

Since U.S. approval on January 10, two of the largest new spot bitcoin ETFs, iShares Bitcoin Trust and Fidelity Wise Origin Bitcoin Fund, have accumulated $5.45 billion and $4.13 billion in assets, respectively, as of February 14, according to LSEG Lipper.

Meanwhile, the largest gold-backed ETF, New York’s SPDR Gold Trust, witnessed outflows of $768.9 million during the same time period, while the iShares Gold Trust saw outflows of $284.6 million.

The launch of the new products coincides with a rise in the value of cryptocurrency tokens. Bitcoin soared more than 150% in 2023, while gold increased only 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,” Nicky Shiels, head of metals strategy at MKS PAMP SA, said in a statement.

Nonetheless, some fund managers and experts cautioned against moving away from gold ETFs, citing bitcoin’s volatility.

“Gold has been valued for thousands of years, while Bitcoin is still in its infancy,” said Bryan Armour, an ETF analyst.

Gold is commonly regarded as a safe haven for money during times of political or economic turmoil, such as a sudden increase in inflation.

“Given that gold does not pay dividends like many stocks, it is more useful for wealth preservation than wealth generation,” said Susannah Streeter, Hargreaves Lansdown’s head of money markets.

“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,” he said.

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