Bitcoin ETFs test investor commitment to gold-backed paper

Bitcoin ETFs test investor commitment to gold-backed paper

Some investors are selling their holdings in gold-backed exchange-traded funds (ETFs) due to the increased interest in bitcoin ETFs, but analysts and fund managers stated that this move is unlikely to affect bullion in the long run. output 

Spot bitcoin ETFs may provide investors with an alternative to gold if they're trying to fend against inflation. ETFs mimic index funds by tracking an index, bonds, commodities, or a basket of assets.

Furthermore, the U.S. regulatory approval in January of exchange-traded funds (ETFs) that follow the value of the largest digital asset globally has created opportunities for future growth in the trillion-dollar ETF market.

When gold ETFs were introduced in the early 2000s, they offered a significant pillar of support to the market by generating fresh demand, which drove up prices in the years that followed.

We believe that in certain investor portfolios, bitcoin may be used in place of gold. Jason Benowitz, senior portfolio manager at CI Roosevelt, speculated that it might have a similar function as a buffer against financial system collapse and global chaos.

As of February 14, LSEG Lipper data indicates that two of the largest new spot bitcoin exchange-traded funds (ETFs) had amassed $5.45 billion and $4.13 billion in assets, respectively, since the U.S. approval on January 10.

Over the same time period, there were withdrawals of $768.9 million from the largest gold-backed ETF, New York's SPDR Gold Trust, and $284.6 million from the iShares Gold Trust.

BRAND NEW?

The introduction of the new goods coincides with an increase in the value of cryptocurrency tokens. In 2023, bitcoin saw a rise of over 150%, whilst gold saw a much more moderate rise of about 12%.

Nicky Shiels, head of metals strategy at MKS PAMP SA, stated in a note that "generally, 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."

Nevertheless, pointing to the volatility of bitcoin, some analysts and investment managers advised prudence when moving away from gold ETFs.

"Bitcoin is still in its infancy, but gold has been valued for thousands of years," stated Bryan Armour, an ETF analyst at Output