© Reuters. FILE PHOTO: A bitcoin is seen in an illustration photograph taken at La Maison du Bitcoin in Paris, France, June 23, 2017. REUTERS/Benoit Tessier/File Photo
By Ashitha Shivaprasad and Manya Saini
(Reuters) – A surge in interest in bitcoin exchange-traded funds is prompting some investors to trade holdings in gold-backed ETFs, although analysts and fund managers said they are unlikely to challenge bullion in the long term.
Spot bitcoin ETFs could offer investors looking to hedge against inflation an alternative to gold. ETFs track an index, commodities, bonds, or a basket of assets like an index fund.
And the US regulatory green light in January for ETFs that track the price of the world's largest digital asset has primed the trillion-dollar ETF market for further gains.
The emergence of gold ETFs in the early 2000s added an important pillar of support to the market by creating new demand, causing prices to soar in the following years.
“We anticipate that bitcoin could replace gold in some investors' portfolios. It may play a similar role as a hedge against global disorder and financial system dysfunction,” said Jason Benowitz, senior portfolio manager at CI Roosevelt.
Since approval on January 10 in the United States, two of the largest new spot bitcoin ETFs, iShares Trust and Fidelity Wise Origin Bitcoin Fund, had accumulated $5.45 billion and $4.13 billion in assets respectively as of February 14, LSEG Lipper data shows.
Meanwhile, the largest gold-backed ETF, New York's SPDR Gold Trust (P:), saw outflows of $768.9 million during the same period, while the iShares Gold Trust had outflows of $284.6 million. Dollars.
NEW REFUGE?
The launch of the new products comes against the backdrop of a rally in crypto token prices. Bitcoin is up more than 150% in 2023, while gold is up a much more modest 13%.
“Overall, the cryptocurrency industry is maturing and… with more regulatory approval and a new legitimized product, it is a growing threat to older havens like gold in some regions,” said Nicky Shiels, head of strategy at MKS PAMP SA metals in a note.
Still, some fund managers and analysts urged caution against the migration of gold ETFs, citing bitcoin's volatility.
“Gold has been valued for thousands of years, while bitcoin is in its infancy,” said Bryan Armour, ETF analyst at Morningstar.
Gold is often seen as a safe place to store money in times of political or economic uncertainty, such as a rapid rise in inflation.
“Because gold doesn't pay dividends like many shares, it is more useful for preserving wealth than creating it,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
“Bitcoin speculators have very different goals and seem willing to bet on rapid price increases in search of large profits, which are by no means guaranteed,” Streeter added.
