Bitcoin ETFs test investors’ commitment to gold-backed securities By Reuters

© Reuters. FILE PHOTO: A Bitcoin is seen in an illustration image taken at La Maison du Bitcoin in Paris, France on June 23, 2017. REUTERS/Benoit Tessier/File photo

By Ashitha Shivaprasad and Manya Saini

(Reuters) – Rising interest in Bitcoin exchange-traded funds is prompting some investors to swap their holdings of gold-backed ETFs, although analysts and fund managers said they were unlikely to question gold bullion in the longer term.

Spot Bitcoin ETFs could offer an alternative to gold for investors looking to hedge against inflation. ETFs track an index, commodities, bonds or a basket of assets such as an index fund.

And with U.S. regulators giving the green light to ETFs tracking the price of the world’s largest digital asset in January, the ETF market – worth trillions of dollars – has been poised for further gains.

The emergence of gold ETFs in the early 2000s added important support to the market by creating new demand, which led to price increases in subsequent years.

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

Since US approval on January 10, two of the largest new spot Bitcoin ETFs, iShares Trust and Fidelity Wise Origin Bitcoin Fund, have assets of $5.45 billion and $4.13 billion, respectively, as of February 14 Billions of dollars amassed, data from LSEG Lipper shows.

Meanwhile, the largest gold-backed ETF, New York’s SPDR Gold Trust (P:), saw outflows of $768.9 million over the same period, while iShares Gold Trust saw outflows of $284.6 million .


The introduction of the new products is accompanied by an increase in the prices of crypto tokens. Bitcoin rose more than 150% in 2023, while gold gained a much more modest 13%.

“Overall, the crypto industry is maturing and… with more regulatory approval and a new legitimate product, it poses a growing threat to older havens like gold in some regions,” said Nicky Shiels, head of metals strategy at MKS PAMP SA in a note.

Still, some fund managers and analysts are urging caution before switching 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, ETF analyst at Morningstar.

Gold is typically viewed as a safe place to invest money during times of political or economic uncertainty, such as a rapid rise in inflation.

“Because gold, unlike many stocks, does not pay dividends, it is more about wealth preservation than wealth creation,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

“Bitcoin speculators have very different goals and appear willing to bet on rapid price increases to achieve hot returns that are far from guaranteed,” Streeter added.

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