Deciphering the Dynamics: Gold vs Bitcoin ETF Investment Trends
[TL; DR]
In recent months, capital inflows into Bitcoin ETFs have risen, while inflows into gold ETFs have fallen.
Several investment analysts believe that investors are shifting from gold to bitcoin.
The market expects the Federal Reserve to reduce interest rates in the near future.
Keywords: Bitcoin ETF, Gold ETF outflows, Bitcoin price prediction, Investing in Bitcoin ETFs, Gold vs. Bitcoin investment, Bitcoin market trends, Cryptocurrency ETFs, Digital gold Bitcoin, Bitcoin investment strategy, Gold ETF market trends, Bitcoin ETF inflows, Bitcoin ETF performance, Grayscale Bitcoin ETF, Bitcoin vs. gold price analysis, Cryptocurrency market volatility
Introduction
For a long time, there has been a strong debate among investors pertaining to bitcoin and gold. Before the inception of bitcoin in 2009 gold was probably the number one store of value and safe-haven asset. The comparison between bitcoin and gold heightened after the introduction of spot bitcoin ETFs in January which attracted much capital inflows into the asset.
The spot bitcoin ETFs attract many investors as a result of the convenience they bring to people who want to invest in bitcoin. BTC ETFs remove the complexities which crypto investors used to encounter when they wanted to invest in bitcoin. For example, with spot bitcoin ETFs the investors do not need to store and manage bitcoin which normally exposes them to risks like hacking and loss of private keys.
This analysis explores the debate pertaining to bitcoin and gold. We shall find out the trends in the bitcoin market and gold market alike. Finally, we will assess bitcoin volatility and the future macro environment.
The Gold ETF Outflow Phenomenon
There is no doubt that spot bitcoin ETFs have resulted in much capital inflows into the bitcoin market. Since the SEC’s approval of the cryptocurrency ETFs on 10 January there has been much funds inflows into the sector. For example, some of the ETF operators acquired more bitcoin to support their assets.
By 21 March spot bitcoin ETFs had attracted more than $11.3 billion, irrespective of outflows from time to time. During the same period there was over a $7.7 billion reduction in capital inflows from spot gold ETFs which has led some analysts to conclude that there is a shift of investable funds from gold to bitcoin.
However, since the third week of March there was much bitcoin ETFs outflows which contributed to the recent cryptocurrency volatility. For example, on 22 March the Bitcoin price fell from around $67,000 to under $63,000.
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Nonetheless, in the long term the bitcoin price is likely to stabilize as the initial hype of the launch of the ETFs subsidizes. Also, much of bitcoin has not been moved within the last 155 days indicating that investors are willing to hold their coin for a long period. It is also important to note that the bitcoin price surged by over 40% since the launch of BTC ETFs in the United States.
Analyst Sentiments on Bitcoin vs. Gold Price Analysis
Cathie Wood, the CEO of ARK Invest, is one investment analyst who believes that there is a shift from gold to bitcoin. Wood cites the launch of spot BTC ETFs in the United States as the key factor leading to this shift in investment focus. As a result of bitcoin’s capacity to store value for a long period many investors refer to it as digital gold bitcoin.
In an interview on YouTube Wood said, “Relative to gold, Bitcoin has been rising. There’s now a substitution into Bitcoin, and we think that is going to continue now that there is a less friction-filled way to access Bitcoin.”
Despite the fact that many investors have considered gold to be the number one investment asset, some bitcoin maximalists say bitcoin has an advantage over gold since it has a limited supply of 21 million. Nevertheless, the gold ETF market trends amid an increase in bitcoin ETF inflows. The following graph compares the bitcoin ETF performance against the gold ETF one.
Bitcoin and Gold ETF Flows – Financial Times
As The Graph indicates, from the start of the year there was much capital outflow from gold ETFs while there has been a rise in inflows into BTC ETFs. However, between September and December 2023 investors poured over $229 billion into the gold market. At the same time, central banks added more than $155 billion into their gold reserves.
According to Nikolaos Panigirtzoglou, an investment analyst at JPMorgan, the developments in gold vs. bitcoin investment only indicate that there is a shift in investor sentiment rather than a decrease in gold’s appeal. Analysts have also noted that the younger generation is more interested in investing in bitcoin ETFs than in precious minerals leading to gold ETF outflows.
Michael Saylor, the crypto bull and entrepreneur, thinks that gold ETF market trends and bitcoin market trends have changed. According to him the current statistics can help to solve the gold vs. bitcoin investment argument.
The reduction in inflows into gold ETFs and an increase in capital injection into bitcoin ETFs shows that since the launch of BTC ETFs in the United States many investors prefer bitcoin to gold. Although the scale is tilted in favour of bitcoin, gold still has much demand.
In an interview with CNBC Saylor said, “Bitcoin is certainly at least digital gold. It’s going to eat gold. It’s got all of the great attributes of gold and none of the defects of gold.”
He continued, “Bitcoin is a superior investment to gold, equity bonds and real estate because it’s digital. You can trade it a million times faster than conventional assets using a computer. It’s available. Most other assets trade less than 20% of the time. Bitcoin is trading 168 hours a week.”
Nonetheless, JPM Morgan said that both retail and institutional investors have been purchasing both gold and bitcoin. The bank contends that there has not been a shift from gold to bitcoin. Coindesk quotes Panigirtzoglou as saying: “Private investors and individuals have propagated both gold and bitcoin year-to-date rather than shifting from the former to the latter.”
The Limited Link between Gold and Bitcoin ETF Markets
Based on the recent bitcoin market trends, there has been a small correlation between bitcoin and gold during 2023. That has shown a shift from the previous trends where the two had an inverse relationship. As a fact, the correlation of bitcoin and gold has been close to 0.8 since 2023 suggesting that there has been a change in investor sentiment pertaining to the two assets.
Since the introduction of bitcoin exchange traded funds in January there seems to be an inverse relationship between the prices of gold and bitcoin ETFs. However the time frame is still very short to make such a conclusion. Thus, the market should wait until the “buy the news” and “sell the news” hypes are over.
Market Volatility and Future Outlook
Generally, investors believe that the Federal Reserve is likely to start interest rate reduction in the near future since the economy has been in a disinflationary period for a long period now. On the contrary, last year many central banks including the Federal one hiked interest rates since inflation was high.
Read also: Bitcoin Price Prediction & Forecast for 2024, 2025, 2030
Such a development forced investors to reconsider their investment strategies. For example, many crypto investors adopted the buy the dip and hold bitcoin investment strategy. They tended to forgo short term gains in favour of long term ones, a reason why many BTC holders had over 70% unrealized profit during the mid-March period.
Faced with the relatively high capital inflows into the bitcoin market and the on-coming halving event the dominating bitcoin price prediction is that its price may fluctuate between $100,000 and $120,000 by the end of the year. Going forward, many analysts forecast the bitcoin price to reach $150,000 by August 2025.
Conclusion
The recent market trends show that bitcoin ETFs have been recording more inflows than gold ETFs. The overriding perception among investment analysts is that investors are shifting their focus from gold to bitcoin resulting in more capital inflows into spot BTC ETFs than gold ETFs. However, in recent days there was much capital outflows from bitcoin ETFs which has increased cryptocurrency volatility.
