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Why Bitcoin ETFs May Outperform Gold ETFs in the Long Run

Why Bitcoin ETFs May Outperform Gold ETFs in the Long Run

Gold and bitcoin are often compared as alternative assets that can hedge against inflation, currency devaluation, and geopolitical risks. Both have limited supply, global demand, and no central authority. Both have also attracted the attention of investors who seek to diversify their portfolios and gain exposure to the potential upside of these assets.

However, gold and bitcoin are not the same. Gold has a long history of being used as a store of value and a medium of exchange, while bitcoin is a relatively new invention that relies on cryptography and blockchain technology. Gold is tangible and physical, while Bitcoin is digital and virtual. Gold is widely accepted and regulated, while bitcoin is still controversial and volatile.

These differences have implications for the performance and prospects of gold and bitcoin exchange-traded funds (ETFs), which are investment vehicles that track the prices of these assets and allow investors to buy and sell them on stock exchanges. Gold ETFs have been around since 2003, and have grown to more than a $200 billion industry in 2023, with SPDR Gold Shares (NYSE:GLD) being one of the largest. Bitcoin ETFs, on the other hand, have only been approved and launched in the U.S. in January 2024, after years of rejections and delays by the Securities and Exchange Commission (SEC). As of January 13, 2024, there are 19 bitcoin ETFs trading, with ProShares Bitcoin Strategy ETF (BITO) being the first and the largest fund.

In this article, I will argue that bitcoin ETFs may outperform gold ETFs in the long run, based on the following reasons:

  • Bitcoin has a higher growth potential and scarcity than gold
  • Bitcoin ETFs have lower fees and higher returns than gold ETFs
  • Bitcoin ETFs have more innovation and diversification than gold ETFs

Bitcoin has a higher growth potential and scarcity than gold

One of the main drivers of the value of gold and bitcoin is their scarcity, which means that their supply is limited and cannot be easily increased. Gold has a finite amount of 190,040 metric tons that can be mined from the earth, of which about 80% has already been extracted. Bitcoin has a fixed supply of 21 million coins, of which about 19 million have already been mined. However, the rate of new supply of gold and bitcoin is not the same. Gold production has been declining in recent years, due to the depletion of reserves, the rising costs of mining, and the environmental and social impacts of the industry. Bitcoin production, on the other hand, is predetermined by an algorithm that halves the reward for miners every four years, until the last bitcoin is mined around 2140. This means that the annual inflation rate of gold is around 1.5%, while the annual inflation rate of bitcoin is around 1.8% and will drop to zero in the future.

This difference in supply dynamics has implications for the demand and price of gold and bitcoin. Gold demand is mainly driven by jewellery, investment, and central bank purchases, which are influenced by factors such as income, wealth, interest rates, inflation, and geopolitical events. Bitcoin demand is mainly driven by speculation, adoption, and innovation, which are influenced by factors such as technology, regulation, network effects, and social sentiment. While both gold and bitcoin have seen increased demand in recent years, due to the global economic and health crisis, the stimulus measures, and the low interest rates, bitcoin has shown faster and stronger growth than gold, due to its novelty, accessibility, and potential. According to the World Gold Council, the annual average gold price rose from $1,481 per ounce in 2019 to $1,769 per ounce in 2020, and then to $1,794 per ounce in 2021, representing a cumulative increase of 21.1%. While data on CoinMarketCap shows that the annual average bitcoin price rose from $7,344 per coin in 2019 to $11,449 per coin in 2020, and then to $46,788 per coin in 2021, representing a cumulative increase of 537.1%.

These trends suggest that bitcoin has a higher growth potential and scarcity than gold, which could translate into higher returns for bitcoin ETFs than gold ETFs in the long run. While gold has a more established and stable market, bitcoin has a more disruptive and dynamic market, which could offer more opportunities and rewards for investors who are willing to take more risks and embrace more changes.

Bitcoin ETFs have lower fees and higher returns than gold ETFs

Another factor that affects the performance of gold and bitcoin ETFs is their fees and returns, which reflect their costs and benefits. Fees are the expenses that investors pay to the fund managers for managing and operating the ETFs, which reduce the net returns that investors receive from the ETFs. Returns are the profits or losses that investors earn or incur from the ETFs, which depend on the price movements of the underlying assets and the dividends or distributions that the ETFs payout.

Generally speaking, bitcoin ETFs have lower fees and higher returns than gold ETFs, which could make them more attractive and profitable for investors. Based ETF Database, the average expense ratio of the 10 gold ETFs trading in the U.S. is 0.42%, while the average expense ratio of the 17 bitcoin ETFs trading in the U.S. is 0.33%. This means that bitcoin ETFs charge less fees than gold ETFs for providing the same service of tracking the prices of the assets. Moreover, according to ETF.com, the average year-to-date return of the 10 gold ETFs trading in the U.S. is -0.76%, while the average year-to-date return of the 17 bitcoin ETFs trading in the U.S. is 7.54%. Again, this means that bitcoin ETFs have generated more profits than gold ETFs for the same period.

These differences in fees and returns can have a significant impact on the long-term performance and compounding of gold and bitcoin ETFs. For example, assuming an initial investment of $10,000 and an annualized return of 7% for both gold and bitcoin ETFs, but a difference of 0.1% in expense ratio, the gold ETF with a 0.4% expense ratio would grow to $38,696 after 20 years, while the bitcoin ETF with a 0.3% expense ratio would grow to $39,346 after 20 years, representing a difference of $650 or 1.7%. This gap would widen even more if the difference in expense ratio or the difference in return is larger.

Therefore, bitcoin ETFs have lower fees and higher returns than gold ETFs, which could make them more attractive and profitable for investors in the long run. While gold ETFs have lower volatility and risk than bitcoin ETFs, bitcoin ETFs have lower costs and higher rewards than gold ETFs, which could outweigh the trade-offs for investors who have a longer time horizon and a higher risk tolerance.

Bitcoin ETFs have more innovation and diversification than gold ETFs

A third factor that affects the performance and prospects of gold and bitcoin ETFs is their innovation and diversification, which reflect their variety and quality. Innovation is the process of creating and introducing new products and services that meet the needs and preferences of customers and markets. Diversification is the strategy of investing in different types of assets and sectors that have low or negative correlation with each other, which can reduce the overall risk and volatility of a portfolio.

Generally speaking, bitcoin ETFs have more innovation and diversification than gold ETFs, which could make them more competitive and resilient for investors. While doing research, I spoke to a gold ETF analyst last week and he based on his point of view and shared the following with me. The gold ETFs trading in the U.S. have only two types of strategies: physical gold ETFs, which hold gold bullion in vaults, and gold miner ETFs, which invest in stocks of companies that mine and produce gold. These ETFs have similar characteristics and performance and are highly correlated with each other and with the gold price. The average correlation coefficient of the gold ETFs trading in the U.S. is 0.94, which means that they move almost in the same direction and magnitude.

On the other hand, the bitcoin ETFs trading in the U.S. have four types of strategies: spot bitcoin ETFs, which hold bitcoin directly in custody, futures bitcoin ETFs, which invest in bitcoin futures contracts, short bitcoin ETFs, which bet against the decline of bitcoin futures, and blockchain and bitcoin ETFs, which invest in stocks of companies and other ETFs with exposure to cryptocurrency and blockchain technology. These ETFs have different characteristics and performance and are less correlated with each other and with the bitcoin price. The average correlation coefficient of the bitcoin ETFs trading in the U.S. is 0.77, which means that they move somewhat in the same direction and magnitude, but not always.

These differences in innovation and diversification can have a significant impact on the long-term performance and stability of gold and bitcoin ETFs.

Bitcoin ETFs have more innovation and diversification than gold ETFs, which could make them more competitive and resilient for investors. For example, spot bitcoin ETFs, such as BlackRock (NYSE:BLK) Bitcoin Strategy ETF (BTCR) and VanEck Bitcoin Trust (XBTF), offer the most direct and simple way to invest in bitcoin, as they track the spot price of bitcoin and hold bitcoin in custody with qualified custodians, such as Fidelity Digital Assets and Coinbase (NASDAQ:COIN) Custody. Futures bitcoin ETFs, such as ProShares Bitcoin Strategy ETF (BITO) and Valkyrie Bitcoin Strategy ETF (BTF), offer a more indirect and complex way to invest in bitcoin, as they track the futures price of bitcoin and invest in bitcoin futures contracts traded on the Chicago Mercantile Exchange (CME), which are cash-settled and do not involve the delivery of bitcoin. Short bitcoin ETFs, such as Simplify Short Bitcoin Strategy ETF (SBTC) and Direxion Daily Bitcoin Bear 1X Shares (BITD), offer a way to profit from the decline of bitcoin, as they track the inverse of the futures price of bitcoin and invest in short positions of bitcoin futures contracts traded on the CME. Blockchain and bitcoin ETFs, such as Amplify Transformational Data Sharing ETF (BLOK) and Bitwise Crypto Industry Innovators ETF (BITQ), offer a way to invest in the broader cryptocurrency and blockchain industry, as they invest in stocks of companies and other ETFs with exposure to cryptocurrency and blockchain technology, such as Coinbase, MicroStrategy, and Grayscale Bitcoin Trust.

These different types of bitcoin ETFs offer different advantages and disadvantages for investors, depending on their risk appetite, return expectation, and investment objective. For instance, spot bitcoin ETFs have the lowest tracking error and the highest correlation with the bitcoin price, but they also have the highest fees and the highest regulatory uncertainty, as they are subject to the PSA requirements and the potential actions of the SEC. Futures bitcoin ETFs have lower fees and lower regulatory uncertainty, as they are subject to the SFA requirements and the existing rules of the CME, but they also have higher tracking error and lower correlation with the bitcoin price, due to the futures premium, contango, and rollover costs. Short bitcoin ETFs have the potential to generate positive returns when the bitcoin price falls, but they also have the potential to incur unlimited losses when the bitcoin price rises, as well as high fees and high volatility. Blockchain and bitcoin ETFs have the potential to capture the growth and innovation of the cryptocurrency and blockchain industry, but they also have the potential to suffer from the volatility and risk of the stock market, as well as the diversification and dilution of their exposure to bitcoin.

Therefore, bitcoin ETFs have more innovation and diversification than gold ETFs, which could make them more competitive and resilient for investors. While gold ETFs have more simplicity and stability than bitcoin ETFs, bitcoin ETFs have more variety and quality than gold ETFs, which could offer more options and solutions for investors who have different needs and preferences.

Conclusion: Bitcoin ETFs may outperform gold ETFs in the long run

In conclusion, I believe that bitcoin ETFs may outperform gold ETFs in the long run.

While gold ETFs have their own merits and advantages, such as lower volatility, lower risk, and lower correlation with other assets, I think that bitcoin ETFs have more merits and advantages, such as higher growth, higher reward, and higher innovation, which could outweigh the trade-offs for investors who have a longer time horizon and a higher risk tolerance.

I think that bitcoin ETFs are not only a viable alternative to gold ETFs but also a superior one, as they offer more value and opportunity for investors who seek to diversify their portfolios and gain exposure to the potential upside of digital gold.

Source: https://in.investing.com/analysis/why-bitcoin-etfs-may-outperform-gold-etfs-in-the-long-run-200608903

FAQ

Why does the author, Anndy Lian argue that bitcoin ETFs may outperform gold ETFs in the long run?

The author, Mr Anndy Lian argues that bitcoin ETFs may outperform gold ETFs due to Bitcoin's higher growth potential and scarcity, lower fees, and higher returns compared to gold ETFs. Additionally, the author emphasizes the innovative and diversified nature of bitcoin ETFs, suggesting they offer more opportunities for investors.

What factors contribute to the higher growth potential of bitcoin compared to gold, according to the article?

Anndy Lian states that the higher growth potential of bitcoin compared to gold is attributed to the predetermined supply dynamics of both assets. While gold production has been declining, Bitcoin's algorithm-controlled supply and halving reward for miners contribute to its higher growth potential and scarcity.

How does Anndy Lian highlight the cost-effectiveness of bitcoin ETFs over gold ETFs?

Anndy Lian points out that, on average, bitcoin ETFs have lower fees (expense ratios) compared to gold ETFs. The lower fees, coupled with higher returns for bitcoin ETFs, make them more cost-effective and potentially more profitable for investors.

What role does innovation and diversification play in the comparison between gold and bitcoin ETFs?

Anndy Lian suggests that bitcoin ETFs have a competitive edge over gold ETFs in terms of innovation and diversification. Bitcoin ETFs offer different strategies, including spot bitcoin ETFs, futures bitcoin ETFs, short bitcoin ETFs, and blockchain and bitcoin ETFs, providing investors with more variety and potentially better risk management.

How does the author address the potential risks associated with investing in different types of bitcoin ETFs? different types of bitcoin ETFs?oes the author address the potential risks associated with investing in different types of bitcoin ETFs?

Anndy Lian acknowledges that each type of bitcoin ETF comes with its own set of advantages and disadvantages, such as regulatory uncertainty, tracking error, correlation with bitcoin prices, fees, and potential exposure to stock market volatility. The article suggests that investors should carefully consider their risk appetite, return expectations, and investment objectives when choosing among different types of bitcoin ETFs.

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j

Bitcoin’s bullish run: Will it continue in 2023?

Bitcoin’s bullish run: Will it continue in 2023?

Bitcoin is a digital currency that operates in a decentralized manner, meaning that it does not rely on a central authority or financial institution to operate. It was created in 2009 by an individual or group of individuals who used the pseudonym Satoshi Nakamoto. Bitcoin’s unique feature is that it uses blockchain technology, a distributed ledger that records all transactions in the network.

One of the advantages of Bitcoin is that it provides a high degree of privacy and anonymity. Transactions are recorded on the blockchain and are visible to anyone, but the parties’ identity is not revealed. This has made Bitcoin a popular choice for people who want to keep their financial transactions private.

Bitcoin has experienced significant price swings, with periods of rapid growth followed by sharp declines. In late 2017, Bitcoin’s price peaked at nearly $20,000, attracting significant media attention and mainstream interest. However, the bubble eventually burst, and the price fell dramatically, leaving many investors with losses.

Since then, Bitcoin’s price has been on a rollercoaster ride, with significant price fluctuations happening over short periods. The cryptocurrency market is notoriously volatile, and the price of Bitcoin is no exception. In recent years, Bitcoin’s price has been influenced by several factors, including regulatory developments, adoption by institutional investors, and media coverage.

The cryptocurrency market has been experiencing significant growth over the past year, with Bitcoin leading the way. According to Coinmarketcap, Bitcoin’s market capitalization increased from around $560 billion in January 2021 to over $1.2 trillion in March 2023.

I believe the current state of the cryptocurrency market and its potential future performance is worth considering. Bitcoin has had an impressive year-to-date performance, with a 42% increase, but its price has also been volatile, with significant fluctuations happening over short periods. Bitcoin’s price has been volatile, with significant price fluctuations occurring within short periods, leading many investors to question whether the rally is over or if Bitcoin’s price will continue to rise.

Several factors could impact Bitcoin’s price in 2023. I believe that one of the significant factors is the performance of US and Chinese stocks. As of March 2023, the US and Chinese stock markets exhibit different trends. The S&P 500, representing the top 500 US companies, has risen by around 3% year-to-date, while the Shanghai Composite, representing the top 300 Chinese companies, has risen by around 7.5%. However, the recent price signals from the US macro landscape warrant more caution in the short term. For instance, the recent spike in inflation and the US Federal Reserve’s tightening monetary policy could negatively affect the stock market and, consequently, Bitcoin’s price. In my perspective, if either US or Chinese stocks perform well, investing in Bitcoin could be attractive.

Another factor that could positively affect Bitcoin’s performance is the annual parliament session in China, which is scheduled to open on March 5, 2023. The government will likely announce a growth target of 5% to 6% for this year, which could further boost the ongoing rally in Asian stocks. Additionally, Hong Kong has positioned itself as Asia’s crypto hub, which may benefit Bitcoin’s price.

I also observe that Bitcoin and Nasdaq’s correlation is trading near its lowest level since December 2021. This breakdown in correlation means that holding long crypto exposure may be more beneficial than holding US-listed technology shares, which are more impacted by macroeconomic data. However, recent price signals from the US macro landscape warrant more caution in the short term.

In conclusion, I think that various factors, such as the performance of US and Chinese stocks, policies in China, and Hong Kong’s rise as Asia’s crypto hub, could influence Bitcoin’s performance in 2023. I believe exercising caution and using stop-level strategies to minimize potential losses when investing in the cryptocurrency market is essential. These are my opinions on the cryptocurrency market and its potential future performance.

 

Source: https://blockcast.cc/editors-picks/bitcoins-bullish-run-will-it-continue-in-2023/

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j

Bitcoin bull run on the horizon? Experts analyse surge past $25k in 2023

Bitcoin bull run on the horizon? Experts analyse surge past $25k in 2023

Bitcoin, the world’s largest digital currency, surged last week, breaking past the $25,000 mark and reaching a new high for 2023. This was an almost 60 percent gain for the cryptocurrency from the low of $15,742 in 2022 following the FTX crisis in November. Bitcoin’s value has been increasing steadily since then.

The last time Bitcoin was at a similar level was in mid-June of 2022, after which it stagnated for a prolonged period, with values hovering in the $19,000 to $21,000 range for several months. The cryptocurrency is still well below its peak of $68,992, which it reached in November 2021.

Experts said that while the surge above $25,000 was a positive sign, the market remains susceptible to sudden changes. They advise investors to remain vigilant and prepared to react quickly to market movements.

According to Ben Sharon, cofounder of LumiShare SRG, factors such as regulatory changes, geopolitical tensions, and the performance of major players like Bitcoin will all have an impact on the market, which looks positive at this stage. “The bull market will begin within the next two quarters,” Sharon told Moneycontrol.

Matter of regulation

Another market analyst said Bitcoin is still largely misunderstood or misrepresented and the real question for investors is how regulatory authorities treat the cryptocurrency ecosystem.

Nathan Thompson, a lead tech writer at Bybit, noted that Bitcoin is currently traded as a risk asset and is affected by many macro factors. These include inflation, recession, and general discourse, which have a direct impact on the price of cryptocurrency.

Thompson emphasised that Bitcoin and other blockchain-based assets are a net gain in terms of access and efficiency and if allowed to flourish, they will increase productivity and growth worldwide. Sean K. August, CEO of The August Wealth Management Group, said crossing the $25,000 mark is a significant milestone for Bitcoin, which could potentially continue to rise in the short term.

However, the future of Ethereum, the second-biggest cryptocurrency by market capitalisation, may depend on factors such as the adoption of the Ethereum blockchain and the launch of new projects and applications.

August said the crypto market is highly volatile and subject to fluctuations, influenced by factors such as regulatory changes, adoption by institutional investors, and the macroeconomic environment. Modulus CEO Richard Gardner notes that the macroeconomy is only moving the market for the short term, and the real question for Bitcoin investors is how regulatory authorities will treat crypto.

Until there is regulation, the sector will be stuck in a holding pattern. Gardner predicts that crypto will truly break free in a meaningful way only when regulatory authorities provide oversight.

Intergovernmental blockchain expert Anndy Lian said the recent surge in BTC price cannot be attributed solely to its intrinsic value – it is also heavily influenced by the current global economic climate. Bitcoin is viewed as a safe haven asset and its decentralised nature makes it an attractive option for those who are sceptical of traditional financial institutions.

Whitney Setiawan, a research analyst at cryptocurrency exchange Bitrue, has predicted that the current market for Bitcoin and Ethereum could signal the start of a bull run in the near future. According to Setiawan, the crypto market is influenced by factors such as inflation slowing globally and the US Federal Reserve taking a slightly dovish tone.

Setiawan cited the bottoming of crypto prices and the buy-on-the-dip mentality of traders as the main drivers for the recent price surge. Setiawan noted that historically, bear market rallies with a parabolic upward movement are quite common before a substantial decrease in price, and this could be the case this time as well.

 

Source: https://www.moneycontrol.com/news/business/cryptocurrency/bitcoin-bull-run-on-the-horizon-experts-analyse-surge-past-25k-in-2023-10167331.html

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com
j j j