The launch of the first spot Bitcoin (BTC) exchange-traded funds (ETFs) in the U.S. on January 11 marked a significant milestone for digital assets, drawing parallels to the debut of the first spot gold ETF in 2004.

According to a report by Jordan Finneseth for Kitco News, this development has not only legitimized Bitcoin as an asset class but also started to influence the traditional bastions of value, such as gold and other precious metals.

Impact on Precious Metals Markets

  • Performance of Precious Metals: According to Nicky Shiels, head of metals strategy at MKS PAMP, since the SEC-approved launch of spot BTC ETFs, precious metals like gold and silver have traded flat, while others like palladium and platinum have seen declines (Palladium -6%, Platinum -2%).
  • Inflows into Bitcoin ETFs: Per Kitco’s report, the inflows into U.S. spot Bitcoin ETFs have been substantial, surpassing $25 billion in just 15 days, equating to the market cap of the largest gold producer, Barrick, and assets under management (AUM) in spot Bitcoin ETFs now apparently surpass those in U.S. Silver ETFs and rank as the second-largest U.S. commodity ETF after gold.

Comparative Analysis with Gold

  • Stored Wealth Comparison: Shiels notes that while Bitcoin is gaining traction, it still has a long way to go to match precious metals in terms of stored wealth. Known investor holdings in all precious metals stand at $250 billion, which is about ten times the value in crypto products.
  • Gold’s Market Value: The total value of all gold ever mined is approximately $13.6 trillion, almost double the size of the Federal Reserve’s balance sheet and about nine times the size of crypto AUM.

Gold and Crypto as Alternative Investments

  • Market Value and Liquidity: Both gold and crypto are considered alternative investments. However, gold, accounting for both investment and physical demand, has a much larger, broader, and established footprint, offering greater market depth and liquidity compared to Bitcoin.

Gold ETFs and Spot Bitcoin ETFs

  • Outflows from Gold ETFs: In the month leading up to the approval and launch of Bitcoin ETFs, gold ETFs saw significant outflows, totaling nearly $3 billion. This trend is notable as it coincided with a period when investors were expected to be re-leveraging following a dovish pivot by the Federal Reserve.

Investor Diversification and Momentum

  • Diversifying into Bitcoin: Shiels suggests that ETF investors might now consider diversifying their U.S. dollar-hedge exposure into Bitcoin, away from traditional assets like gold, silver, or platinum. This shift could be driving the persistent ETF outflows from precious metals.
  • Price Action and Momentum: The allure of higher Bitcoin prices may attract more retail and FOMO inflows compared to gold or silver, influencing investor behavior.

Future Projections and Correlations

  • Bitcoin ETF Growth: Bloomberg Intelligence estimates that U.S.-listed spot Bitcoin ETFs could reach around $50 billion in assets within two years. This growth, driven by adviser adoption, could pose an ongoing threat to current precious metals ETF holdings.
  • Bitcoin and Gold Correlation: Shiels observes that the Bitcoin/Gold ratio, currently at 21 ounces of gold per Bitcoin, is a proxy for Federal Reserve liquidity conditions. The relative performance of Bitcoin versus gold indicates the prevailing monetary policy and risk sentiment.

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