The Potential Impact of Bitcoin ETFs on the Cryptocurrency Market
According to Citi, while the introduction of exchange-traded funds (ETFs) for bitcoin may eventually benefit the cryptocurrency as an asset class, in the short term it is more likely that bitcoin will continue to have high correlations with equities. Many investors have been eagerly anticipating the launch of spot bitcoin ETFs in the U.S., believing that they could revolutionize investing in the asset, much like how the SPDR Gold Shares ETF did for gold in 2004.
However, Citi analyst Alex Saunders points out that there are significant differences between bitcoin and gold. It took several years for bullion ETFs to have a structural impact on spot gold prices, and this required a meaningful catalyst like the Great Financial Crisis. Bitcoin is also newer and less established than gold was before the introduction of gold ETFs. Its popular narrative as a safe haven or inflation hedge has not yet been widely adopted by investors.
Furthermore, while bitcoin’s long-term positive correlations to equities have decreased, they are likely to return to historical averages over time. This complicates the analysis for investors who want to compare bitcoin’s portfolio role to that of gold. In times of poor equity performance, bitcoin has performed similarly poorly, whereas bonds and gold have outperformed.
The Role of Bitcoin as “Digital Gold”
Bitcoin has often been touted as “digital gold” due to its divisibility, scarcity, and lack of reliance on a central issuer. It was also once seen as a hedge against equities. However, the market turmoil of 2022 shattered this idea as bitcoin’s correlation with stocks reached an all-time high. In contrast, last year saw a decrease in correlation with gold.
Hot Take: The Uncertain Path Ahead for Bitcoin ETFs
While the introduction of bitcoin ETFs may eventually have a positive impact on the cryptocurrency market, it is important to acknowledge the differences between bitcoin and gold. Bitcoin’s adoption cycle is still in its early stages, making it less likely to be used as a portfolio hedge in times of financial turbulence compared to gold. Additionally, bitcoin’s correlations with equities and its behavior differ from those of gold. Investors should carefully consider these factors before drawing direct comparisons between bitcoin and gold.
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