Are Spot Bitcoin ETFs Hurting Gold ETFs? Absolutely Not.

Forgotten in this year’s commotion about spot bitcoin ETFs is the other “store of value.”  

Gold. 

The price of the metal is trading close to all-time highs, yet it’s been shunned by exchange-traded fund investors, who have been gravitating toward the shiny new cryptocurrency ETFs.  

Since the start of the year, $3.6 billion has exited U.S.-listed gold ETFs, leaving assets under management at $92.5 billion. 

That contrasts with the $5 billion of inflows for spot bitcoin ETFs, which collectively have $37.6 billion in AUM. Excluding the expensive Grayscale Bitcoin Trust (GBTC), spot bitcoin ETFs have pulled in $12 billion and have total assets of $14.2 billion. 

So, is this a clear-cut case of out with the old, in with the new?  

Not necessarily.  

Bitcoin’s 2024 Momentum 

While bitcoin ETFs have certainly trounced gold ETFs when it comes to flows and performance—bitcoin is up 24% this year, while gold is down 1.6%—bitcoin’s ascent might not be directly responsible for gold’s sluggishness.  

For one, after nearly a decade of waiting, there was a lot of pent-up demand for spot bitcoin ETFs. That’s reflected in the strong inflows for those funds since their launch.  

Rising animal spirits across financial markets (many tech stocks have surged past their record highs from two years ago) have also contributed to robust demand for bitcoin.  

In contrast, gold ETFs, which began trading two decades ago, are well established. The gold held by gold ETFs collectively today—83 million troy ounces—is the same as it was in 2012. 
 
The drivers of gold demand also differ from bitcoin’s. While the latter benefits from investor exuberance, the former is sometimes weighed down by it.  

Gold and Bitcoin Uses 

Gold also has a myriad of demand sources beyond investment and speculation. The metal is used in jewelry, electronics, and dentistry. Central banks also hold it as a reserve asset. 

On the other hand, while it was originally designed to be a full-fledged currency, bitcoin is hardly used in transactions today. Instead, its primary uses are investment and speculation. 

Spot bitcoin ETFs may have strengthened bitcoin’s cause by making it easier for people to buy and sell it. If they increase the demand for bitcoin, these funds may have a positive, long-term impact on the cryptocurrency’s price. 

But demand for bitcoin remains much narrower than for gold.  

For instance, in 2023, only a fifth of gold’s demand came from investors; the rest came from other sources. In fact, investors in gold ETFs were net sellers of gold last year.  

Nevertheless, gold’s price hit a record $2,135 in December as other consumers, including buyers of physical bars and coins, compensated for the selling by gold ETF investors. 

This diversity of demand is a gold strength, stabilizing its price and giving it an aura of safety. Its 5,000-year history of human use also bolsters gold’s safe-haven status. 

With its brief, 15 year-year history of extreme volatility, bitcoin is a completely different asset that attracts speculators hoping for massive gains rather than modest, uncorrelated returns.  

Bitcoin ETFs may or may not perform well over the long-term, but their success or failure probably won’t impact gold ETFs—at least anytime soon.