Can Bitcoin’s Rising Popularity With Investors Affect Gold?

Last month, the investment bank reported that $7 billion has flowed out of gold’s exchange-traded funds (ETFs) since October 2020, while the Grayscale Bitcoin Trust, which trades under the symbol GBTC and is managed by Grayscale, has seen inflows of $2 billion during the same period.

According to JPMorgan, that trend will continue and will have a bearing on the safe haven’s price. While gold accounts for 3.3% of family office assets, bitcoin accounts for just 0.18%, as stated in the bank’s research. Bitcoin might be the biggest cryptocurrency by market value, yet its current capitalisation of $343 billion is quite small compared with gold’s market capitalisation of over $10 trillion. As such, the transfer of cash from gold to bitcoin could bring in big losses for gold and gains for the cryptocurrency.

Several public-listed companies have recently invested money into bitcoin, strengthening the digital currency’s appeal as a reserve asset and an inflation hedge.

However, most analysts claim that inflows into bitcoin will continue to increase, but not because investors are changing their minds.

In and out

The main gold exchange-traded funds (ETF) are losing funds. SPDR Gold Shares (GLD) and iShares Gold Trust (IAU) have seen outflows of over $4.4 billion in the past month alone, according to FactSet. The Grayscale Bitcoin Trust, however, has seen inflows of over $1 billion in the same period.

Since the beginning of 2020, GLD and IAU saw inflows of over $25 billion, marking the strongest year for inflows over the past decade. Even with the latest outflows, it has been a very good year for gold funds.

The gold price has responded, delivering 35% performance between January 1 and its peak in August. What we could be seeing is a simple rebalancing as investors lock in profits to reinvest elsewhere.

Investors might also see less need for safe haven investments right now, given the latest positive vaccine news and the potential for strong growth next year.

Retail investors are probably behind some of the outflows in gold ETFs, and some are probably rotating into BTC.

The generational shift

According to the latest survey by deVere’s, two-thirds of millennials prefer bitcoin to gold as an investment. This means any new savings entering the market may be almost 70% more likely to be put into bitcoin than into gold.

Millennials are more comfortable with the new technology than their elders, and can probably grasp the potential more easily. Another report recently showed that younger Americans are less likely to trust institutions than older generations.

The millennial generation is usually focused on early retirement, which will concentrate their attention on long-term value that cannot be inflated away. All this makes young people more likely to invest in inflation-resistant assets, yet less likely to invest in gold.

For one thing, it is difficult for retail investors to actually hold gold. Sure, they can buy shares in a gold ETF, but that implies more centralized control and institutional vulnerability than a self-custodied bitcoin investment. And in an environment of weakened trust in the current system, self-custody of bitcoin is a much easier solution than is self-custody of gold.

This does not mean that gold investment is over. Gold’s role as a store of value is well entrenched in investment lore, and even forward-thinking and open-minded investors and advisers recommend that bitcoin complement the precious metal rather than replace it.

Bitcoin setting new all-time high

Yes, bitcoin fluctuates in fiat terms, and company financing needs are in fiat terms – but bitcoin’s bearer nature combined with its ease of transfer and the work being done on its smart contract functionality, as well as the growing support for bitcoin custody from financial institutions, point to some interesting developments on this use case in the years to come.

Bitcoin’s prices reached all-time highs above $40,000 less than a month after breaking $20,000 for the first time. Since the start of the most recent rally, ostensibly begun in October, its value has increased fourfold. In the last 24 hours, however, Bitcoin dropped below $34,000, nearly 15%. As of writing, Bitcoin is trading around $35,700, down more than $5,000 from its recent high of $41,500. The total market cap of Bitcoin reached $635 billion.

With the multi-asset broker Exness you can speculate on the prices of both gold and bitcoin against a variety of currencies from the same platform. Exness offers some of the widest ranges of pairs with these two popular instruments, consistently low average spreads and a variety of accounts for traders of any level of experience.

Bitcoin is now in the top 10 largest assets by market cap list according to AssetDash, making it nearly as valuable as Facebook.