It has been more than twenty days since the Security and Exchange Commision (SEC) finally approved bitcoin ETF. Since then, the bitcoin spot price has fallen over 7 percent. The path for bitcoin ETF approval was long and cumbersome. The first request was filed in the SEC in 2013. That time the bitcoin price was hovering around $ 100. Many people did not know that it actually exists.Â
The first world Gold ETF was established in the United States in 2004. That time the gold price was about $ 500 per ounce, much lower than the 1980s price. From 2004 to 2011 the global gold price increased to a new world record $ 1900 per ounce. Bitcoin fans hope for the same trend for bitcoin. However, some evidence suggests that the surge in gold price was due to other factors. First of all, in the beginning of the twenty-first century, gold was still a physical commodity used in jewelry, not a financial asset. The new gold ETFs turned a physical commodity to a financial asset. It is true that the Bitcoin ETF makes investment in the cryptocurrency easier. But the difference is really marginal. Bitcoin was already a financial asset, accessible through crypto exchanges.
The other factor which pumped the gold prices in the 2000s, was the financial crisis of 2008. Due to this crisis central bankers lowered the interest rates significantly for a long duration. The same may not happen now. Although the interest rates are high, but the market was (and is still) two optimistic about rate cuts in 2024, many central bankers around the world say they are not as optimistic as the market about the inflation and the rate cuts probably would not be as fast as the market expects.
Back then, China was an important factor for gold. The country and its central bank inhaled global gold, with their trade surplus. In 2004 only 7 percent of global demand belonged to China. In 2011, the Chinese share intensified to 26 percent of global demand. We probably would not see this effect with Bitcoin.
Itzhak Ben-David and his fellow economist recently published an important paper regarding ETFs. According to their research, thematic industry ETFs (which aim to follow a specific trend) underperform broader industry ETFs by one third during its first five years. The reason is simple and intuitive: investors are trying to get on a train that is already leaving the station. According to this paper the lion’s share of inflows to thematic ETFs arrives then an asset price is most expensive! The Buy-High and Sell-Low strategy is probably not a working strategy for the Investors.
Source: ETF
