A Review of Comparing Gold ETFs: How Much Space and Imagination Is There for Bitcoin ETFs?

Original Title: “Gold vs Bitcoin: How the ETFs compare”

Author: Julian Fahrer

Translation: ChainCatcher

A Brief History of Gold ETFs

The Origin of Gold ETFs

In November 2004, the first gold ETF was launched in the United States and several other countries around the world.
At that time, gold had just experienced a 20-year bear market and was beginning to rebound. Before the launch of gold ETFs, investors could only invest in gold mining stocks, bullion, and futures contracts. Additionally, there were many extra complexities and risks: the fundamentals of mining companies themselves, storage costs, insurance, and inefficient trading.
Thus, ETFs represented a fundamental innovation that allowed investors worldwide to quickly and easily access a liquid market without the cumbersome requirements related to gold insurance, transportation, and storage.

After the Gold ETF Bull Market

The impact of ETFs on gold prices was immediate, dramatic, and lasting. An eight-year bull market in gold was thus initiated, which only came to a halt in 2012 when gold prices essentially stopped rising.
For example: In the eight years before GLD was launched, its price increased by 16.84%, while in the eight years after its launch, its price surged by 286.90%

However, there were still some nuances. As shown in the figure below, its price had been rising in the years prior to the launch of GLD.
One of the pioneers of GLD, Graham Tuckwell, stated that this was one of the early factors for the ETF's success: "When the first gold ETF was launched in March 2003, it was the right time to start marketing gold, as the price had steadily risen from $250 to $350."

It is clear that ETFs were the real catalyst.
So, why did this happen? How did ETFs fundamentally change the fate of gold investors?
According to an analysis article written by State Street Global Advisors in 2006 (two years after GLD was launched), by reducing the barriers associated with gold investment, ETFs made gold "more accessible to a broader group of investors," which "likely led to the long-term appreciation of this asset class."
In short, George Milling-Stanley, Vice President and Chief Gold Strategist of SPDR ETFs at State Street Global Advisors, stated: "What we did was essentially democratize the entire gold market."](https://www.cnbc.com/2019/11/17/gld-wall-streets-top-gold-etf-turns-15-heres-what-could-be-ahead.html?utmsource=learn.heyapollo.com&utmmedium=referral&utm_campaign=gold-vs-bitcoin-how-the-etfs-compare)

Gold vs Bitcoin

Theory

How do we compare the story of Bitcoin ETFs with that of GLD?
When comparing these two assets, Bitcoin users are already familiar with the analogy of "digital gold."
In terms of ETFs, there may also be some similarities.
Due to many Bitcoin enthusiasts touting BTC as a more advanced form of gold (i.e., portability), retail investors found it easier to access Bitcoin before the ETF launch than gold investors did in 2003.
Nevertheless, it is more reasonable to say that ETFs have also "democratized" the way Bitcoin is accessed in a manner similar to GLD and gold.
The challenges of self-custody, or even just trusting exchanges, are likely bottlenecks that Bitcoin will face in mainstream adoption. And ETFs changed that.
Today, echoes of the history of gold ETFs resonate once again. Interestingly, many of the concerns raised by Bitcoin ETF skeptics today are fundamentally the same as those raised by gold ETF bears years ago.
Two years after its launch, the majority of ownership of gold ETFs came from retail investors, with institutional investors accounting for 36% and mutual funds for 5%.
These investors were all newcomers to gold, which was somewhat alarming.
In 2010, the World Gold Council estimated that 60%-80% of GLD investors had never invested in gold before, "and no one knows how these newcomers will react during a sharp economic downturn."
Similarly, Bryan Armour, Director of Passive Strategy Research at Morningstar, stated, "I expect that if market risks increase, the trend of fund flows will reverse… a bear market could see investors turn to quality assets and avoid risk, which would harm Bitcoin's fund flows."
Whether history repeats itself or whether the bear market proves to be wrong, the analysis is quite weak and essentially just a repetition. Yes: people sell off in bear markets. But that’s not news.

Practice: Results So Far

Of course, so far, the biggest difference between gold and Bitcoin ETFs lies in the most important area: inflows and prices.
Gold ETFs were transformative at the time, causing gold prices to soar in every respect.
So far, Bitcoin ETFs have made this experience seem old-fashioned.

Just BlackRock's ETF (IBIT) surpassed the $10 billion mark in just seven weeks, while GLD took two years to reach that level.
Moreover, the early experience of Bitcoin ETFs not only surpassed gold but also seems to be swallowing the inflows of gold ETFs.

So what comes next? (Note: This is not financial advice)

It may rise, and it may rise significantly.
Bloomberg Senior ETF Analyst Eric Balchunas predicts that the assets under management of Bitcoin ETFs will surpass those of gold ETFs within two years. Meanwhile, Bitwise Chief Investment OfficerMatt Hougan predicts that the assets under management of Bitcoin ETFs will reach $200 billion before the next halving.
It is evident that even in the first three months, Bitcoin ETFs are already overturning the experience brought by gold.
They do share some similarities, but we are certainly now in uncharted territory.