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Gold Is Not A Roadmap For BTC ETF
The comparison between gold and bitcoin is only superficially meaningful.
As Bitcoin explodes higher, retaking $45,000 for the first time in 20 months, all eyes are on the SEC and the forthcoming ETF decision.
The crypto community has high expectations, but it's unclear what the short- and long-term impacts of an ETF will be.
The best precedent for a bitcoin spot ETF is gold. Following approval of the first US ETF in November 2004, gold went on a multi-year bull market, quadrupling in price.
However, there are good reasons to think that gold will not provide a reliable (or possibly even helpful) roadmap for BTC.
Reasons To Be Skeptical
While the gold/digital gold ETF narrative is superficially attractive, it doesn't stand up to much scrutiny. In the broadest sense, you have two "hard" assets of finite supply, both of which are brought to a wider audience when an ETF is launched. However, the context for bitcoin is very, very different to that of gold, 20 years ago.
- Gold had a far larger market cap. In 2004, at $400 per ounce, the value of all gold was in the region of $3 trillion. Bitcoin's current market cap is less than a third of that.
- Bitcoin has programmed scarcity. Gold, while scarce, can be mined more quickly if there is demand. The same is not true of bitcoin due to regular Difficulty adjustments, and of course Halvings.
- Bitcoin's "float" (the amount available for purchase) is extremely low, thanks to diamond-handed HODLers. Only 1.85 million BTC are held on exchanges.
- Only one gold ETF launched. There may be a dozen BTC ETFs.
- Interest rates were rising in 2004. They're set to fall now, making money cheaper and giving a boost to risk assets.
- Social media and online investment platforms fundamentally change the game for retail traders, who can access information, place orders, and share their trades online in seconds.
- Asset managers with trillions of dollars of AUM will be aggressively marketing their ETFs to institutions and retail clients, all competing for market share.
- The narrative around Bitcoin is shifting (also thanks to these institutions). Previously viewed as a currency for criminals and an environmental disaster, it's now being promoted as an alternative mainstream asset. The narrative around gold hadn't changed in 5,000 years.
All of this suggests that gold does not provide a good analogy for bitcoin in the context of an ETF. The good news is that many factors are more bullish for BTC. However, there is simply no true precedent for the bitcoin ETF.
We're in uncharted waters, but it's going to be fun.
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