The ETF Shuffle: Gold Outflows, Bitcoin Inflows

Bitcoin has been described as "digital gold" for years. In some ways, it's a good analogy, since bitcoin and physical gold do share important characteristics (including scarcity of supply). In others, it's a poor comparison: As a digital entity, Bitcoin is utterly and qualitatively different to gold, whereas the "digital gold" label paints it as being merely quantitatively better.

Gold Vs Bitcoin

Digital gold has similar properties to its physical counterpart - but also some striking differences.

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Nonetheless, it's a slogan that has stuck, and with ETF approval, bitcoin finally has the chance to compete with gold on its own terms. Although it's still early days, there are some signs that bitcoin is taking market share from gold (much to the consternation of gold bugs like Peter Schiff). Let's look at some figures.

Price

In the short term, price is a poor indicator of success, since the markets are full of noise. (Over the long run, of course, it's the only indicator that matters.)

Nonetheless, the macro backdrop is the same for both gold and bitcoin. Since the ETFs were approved and launched on January 11, bitcoin has risen almost 11%, from $46,000 to $51,000, though it has been a volatile ride.

Gold, meanwhile, has pretty well flatlined, rising just $4 from $2,029 to $2,033.

Over any longer timeframe, bitcoin destroys gold's performance. Gold has barely put in a 2x since Bitcoin's launch.

Inflows And Outflows

Arguably a more important metric at this point is flows. We'll focus on the ETFs here, since they're the market where gold and bitcoin compete on similar terms. Right now, it's not looking good for gold.

This is part of a wider picture of decline since late 2020. While gold price put in a number of local tops just above $2,000 and finally broke through (only to pull back again), a huge amount of money has flooded out of gold ETFs over the last three years. From a peak of over 110 million Troy oz,they have declined to around 85 million troz: A fall of almost a quarter.

If the long-term picture is bad for gold ETFs, the short-term one is terrible.

Total Value

As far as the total value ("market cap") of gold and bitcoin go, gold is still way ahead. Bitcoin's market cap is around $1 trillion, while gold's is roughly $13 trillion.

That picture is not replicated for the ETFs, though, which have emerged as one of the most liquid and active ways of trading both assets. Overall, the bitcoin ETFs have over $37 billion under management. Gold ETFs stand around $93 billion.

To say this happened in the last few weeks is not quite accurate, since GBTC had already existed for years, before being converted to an ETF. Nonetheless, with the ETFs currently adding thousand of bitcoins, worth hundreds of millions of dollars, every trading day, the trajectory for both assets is clear.

2024 may very well be the year that Bitcoin begins to rival gold as a store of value and global safe have asset.

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