The World’s First ETP Betting on Both Bitcoin and Gold Is Here
The first ever exchange-traded product combining Bitcoin and gold has launched in Europe -- offering the twin prospect of long-term returns and inflation protection, at least in theory.
The novel ETP aims to bring together “the best of the old and new worlds of finance” by betting on the portfolio hedging power of gold along with the “strong” returns of the most well-known crypto token, the issuing parties said in a statement.
The physically backed index product is known as 21Shares ByteTree BOLD ETP (ticker BOLD), via Swiss crypto ETP provider 21Shares and U.K. alternative investment provider ByteTree Asset Management, which conceptualized it.
“Gold has historically delivered portfolio protection in inflationary environments, while Bitcoin is the digital equivalent of gold with growing adoption by investors as a distinct asset class and a core store of wealth,” said Charlie Erith, CEO of ByteTree Asset Management, in a statement. “In a time of rising structural inflation and heightened geopolitical risk, we believe this can act as an important risk and return diversifier in a balanced portfolio.”
Gold, the less volatile of the two assets, has been assigned a higher weighting of 81.5% at launch, while Bitcoin has an 18.5% weighting. The ETP works by rebalancing both exposures each month in inverse proportion to their risk, in an effort to manage volatility and boost returns.
Many market participants are still wary of Bitcoin's suitability as a potential hedge for inflation, especially in light of the cryptocurrency's negatively trending correlation with gold. A 50-day reading for Bitcoin and the yellow metal has been hovering at around -0.4, its lowest level since 2018. The scale ranges from -1 to 1, with a reading of 1 signaling that the assets are moving in lockstep, while -1 means the opposite.
“Our team believes that gold and Bitcoin are more aptly described as complimentary assets in a portfolio, rather than the common narrative that one supplements the other or is a substitute for the other,” said Bloomberg Intelligence's James Seyffart. “Perhaps over time Bitcoin will exhibit characteristics more similar to gold, but right now, Bitcoin is still a risk asset in our view.”
While an ETP combining Bitcoin and gold is a first, the concept of capitalizing on the two assets is not. A small open-ended unit trust called Incrementum Digital & Physical Gold Fund was incorporated in Liechtenstein in 2020 and allocates investments between cryptocurrencies and gold. It has about 20 million euros ($21 million) in assets.
Meanwhile in the U.S., excitement around Bitcoin-linked ETPs peaked toward the end of 2021 with the launch of the first Bitcoin-linked ETF in the country -- the ProShares Bitcoin Strategy ETF (BITO) -- which made its mark as the second-most heavily traded fund at the time. Since then, the U.S. Securities and Exchange Commission has repeatedly snubbed the idea of a physically backed Bitcoin ETF.