The author of this article, Justin Chan, was originally compiled by Cobo and does not represent the views of Cobo
On March 28, 2003, the worlds first gold ETF - ETFS Physical Gold (GOLD) was listed on the Sydney Stock Exchange. Since then, gold ETF has entered the stage of the financial world. About 18 months later, the juggernaut in the gold ETF market, the SPDR Gold Trust (NYSE: GLD ), was launched. Since then, the situation has changed dramatically.
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What Bitcoin ETFs and Gold ETFs Have in Common
Now some friends are discussing whether Bitcoin can replace gold, but I think this topic is too early, because compared to precious metals, digital currency is still a newborn. However, Bitcoin does have a lot in common with gold:
Both provide a fixed and limited supply through mining. Unlike other assets, neither gold nor bitcoin can be created out of thin air. Gold is mined through ground mining, and bitcoin is mined through mathematical algorithms.
Mr. Buffett once said, The gold in the world put together is about a cube with a side length of 67 feet. What about Bitcoin? As a digital currency, Bitcoin requires no physical space at all.
Both can serve as independent stores of value, and unlike printed fiat currencies, neither gold nor bitcoin depend on a central bank or government for their value.
So, do bitcoin ETFs and gold ETFs also have much in common?
Although the Bitcoin ETF has encountered some regulatory resistance, it is believed that it will pass in the near future. Everyone wants to know if an ETF will be as big of a boon for Bitcoin as it is for gold. Gold ETFs have changed the precious metals market by lowering the barriers to entry for investors. Similarly, will Bitcoin ETFs lower the barriers to entry for people to enter the digital currency world?
The biggest appeal of a gold ETF is the improved ease of trading physical gold. By participating in an ETF, access to gold suddenly becomes as easy as buying stocks. In fact, buying a gold ETF is equivalent to buying the ownership share of the fund company—taking GLD as an example, the physical gold owned by the fund company is hosted in the London vault of HSBC, and then people can buy and sell stocks on the exchange Trade gold ETFs.
By purchasing gold ETFs, investors dont have to hold physical gold, and dont have to worry about storage, transportation, safety and other issues, so many investors regard it as a more convenient, cost-effective gold investment solution.
Fraud, hacker attacks, storage risks and other issues in the field of digital currency make many institutional investors daunting. If a bitcoin ETF is approved, it will be no less attractive than a gold ETF. You can understand it like this: Bitcoin ETF is to sell the storage shares of Bitcoin that are managed, so investors can buy Bitcoin ETF through a brokerage account like buying stocks, without having to bear the risk of hacking during exchange transactions; There is no need to consider how to keep the mnemonic/private key, and bear the risk of bitcoin loss or theft due to poor storage of the mnemonic/private key.
Like the gold ETF, the ownership of the assets after purchasing the Bitcoin ETF has nothing to do with you, but the fluctuation of the currency price has something to do with you. Therefore, after purchasing Bitcoin ETF, you can obtain income through currency price fluctuations without holding Bitcoin.
Of course, a Bitcoin ETF does have some advantages in terms of convenience, but it remains to be seen whether it can revolutionize the market like a gold ETF.
Of course, it should also be mentioned that the same drawbacks of investing in gold ETFs may also apply to Bitcoin ETFs.
For example, because you dont actually own the physical gold, but buy shares from the fund company, this will lead to counterparty risk - poor operation/custodial by the fund company or custodian company may cause your losses, Bitcoin ETF Investors also face the same risks.
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The difference between Bitcoin ETF and gold ETF
Hedging vs Speculation
The biggest difference between gold and Bitcoin is this: Gold has always been in high demand due to its strong safe-haven properties, which usually protect investors during times of market uncertainty and when other asset classes plummet. For example, during the financial crisis from 2007 to 2009, stocks and bonds collapsed one after another, and people eagerly chose gold as a safe-haven asset. At the same time, it also brought about a surge in the asset management scale of gold ETFs in the past decade. But so far, it remains to be seen whether Bitcoin can become a safe-haven asset like gold.
So here comes the question: What percentage of global gold ETF holdings are for safe-haven purposes? What percentage is purely for speculation? If hedging is dominant, then judging from the current hedging properties of Bitcoin, it is still unknown what impact the approval of Bitcoin ETF will have on the current market.
Gold Futures vs Bitcoin Futures
Late last year, the U.S. Securities and Exchange Commission (SEC) rejected two ETFs submitted by ProShares that tracked bitcoin futures contracts approved by the U.S. Futures Trading Commission in 2017. But futures-based bitcoin ETFs may be significantly different from futures-based gold ETFs (such as DGL), and bitcoin futures ETFs may eventually be more acceptable to investors.
Like most commodity futures-based ETFs, gold futures contracts must be rolled over into the next months contract after the previous months contract expires. In this case, there will usually be a large price difference between the two futures contracts, especially when people expect the future spot price to be lower than the futures price.
The price difference reflects the buyers preference for futures gold. In order to avoid the storage, insurance, transportation and other costs involved in spot gold, people are willing to pay a premium to buy futures. The contango in the futures contract means that the forward rate is more expensive than the spot rate, so ETF investors may incur additional costs to move from the current contract to the next one.
However, because Bitcoin ETF futures are not based on physical objects, thereby avoiding the aforementioned premium problem, futures-based Bitcoin ETFs may be more popular than gold/commodity futures ETFs.
But as of now, the U.S. Securities and Exchange Commission (SEC) has not approved any application for Bitcoin futures ETF, because the current trading volume of Bitcoin futures is not enough to fully support the listing of ETP (Exchange Traded Products). Before the currency futures application is approved by the SEC, improving the liquidity of Bitcoin is currently a more important challenge.
ETF Small Science
The full name of ETF in English is Exchange Traded Funds, and the full name of ETF in Chinese is Exchange Traded Fund. ETF is an open-ended securities investment product that tracks market indexes and can be traded freely on stock exchanges. You can understand ETF as a special form of mutual fund (Mutual Fund): the issuer buys different stocks/assets, pools them together to form a mutual fund, and then divides them into small pieces and takes them to the exchange If they are sold, they become ETF index funds that can be traded freely. When you buy an ETF, you buy all the constituent stocks of the index.
Similarly, Bitcoin/digital currency ETF is equivalent to an index fund in the field of digital currency. Buying Bitcoin/digital currency ETF can enjoy its corresponding returns without holding Bitcoin/digital currency.
(This article does not constitute investment advice, the currency market is risky, and investment needs to be cautious)
