ETF Investing: Bitcoin ETF vs. Gold ETF
Key Insights
- Gold ETF was created as a response from investors who hesitate to physically own gold
- A deep look into the gold ETF impact on the investment world, notably the new convenient opportunity for market participants to invest in gold
- Correlation between GLD and BTC indexes is explored, with prediction of the hypothetical BTC price’s percentage increase similar to what happened to gold after the launch of the GLD ETF
In this article we are taking a detailed look into correlation between GLD and BTC indexes. Bitcoin can be bought for cryptocurrency or fiat on SimpleSwap.
What is an ETF
An Exchange-Traded Fund (ETF) is an investment fund that contains a portfolio of different assets or a single asset. It is traded on an exchange as a single security. ETFs are a type of crypto ETP, which is an easy investment tool that combines cryptocurrencies and traditional finance.
Additional types of ETPs include exchange-traded notes (ETNs), which are debt securities that represent the issuer's obligation to pay holders an amount related to changes in the value of the underlying asset, and exchange-traded commodities (ETCs), which are securities that represent the issuer's obligation to pay holders a certain amount of money at a future date.
Gold ETF (GLD)
Gold ETF came into existence due to requests from investors who wanted to participate in the dynamics of the precious metals market but avoid physically owning gold, thus becoming one of the best ETF options for participating in the gold market.
GLD Stock Price Dynamics
In 2004, the US investment community witnessed the launch of the first gold ETF, SPDR Gold Shares (GLD).
This innovative financial instrument allows investors to invest in precious metals without the inconvenience of physical storage.
State Street Global Advisors, a US investment giant, spearheaded the initiative and successfully received approval from the Securities and Exchange Commission (SEC) to launch GLD.
GLD was created using financial derivatives and physical gold held long-term in a bank behind each GLD share. Investors could buy and sell GLD shares on the exchange as easily as regular stocks.
The launch of GLD had a significant impact on the gold market by providing investors with a simple and efficient way to invest in gold, bypassing the need to physically purchase it. This attracted the attention of both large institutional investors and individuals, which helped to increase demand for gold.
In the years that followed, GLD became one of the largest ETFs in the world and the preferred choice for those who look for an affordable and convenient investment vehicle to participate in the dynamics of gold prices. The GLD price of the asset reached a high of $1928, representing over 420% upside.
When first of gold ETFs has been launched in the US in 2004, the whole investments landscape has changed because now investors had a new instrument for participation in the gold market.
GLD has become a benchmark for many other similar funds around the world and continues to attract the attention of those seeking portfolio diversification and protection from financial risk.
BTC ETF
Predicting the future price of Bitcoin (BTC) after the launch of the Bitcoin ETF in the U.S., given the previous experience of the Gold ETF (GLD), is an interesting prospect for investors. Bitcoin is currently priced at $42,000, and the launch of an ETF became one of the key factors impacting the dynamics of the cryptocurrency market.
Similar to the influence of the launch of the GLD ETF in 2004 on the gold market, the BTC crypto ETF could attract new investment into the cryptocurrency world. Apart from traditional financial instruments, investors now could turn their attention towards bitcoin, given the opportunity to invest in it through ETFs.
Increased demand and interest from institutional investors could support the long-term growth of Bitcoin's price. Experience with the GLD ETF also suggests that investment products such as ETFs and overall ETF investing can create new opportunities to participate in the market, which in turn can contribute to the asset's price appreciation.
Given Bitcoin's current price of around $42,000, and assuming bitcoin grows more than 420%, as it did with GLD, the implied value of bitcoin after the introduction of the ETF over time could be around $179,087.20.
It should be noted that the cryptocurrency market is highly volatile and future price changes may depend on various factors, including regulatory decisions, technological innovations, and global economic trends. It is impossible to make an accurate forecast. However, the introduction of BTC ETFs in the U.S. may create favorable conditions for additional growth in the value of bitcoin in the long term.
Gold Price Dynamics
It is important to note that the rise in the gold price after the launch of the ETF in 2004 was gradual rather than instantaneous, which differs from the expected bitcoin price performance after the introduction of the BTC ETF.
In the case of the Gold ETF (GLD), the gold market did not experience a lightning-fast rise, but instead saw a gradual increase in GLD price over time.
Summary
The launch of GLD brought a change in the dynamics of the gold market by creating a new category of investors actively trading gold through electronic platforms. This contributed to a faster market reaction to macroeconomic events and news, forming new trends and patterns in the gold price.
GLD’s gradual increase in price cautions against directly transferring the GLD experience to BTC ETFs.
Arguably, the expected bitcoin price increase may occur at different intensities and rates given the unique characteristics of the cryptocurrency market.
The information in this article is not a piece of financial advice or any other advice of any kind. The reader should be aware of the risks involved in trading cryptocurrencies and make their own informed decisions. SimpleSwap is not responsible for any losses incurred due to such risks. For details, please see our Terms of Service.
