Launch of new ETFs may not affect bitcoin the same way they did gold, Citi says. Here’s why
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It’s possible that the new exchange traded funds may benefit bitcoin as an asset class, but in the near term it’s more likely the cryptocurrency rediscovers its high correlations with equities, according to Citi. The launch of spot bitcoin ETFs in the U.S. has been widely anticipated for months, with many investors thinking they could revolutionize investing in the asset the way the SPDR Gold Shares ETF (GLD) did for gold in 2004. Bernstein recently said bitcoin could rocket to $200,000 by the end of next year with bitcoin ETFs. Only time will tell, but the path is more uncertain for crypto than it was for gold, Citi analyst Alex Saunders pointed out in a note Monday. “It still took bullion ETFs several years to crystalize holdings and AUM that structurally impacted spot gold prices and lifted trading,” Saunders said. “And that historic shift required a meaningful catalyst like the Great Financial Crisis and subsequent zero policy rates from monetary authorities.” Additionally, bitcoin is newer and less established than gold was before the introduction of gold ETFs, he added. It behaves much differently than gold did, and bitcoin’s popular narrative as a safe haven or inflation hedge hasn’t been definitively adopted by investors en masse. “This stands in stark contrast to the multi-thousand year history for the yellow metal,” Saunders said. “Our analysis still likens the cryptocurrency to an early-stage network with an adoption cycle. This means BTC is less likely to be used as a portfolio hedge in financial turbulence than gold.” He said equity betas are still large for cryptocurrencies but negative for gold. Also, while crypto’s long-term positive correlations to equities have fallen, they’re likely to return to near historical averages over time, Saunders added. “In the worst 10 months of equity performance since 2010 … bitcoin performed similarly poorly while bonds and gold outperformed,” he said. “This complicates the analysis for investors who want to liken crypto’s portfolio role to that of gold.” Bitcoin fans have long highlighted its potential to act as “digital gold” because it’s divisible, scarce and doesn’t rely on a central issuer. They also once argued that bitcoin offered a hedge against equities. The market havoc of 2022 threw cold water on that idea as the cryptocurrency’s correlation with stocks hit an all-time high . Last year, that correlation fell to its lowest since 2021 , while bitcoin’s correlation with gold has been climbing.
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