In a recent podcast episode, Cathie Wood, the CEO of investment manager ARK Invest, highlighted the ongoing trend of investors substituting gold for bitcoin (BTC). Wood emphasized that the availability of spot exchange-traded funds (ETFs) for bitcoin will further drive this shift. While bitcoin’s price is often measured against fiat currencies, Wood pointed out that BTC has consistently outperformed gold since its early days. She believes that as more investors gain easier access to bitcoin through ETFs, the substitution from gold to BTC will continue. This development parallels the impact of the first gold ETF, which led to a significant surge in the price of gold.
Bitcoin ETFs Mean ‘Substitution’ From Gold Into BTC Will Continue, Says Cathie Wood
Background Information
In a recent podcast episode of ARK Invest’s “Big Ideas 2024,” Cathie Wood, the CEO of investment manager ARK Invest, discussed the ongoing trend of investors substituting gold for bitcoin (BTC). Wood highlighted that while bitcoin’s price is primarily denominated in fiat currencies, even when compared to gold, BTC has consistently risen since its early days. She believes that this substitution from gold into bitcoin will continue, especially with the availability of spot exchange-traded funds (ETFs) that make it easier for investors to access bitcoin.
Cathie Wood’s Views on Gold vs Bitcoin
Wood emphasized the comparison between gold and bitcoin, stating that both are often seen as stores of value due to their limited supply. However, she pointed out that unlike gold, which requires physical mining, bitcoin mining has its own set of challenges. The finite supply and the difficulty in mining both gold and bitcoin contribute to their reputation as alternative stores of value.
The Impact of Bitcoin ETFs on Gold
Wood believes that the availability of bitcoin ETFs will further drive the substitution from gold into BTC. ETFs provide a much easier way for investors to gain exposure to bitcoin, making it more accessible to a wider range of investors. This increased accessibility, combined with bitcoin’s historical price performance, is likely to attract more investors looking for alternative stores of value.
Wood drew a comparison between the potential impact of bitcoin ETFs and the introduction of the first gold ETF in November 2004. Following the launch of the first gold ETF, the price of gold surged by over 250% in the seven years that followed. Wood suggests that the same effect could be seen with bitcoin, as more investors start to view it as a viable alternative investment to traditional assets like gold.
Bitcoin as a Store of Value
One of the reasons investors are increasingly turning to bitcoin as a store of value is its finite supply. Bitcoin’s algorithmic limit of 21 million coins ensures that it cannot be inflated like fiat currencies. This scarcity, combined with the decentralized nature of bitcoin, makes it an attractive option for long-term holding and hedging against traditional financial risks.
The Rise of Bitcoin vs Gold
Wood highlighted the consistent rise of bitcoin compared to gold since its inception. While gold has been a store of value for centuries, bitcoin’s introduction has disrupted the traditional understanding of what constitutes a reliable store of wealth. The increasing adoption of bitcoin, particularly by institutional investors and large corporations, has contributed to its rising value and prominence in the financial world.
Access to Bitcoin Through ETFs
Bitcoin ETFs offer a convenient way for investors to gain exposure to bitcoin without the complexities of owning and storing actual bitcoin. By investing in a bitcoin ETF, investors can track the price performance of bitcoin without having to directly handle the cryptocurrency. This ease of access is expected to attract more investors who are interested in bitcoin but may be hesitant to navigate the technical and security challenges associated with directly holding cryptocurrencies.
Potential Effects of Bitcoin ETFs
The introduction of bitcoin ETFs is expected to have several effects on the cryptocurrencymarket. It is likely to increase the liquidity of bitcoin, making it easier for investors to enter and exit positions. The increased demand for bitcoin through ETFs could also lead to a surge in its price, as seen with other assets after the introduction of their respective ETFs. Additionally, bitcoin ETFs could contribute to the further mainstream adoption of cryptocurrencies by legitimizing their presence in traditional investment portfolios.
Historical Performance of Gold ETFs
Wood referred to the historical performance of gold ETFs as a potential indicator for the future performance of bitcoin ETFs. Following the introduction of the first gold ETF in 2004, the price of gold experienced a significant uptrend. This demonstrates the potential for ETFs to attract new investors and drive up prices in the long term. If bitcoin ETFs follow a similar trajectory, it could further solidify bitcoin’s position as a viable alternative store of value.
Conclusion
Cathie Wood’s observations suggest that the substitution from gold into bitcoin will continue as the availability of bitcoin ETFs expands. The ease of access provided by ETFs and the historical performance of assets like gold following the introduction of their ETFs indicate that bitcoin could experience a similar positive impact. As investors seek alternative stores of value, it is likely that bitcoin’s rise will persist, further cementing its role in the financial landscape.
Though crypto ETFs offer benefits, there are significant potential drawbacks: Fees: Investing in a crypto ETF is likely to be more expensive than buying cryptocurrency directly.
When you purchase ETFs, you don't own the underlying Bitcoin, thus limiting your control over your investment. The Bitcoins held in the ETF are all under custodial ownership, which means if the custodian were to suffer from a security breach or loss of access, it would greatly affect the investors holding the ETFs.
ETFs, or exchange-traded funds, are a type of security that tracks the underlying performance of a collection of assets or commodities. A spot bitcoin ETF is an exchange-traded fund that tracks the spot, or current price of bitcoin.
Cathie Wood, CEO of the investment firm ARK Invest, has significantly increased her bullish outlook on Bitcoin's price trajectory. In a recent interview, she revealed that ARK has "brought forward" its previous $1 million price target for Bitcoin by 2030.
The futures-based Bitcoin E.T.F.s can end up being more expensive because the contracts expire and must be sold and repurchased, or “rolled,” each month. Those costs can be potentially significant, particularly when the new contracts cost more than the previous month's, causing managers to buy high and sell low.
Costs and Fees: ETFs might be more expensive than buying crypto directly due to ongoing management fees. So, when you are hiring a wealth manager or getting a mutual fund or index to help with your portfolio, there is an extra charge and that is exactly the case, with ETFs, as well.
How to buy bitcoin ETFs. Bitcoin ETFs are traded on the stock market, just like any other stock or exchange-traded fund. That means to trade bitcoin ETFs, you need a brokerage account. If you are looking to open an account, Buy Side's top brokerage picks include Fidelity, TD Ameritrade and more.
Bitcoin ETFs follow the traditional rules for capital gains and losses. First, short-term capital gains and losses (including carryovers) are netted. Next, long-term capital gains and losses (including carryovers) are netted. Finally, the net short-term gain or loss is combined with the net long-term gain or loss.
Yes. A spot bitcoin ETF allows investors to gain exposure to the price of bitcoin without the complications and risks of owning bitcoin directly. Those include setting up crypto wallets and accounts with crypto exchanges, some of which have poor cyber security records and are prone to hacks.
Currently Coinbase, Kraken's U.S. rival, dominates the spot bitcoin ETF custody space, serving as custodian for about 90% of the billions of dollars in assets under management.
Clients looking for spot Bitcoin ETFs can find these and other third-party ETF and mutual fund products available at Schwab. These funds invest in cryptocurrencies, cryptocurrency futures contracts, or equities related to cryptocurrencies.
If Wood is correct and Bitcoin does reach $3.8 million by 2030, an investment of $1,000 would be worth over $60,000. This would result in a compound annual growth rate (CAGR) of over 100%. Read Next: Bitcoin has jumped another 45% already this year – how much would you need to get started today?
Ark Invest's Cathie Wood said bitcoin's price could surge by almost 33-fold to $1.5 million by 2030. "Shark Tank" investor Kevin O'Leary said that would only happen if the US economy collapsed. O'Leary predicted bitcoin would outperform the S&P 500, rising as high as $250,000 this decade.
Bitcoin ETFs are likely to exacerbate its bad performance in crises by bringing in even more speculators to what's already mostly a speculative asset. The new wave of U.S. bitcoin ETFs risk being doubly bad for investors.
For instance, some ETFs may come with fees, others might stray from the value of the underlying asset, ETFs are not always optimized for taxes, and of course — like any investment — ETFs also come with risk.
Bitcoin futures ETFs are exchange-traded funds that aim to offer exposure to the price movements of Bitcoin. The ETFs use futures contracts to achieve this goal. Fund managers purchase these contracts and bundle them into a fund.
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