Do Gold ETFs Have Any Lessons for Those Interested in Spot Bitcoin ETFs?


Cryptocurrency is one of the most polarizing assets in the capital markets. It seems like investors either love it or hate it, with virtually no in-between.

Crypto is undoubtedly a speculative investment class, and many tokens trade with pronounced volatility, but in January, the Securities and Exchange Commission (SEC) gave the nod to a new way to participate in crypto investing that might attract those who are wary of investing in the tokens themselves.

Several institutional money managers were granted approval to sell spot Bitcoin exchange-traded funds (ETFs). In essence, these vehicles are meant to track the price of Bitcoin (BTC 0.45%) without requiring investors to outright own the coin itself.

Although these passive funds are nascent, there are some intriguing reasons why they may be worthwhile over the long term.

What is Bitcoin?

Bitcoin is regarded to be the first cryptocurrency. It is decentralized — meaning that it does not trade on a major exchange nor is it regulated to the same degree as other vehicles such as stocks.

One of the more interesting features of Bitcoin is that there is a finite amount of the token in circulation. This aspect adds some allure to the crypto — so much so that some refer to Bitcoin as digital gold.

Gold coins with the Bitcoin logo on them.

Image source: Getty Images.

Investors look beyond stocks when things get rocky

Alternative assets such as real estate or even art can serve as a hedge to traditional investments in stocks or bonds when the macroeconomic picture looks cloudy. Commodities like precious metals — including gold — can also fall into this category and, generally speaking, the asset tends to enjoy more attention and price action during times of heightened economic instability. Some investors flock to gold as it represents a safe haven as compared to stocks or bonds during times of market instability.

Two of the most popular gold ETFs are SPDR Gold Shares and iShares Gold Trust. Each of these funds provides investors with direct exposure to gold.

The chart below illustrates the growth of a hypothetical $10,000 investment in each of these ETFs versus the same amount in the Vanguard S&P 500 ETF.

IAU Total Return Level Chart

IAU Total Return Level data by YCharts

The chart above paints an interesting picture. Over the past decade, the gold ETFs generated fairly steady, respectable returns. However, an investment in a fund tracking the S&P 500 was clearly the superior option. Perhaps more intriguing is the pronounced growth the gold ETFs saw since 2020.

IAU Chart

IAU data by YCharts

The chart above shows an initial drop in the S&P 500 fund during the early portion of 2020 — coinciding with the start of the COVID-19 pandemic. And while the stock market has clearly done well over the last few years, the returns were far less consistent than those of the gold ETFs. This dynamic can be seen in the S&P 500 fund’s extended gain from 2020 to 2021, followed by a precipitous decline in 2022. While the gold ETFs had similar movements, they were far less dramatic than that of the broader markets. That stability is appealing to some investors.

Different than gold, but worth a look

I see the spot Bitcoin ETFs as a similar mechanism to the gold ETFs. However, I’d argue that Bitcoin is far more speculative than gold and therefore ETFs tracking it could experience more dramatic ebbs and flows.

Moreover, gold ETFs have been around for a long time and have many years of historical trading data. While past performance does not guarantee future results, it’s at least worth analyzing historical trends to get a sense of where certain funds and assets could be headed. Spot Bitcoin ETFs are extremely new, and the jury is still out on whether these products will provide investors with steady returns over a long time horizon.

I think crypto will eventually become more mainstream, with Bitcoin and other tokens being increasingly accepted as a form of payment. Should this be the case, it’s possible that crypto will garner more interest from a broader base of investors.

Although gold and Bitcoin carry very different investment prospects, the overlapping feature of each asset having a limited supply and being viewed as a safe haven during turbulent economic times could make an investment in these Bitcoin spot ETFs an interesting option for those looking to broaden their portfolio.

Adam Spatacco has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.



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