Bitcoin’s Relationship With Gold Is More Complicated Than It Looks

Earlier this week, JPMorgan published a global markets strategy note that points out that money has flowed out of gold and into bitcoin since October, and predicts that this trend will continue over the medium to longer term.

The easy conclusion is that investors are finally understanding that bitcoin is a superior future store of value to gold, and are rotating out of one and into the other.

I’m not convinced that’s what we’re seeing. I agree with the analysts, though, that inflows into bitcoin will continue to increase, but not because investors are changing their minds. There’s something else going on.

In and out

The main gold ETFs are losing funds – that much is true. SPDR Gold Shares (GLD) and iShares Gold Trust (IAU) have seen outflows of over $4.4 billion in the past month alone, according to FactSet. The Grayscale Bitcoin Trust, however, which trades under the symbol GBTC and is managed by Grayscale (owned by DCG, also parent of CoinDesk), has seen inflows of over $1 billion in the same period, according to the latest 8-K filings.

But the two trends are not necessarily correlated.

Gold fund outflows are not that unusual, as the below chart shows.


Net weekly inflows and AUM for SPDR Gold Shares (GLD)- Left axis: AUM $m, right axis: inflows $m)
Source: FactSet

What’s more, the latest movements come after a phenomenally successful few months – since the beginning of 2020, GLD and IAU saw inflows of over $25 billion, marking the strongest year for inflows over the past decade. Even with the latest outflows, it has been a very good year for gold funds.

The gold price has responded, delivering a 35% performance between Jan. 1 and its peak in August. What we could be seeing is a simple rebalancing as investors lock in profits to reinvest elsewhere.

Add to that a change in risk-off sentiment, as investors see less need for “safe haven” investments given positive vaccine news and the potential for strong growth next year, not to mention confidence that the…

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