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Bitcoin ETFs: When Moon? Not Soon, Says Gold

Gold's warning from history. And BTC's too...
 
So BITCOIN ETFs finally got approved by the SEC, writes Adrian Ash at BullionVault, with chief regulator Gary Gensler penning a press release so grudging, you'd think the applicants had just driven over his dog.
 
Still, you remember the old Wall Street saying, right?
 
"Buy the rumor, sell the news." 
 
It worked a charm for gold traders back in the mid-1970s. The old chestnut also worked for Bitcoin fans in 2017 – just like, well, some people said. But again, only if the hodlers sold the hype rather than buying it, before prepping for the moon once again at much lower prices.
 
Two-thirds lower, in fact, inside 7 weeks.
 
Gold didn't quite make that plunge in 1975. But like Bitcoin over the past decade or so, its volatility made it the Seventies' hottest asset bar none (well, hottest besides silver in the Hunt brothers' corner).
 
In 1974 alone gold had doubled on a tide of hope and hype, long before gold-backed ETFs like the SPDR product (NYSEArca: GLD) were even a twinkle in the eye of mining or finance-industry executives.
 
Chart of the US Dollar gold price, 1974. Source: LBMA
 
Runaway inflation sure helped. So did the Federal Reserve's timid response.
 
More urgently for gold in 1974, and previewing the kind of hype just seen around Bitcoin ETFs from ARKB to BITB and IBIT and the rest, Washington was finally set to end the 4-decade ban on US citizens owning and trading bullion coins or bars of the yellow metal. Most urgent of all in the 1970s, that meant gold futures trading could get started on US financial exchanges as well.
 
"The leverage available is large," said the New York Times just before 31st December, when 4 exchanges were going to launch gold contracts to an eager US public.
 
"For example, the New York Mercantile Exchange, which offers the smallest contract, has a minimum margin requirement of only $500 for a 32‐ounce contract [then] worth perhaps $6,400."
 
Derivatives brokers rushed to get ready, albeit limiting the "speculative debut of gold futures" to what the world would now call 'high net worth' punters. To sate the rest of the lumpeninvestoriat, banks and dealers and retailers all rushed to stockpile gold coins and small bars ahead of the big day.
 
Because yes! It's finally happening!! Here we go!!!
 
But no. Gold actually fell as 1975 began. By the summer of 1976, it had almost halved in price, down from near-$200 per Troy ounce towards $100, back where it had ended 1973.
 
Chart of the US Dollar gold price, 1976. Source: LBMA
 
Fast forward 4 decades, and the hottest number-go-up of the 2010s was all set for a moonshot too.
 
Again, the idea of leveraged betting lit the fuse. The launch of Bitcoin futures contracts – announced that August by the Chicago Board Options Exchange – would surely send the crypto-currency higher than anyone dare dream. Which they did on their advent, only to see the thing crash almost the moment they became flesh.
 
Ahead of the CBOE launch, Bitcoin in 2017 mooned a lot faster than gold had in 1975. Maybe cos it's weightless? Maybe cos the rocket-fuel of cheap money was now fired through the boosters of social media hype and shysters?
 
Either way, the "future of money" leapt 19-fold in 2017 as crypto's own "big day" drew near. The start of the XBT futures contract meant, to quote one true believer, that "Institutional corporate money is now about to enter the land of Bitcoin!" Cue lots of money to chase the thing higher in advance.
 
Bitcoin rose 56% inside one week that December, fast out-running anything gold has ever achieved as the CBOE's launch-day for legally approved leveraged BTC trading approached.
 
But then, when the rumor became a fact?
 
Chart of Bitcoin price in US Dollars, 2017-2018. Source: St.Louis Fed via Coinbase
 
After BTC USD surged 20 times in price ahead of the CBOE futures launch, it really wasn't that hard to guess what came next. Any idiot could do it ( and did).
 
But here in 2024, Bitcoin's ETF approvals are playing out differently so far. Which makes guessing what comes next much harder.
 
Oh sure, the promoters got busy. After all, they've had 11 years of practice since the least sympathetic characters in The Social Network were first rebuked by US regulators at the SEC after asking it to sign off exchange-traded products backed by holding BTC.
 
And sure, the true believers on social media has been working overtime too. Mostly summed up as "HERE WE GO!!!"...
 
...or "Mega #btc explosion coming"...
 
...or adding a little variety by claiming that 'China' is desperate to get into BTC ETFs too, creating such wonderful word soup as "Full nation state adoption game theory in effect."
 
But this time, instead of mooning ahead of the fact, Bitcoin has struggled to extend the up-move it started in late-2022. Finally bottoming 75% beneath its new Covid stimmy-check peak of 12 months before, Bitcoin has gone on to reach 21-month highs. Yet take-off day this week – when the SEC finally admitted what its own errant tweet had said a day earlier, and announcing the move several hours after US brokerages began listing the 11 new Bitcoin ETF products on their retail-investor platforms – found BTC rising barely 1.0% higher out in the wild (the kind of move it's beaten, up or down, on nearly 2-in-3 of all days across the last decade) while the now-live ETFs actually dropped in price.
 
Still, this all "demonstrates Bitcoin is winning". Or so 2024's hodlers want to believe. "The existing financial system is being pulled into its black hole.
 
"To. the. f**king. moon."
 
But Bitcoin didn't moon in advance of the new US products, and it hasn't (so far) mooned on their launch either. What's more, Bitcoin ETFs in themselves aren't new. Canada got a bunch starting in November 2021, with the Purpose Bitcoin CAD ETF (TSE: BTCC.B) followed by Fidelity's product (TSE:FBTC). It carried (and still carries) an expense ratio of 0.95% for keeping its crypto stacked in Fidelity's own cold storage in-house. It turned $10,000 invested into $3,000 within 12 months, recovering to $8,230 today with around US$140m of assets.
 
As for Bitcoin futures – now dominated by the all-conquering CME derivatives exchange – the CBOE last November announced it would launch new contracts this Thursday, 11 January 2024. Which seems a happy coincidence. And the CBOE's Bitcoin contracts could do with a fair wind. Because in March 2019 – and with "money of the future" buying only 1/4 as many fiat Dollars as it did at the Christmas 2017 top – the CBOE had what CNBC charitably called "a change of heart", ending its first foray into BTC futures and letting the last of them expire that June.
 
So maybe another history lesson from gold might apply. Because gold ETFs also marked a much-hyped step in that asset's long-term path upwards. And "when the first gold ETF became available in March 2003, it was a good time to start marketing gold as it had risen steadily from $250 to $350," as the category's true pioneer Graham Tuckwell – now chairman of ETFS Capital – noted in 2021, looking back almost 2 decades.
 
Anticipation of gold ETFs was, of course, much smaller 2 decades ago than the hope and hype we're seeing around US Bitcoin products today. Back then, ETFs idea were still very new as an idea and unproven for sucking in retail or institutional dollars.
 
So while gold set a 7-year high one month before Tuckwell's GOLD ETF launched for Australian investors – and while it then decisively broke above its 20-year ceiling around $400 when the big GLD gold ETF launched in November 2004 for US investors – that rise looked (and still looks) much more about gold's underlying uptrend than about any product-specific mooning.
 
Maybe that's where Bitcoin now sits, somewhere on a long-term uptrend that could keep on rising. But the anticipation and anticlimax of BTC ETFs to date suggest that maybe, just maybe, the days of moon-shots and laser eyes and even of sudden 70% plunges or 90% crashes are over. Maybe.
 
If so, that wouldn't mean BTC can't badly hurt your portfolio anymore. Physical bullion, after all, lost 25% inside 3 months in the 2013 gold price crash fuelled by (you guessed it) a rush for the exits by gold ETF shareholders. But it might mean that a slower, less volatile and moon-free Bitcoin does at last become more widely acknowledged as an investable asset.
 
Beyond that, Bitcoin still isn't money today. Indeed, the long-awaited arrival of US ETFs looks like the final nail in that coffin. And nor is Bitcoin gold. Getting SEC approval for ETF investment funds doesn't change any of that.
 

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver, platinum and palladium market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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