Bitcoin replacing Gold as hedge against inflation, data shows

Bitcoin, the world's largest cryptocurrency is replacing gold as a hedge against inflation, thus fueling the recent rally, JPMogran said in a note. The launch of Bitcoin Strategy ETF, which became the fastest ETF to top $1 billion in assets under management (AUM), has stirred the crypto world. It has also brought the spotlight on Gold ETFs and their downward spiral over the past six months.

Investment in gold ETF has dipped by over $40.8 billion during the period. Furthermore, some of the best-performing gold ETFs have lost up to 6 percent in annual return on investment (ATI).

As per the data from gold.org, gold-back ETFs have seen net outflows of approximately $830 million in September alone. While most of the outflows were witnessed in America and Europe, Asia registered $135 in inflows.

As per ETF Database, SPDR Gold Shares ETF, iShares Gold Trust, and SPDR Gold MiniShares Trust have declined by 6 percent so far this year. Ranked 9 in terms of total AUM, ProShares Ultra Gold is down 15 percent YTD.

In contrast, Bitcoin-related products have witnessed a consistent rise in inflows across all markets. For example, during the week of October 15, Bitcoin saw inflows of $69.6 million. Bitcoin-backed products received $225 million, the most in the last 7 months. The total Bitcoin assets under management reached $72.32 billion.

JP Morgan’s note further states, “There are tentative signs the previous shift away from gold into Bitcoin seen during most of Q4 2020 and the beginning of 2021 has started re-emerging in recent weeks.”

In terms of Return of Investment (ROI), Bitcoin has seen a 90 percent rise this year, compared to a 7 percent fall for gold in yearly ROI. Ethereum has offered an even better ROI at 786.8 percent.

Reports suggest Gold ETF investors have been gripped by fear of high-interest rates and inflation and resorting to panic selling. They are reportedly investing in Bitcoin and crypto byproducts such as ProShares Bitcoin ETF, launched on October 18. These factors have led to a rise in Bitcoin’s ROI as its prices have surged to $67,000 on Wednesday.

“The recent decision by the SEC to allow a futures-based ETF in the United States could prompt further significant inflows in the coming weeks, as US investors begin to add positions,” CoinShares said.