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IRA Financial Blog

Bitcoin ETF: What We Can Learn From Gold – Episode 317

Adam Talks

In this episode of Adam Talks, IRA Financial’s Adam Bergman Esq. discusses the recently-approved Bitcoin Strategy ETF, and how it compares to the Gold ETF.

Back in October, the first Bitcoin ETF was launched. The Gold ETF started back in 2004. Adam wondered what can we learn from that moving forward. The store of value and the hedge against inflation between the two are very similar. Plus, Bitcoin is considered “digital gold.” Will the prince increase of the Gold ETF correlate to that of the Bitcoin ETF? Listen, as Adam Bergman explains in this podcast. Of course, one cannot make a formal conclusion simply because how new the ETF is.

What is an ETF?

Essentially, an exchange traded fund, or ETF, tracks a specific asset on a stock exchange. Instead of buying an individual asset, such as a stock or even Bitcoin, you invest in a multitude of assets, without actually owning that asset. For example, you can invest in a Stock ETF that focuses on one sector. Instead of buying individual shares of different companies, you can invest in the one ETF that holds those particular stocks.

Unlike mutual funds, which are traded once per day after the market closes, ETFs are traded throughout the day. An ETF can give you exposure to a new asset class, while giving you the ability to buy and sell as you wish. Generally, it’s more cost effective to invest in ETFs than it is to invest in the actual assets themselves.

The Gold ETF

The first Gold ETF was started on November 18, 2004. Back then, gold was worth approximately $636 per ounce. As of November 15, 2021, gold is valued at $1,860 per ounce.

Gold ETFs can be backed by physical gold, which is stored in a vault. However, others may invest in futures contracts. Note that the Bitcoin ETF can only be invested in futures. Although Gold ETFs have added volatility to the market, they’ve also brought in more liquidity. Simply put, it’s much easier to buy and sell an ETF than it is to move from gold to other assets.

Through September of last year, there were 83 active Gold ETFs. They totaled almost 4,000 tons and had a total assets under management of around $235 billion – both record values.

The Bitcoin ETF

The first ETF to hit the market is ProShares Bitcoin Strategy ETF. As mentioned earlier, this tracks Bitcoin futures, and does not hold the Bitcoin itself. The ETF “mimics price movements of derivatives” and not the price of the actual crypto. The share price will increase as future contract prices and vice versa.

The Bitcoin ETF looks to combine two very attractive ideas – the actual ETF and the popular new asset class. Many people haven’t dipped into the crypto market because they simply don’t know how to. However, if you know how to buy and sell stocks, you can get that exposure to Bitcoin. Plus, you can trade them right from your current brokerage account. No need to go out and create an account on a crypto exchange.

The downside is you don’t hold the actual crypto or the keys to it. And, with volatile as the crypto space is, you do take on a greater risk. However, that shouldn’t stop one from at least testing the waters of the new Bitcoin ETF.

What Can We Learn from Gold?

While there is certainly a correlation from gold to Bitcoin, it’s not exactly apples to apples. Gold has been around forever. You can see and touch it. On the other hand, Bitcoin is in its infancy, and most people do not understand it. However, just because you don’t understand something, doesn’t mean you shouldn’t invest in it! Obviously, you should speak with your financial advisor to see if a Bitcoin ETF is right for your particular situation.

Gold is a lot more conservative than crypto, but there has been a lot of growth in the Gold ETF since its inception. Of course, Bitcoin, and cryptocurrencies in general, are on the opposite end of the spectrum. In this digital world we live in, cryptos may be the future. Before long, we’re sure we will start seeing Bitcoin ETFs that are backed by the actual currency, and not just futures.

Unsurprisingly, Bitcoin jumped to record highs on the heels of the ProShares Bitcoin Strategy ETF. Of course, as volatile as Bitcoin is, that didn’t last for long. It has fallen about five percent in the last month. However, Bitcoin continues to prove that it’s here to stay. So why not look into the exciting new ETF?

Thanks for Listening

As always, we appreciate you taking the time out to listen to Adam Talks. You can find older episodes of all of Adam’s podcasts on our podcast page. We look forward to talking with you again soon, and Happy Thanksgiving from Adam and IRA Financial!


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