NEW YORK: Investors are no longer choosing between gold and bitcoin as hedges against fiscal anxiety. They’re buying both.
Exchange-traded funds (ETFs) tracking the assets attracted a record US$7bil over the past five trading days, according to data compiled by Bloomberg, putting some of the biggest gold and bitcoin vehicles alongside the stock market giants at the top of the ETF flow rankings.
Nearly US$3.4bil poured into the State Street Investment Management’s SPDR Gold Share (GLD), while BlackRock Inc’s iShares Bitcoin Trust ETF (IBIT) took in US$1.5bil.
Both cracked the top 10 US ETFs by inflows for the week, with GLD trailing only a handful of funds, including the Vanguard S&P 500 ETF (VOO).
The simultaneous rush is notable after periods when gold’s haven appeal strengthened while bitcoin struggled to make the same case. Now the two versions of the scarcity trade are moving together again, propelled by renewed anxiety over US borrowing, the dollar and efforts to contain long-term yields.
The proximate catalyst came from Treasury Secretary Scott Bessent’s plan to double long-dated Treasury buybacks.
The announcement initially pushed yields and the dollar lower while gold and bitcoin jumped, giving fresh ammunition to investors looking for assets whose supply sits beyond the government’s reach.
“It appears that the 40-year era of declining interest rates has come to an end, exposing governments to mounting debt-servicing costs as sovereign debt levels reach unprecedented highs,” Gautam Chhugani, senior analyst of global digital assets at Bernstein, wrote in a note. “Investors will potentially benefit from owning scarce assets such as bitcoin that cannot be easily created/diluted.”
Those moves revived the phenomenon known as the debasement trade: the idea that mounting fiscal strains and easier financial conditions strengthen the case for scarce assets outside the government monetary system.
Precious metals like gold are benefitting from their traditional haven status, while cryptocurrencies, especially bitcoin, with its fixed supply of 21 million coins, are gaining on their purported function as a refuge from the impacts of government policy.
“This is very important for bitcoin long-term because this is what the narrative should be – a debasement-resistant asset,” said Eric Balchunas, senior ETF analyst at Bloomberg Intelligence.
“Now we are back to the core story of bitcoin and it’s fundamental case. This is what bitcoin is born to do. This is reassuring to the bitcoin faithful.”
Even billionaire Ray Dalio said investors should reduce their bond holdings and put as much as 15% of their money in gold and “a bit” into bitcoin to hedge against the risk of a US debt crisis.
While the US$155bil GLD is seeing negative net flows year-to-date to the tune of US$2.8bil, the US$60bil IBIT has held mostly steady, with US$830mil of inflows in the same period.
“It’s not so much the inflows themselves as the momentum behind the inflows that is interesting, with demand not just positive but accelerating,” said Noelle Acheson, author of the Crypto Is Macro Now newsletter. — Bloomberg
