To gauge impact of bitcoin spot ETF, analysts look to gold

With optimism around eventual spot bitcoin ETF approval ramping up, the exact impact such a product will have is hard to pinpoint.

But the impact gold ETFs had on the products’ underlying asset could foreshadow the effect of yet-to-be-seen bitcoin fund launches, some industry executives say.

Bitcoin ETFs could see $14.4 billion of inflows in their first year of trading, according to a Tuesday report by Galaxy Digital research associate Charles Yu. The price of bitcoin could increase by 74% in the 12 months following approval, he added.

Yu’s flow estimate comes from an assumption that BTC is adopted by 10% of total assets across three wealth management channels, with an average allocation of 1%. Assets managed by brokers-dealers, banks and registered investment advisers (RIAs) total roughly $48 trillion, according to the report.

The Galaxy research associate then looked to the gold market as a point of comparison to determine the impact of bitcoin ETFs on BTC’s price.

Read more: AllianceBernstein calls bitcoin a ‘safe haven asset,’ more attractive than gold

The price of gold has roughly quadrupled since State Street Global Advisors launched the SPDR Gold Trust (GLD) in November 2004.

People ask me: What happened when the first gold ETF launched in the US? pic.twitter.com/wJSchhWHvy

— Matt Hougan (@Matt_Hougan) October 23, 2023

Gold ETFs held $198bn in assets under management, as of Sept. 30 — representing about 1.7% of the gold supply, according to World Gold Council data. The value of bitcoin held in investment products amounted to $21.7 billion at that time, or roughly 4.3% of total issued supply.

“With gold having an estimated ~24x larger market capitalization and 36% less supply held in investment vehicles compared to bitcoin, we assume a dollar-equivalent amount of fund inflows having a ~8.8x greater impact on bitcoin markets compared to gold markets,” according to Yu.

By applying the year-one estimate of bitcoin ETF inflows into the historical relationship between gold ETF fund flows and the change in gold’s price, Galaxy Digital predicts a 6.2% price jump for BTC in the first month that a US bitcoin fund is offered, he adds.

Bitcoin’s price increase could gradually decline to 3.7% by the last month of the first year, the report states — resulting in a potential 74% rise in those 12 months.

The year-one bitcoin price increase estimate was from its price of $26,920 at the end of September. The BTC price has risen substantially since then, hovering around $34,000 Wednesday morning.

Gabor Gurbacs, director of digital asset strategy at VanEck, noted in a September X post that bitcoin’s market capitalization of roughly $500 billion at that time is about a quarter of what gold’s market cap was in 2004.

“In my view, upon the approval of a US spot bitcoin ETF, bitcoin’s price trajectory could follow gold’s blueprint from 2004 and the years after just much faster,” Gurbacs wrote, noting bitcoin’s “systematic scarcity” via halving schedules.

After estimated year-one inflows of $14.4 billion, Galaxy predicts nearly $27 billion and $39 billion of inflows into bitcoin ETFs in the second and third year, respectively.

Read more: An approved spot bitcoin ETF could be ‘one of the largest launches in history’

Bitwise Chief Investment Officer Matt Hougan said during an August webinar earlier that his firm estimates US spot bitcoin ETFs could $55 billion in net flows in their first five years on the market. He noted at the time that he believes the ETF sector could ultimately reach the level of assets under management seen in gold ETFs.

“ETFs were a game-changer for gold because they brought new investors and new demand into a market with relatively fixed supply,” Hougan said in a Tuesday X post. “Sound familiar?”

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