Launch of the first combined gold-bitcoin ETF in Europe

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The first exchange-traded product to combine gold and bitcoin in a single fund is set to debut on Wednesday.

The fund will combine a millennial store of value with an upstart security that some have touted as the “new digital gold” – although bitcoin’s fall in recent months has tarnished any reputation it may have had as a safe haven in period of unrest or inflation. .

“We are making bitcoin an acceptable asset to hold and bringing gold into the 21st century,” said Charlie Morris, chief investment officer of ByteTree Asset Management, which is behind the 21Shares ByteTree Bold Index ETP, which is expected to be listed at the SIX Swiss Exchange with the ticker BOLD. A German list should follow later.

While gold ETPs and spot bitcoin ETPs are both widely available independently – at least in continental Europe – Morris claimed that ByteTree’s active rebalancing strategy improved returns by 7 to 8 percentage points per year in backtesting.

The fund will rebalance monthly based on historical 360-day volatility, with the less volatile asset having a higher weighting in an effort to maximize risk-weighted returns. In effect, this means gold tends to dominate the portfolio, with a weighting of between 70-90% in backtesting dating back to 2016.

“I was struck by the fact that bitcoin and gold were always countercyclical. It’s obvious to me that bitcoin has always been correlated to the stock market, or to risky assets in general,” Morris said, until in 2015 head of absolute return at HSBC, where he managed over $3 billion.

With the traditional balanced portfolio of 60% equities and 40% distressed bonds this year, with both asset classes sold simultaneously, Morris said “60/40 works in a deflationary period. In an inflationary environment, BOLD is 60/40, in the sense that it balances a risky asset with a risky asset.

Morris claimed that, in backtesting, the ETP had been less volatile than eight of the 10 largest stocks in the United States over the past five years, beaten only by Berkshire Hathaway and Johnson & Johnson.

Going back to 2014, its biggest calendar year loss would have been 12.7% in 2018, a year when bitcoin fell 73.8%.

It would have earned a cumulative return of 363% over the entire 2014-21 period, compared to 3,816% for bitcoin, 58% for gold, 134% for the S&P 500 stock index and 82% for the hedged US Treasury. inflation. securities.

Line chart of rebased returns versus stocks showing BOLD claims

The annual fee will be 1.49%, which is high for an ETP in general but not particularly for a crypto product. Morris said costs have increased due to the difficulty of finding a capable and willing custodian to handle both physical gold and bitcoin. ByteTree ended up having to share custody between JPMorgan (for gold) and Coinbase (bitcoin).

“Never before in history has an ETP had two independent custodians,” Morris said. “Nobody in the old world has a clue what to do with bitcoin.”

The wallet is reminiscent of the one described by Ray Dalio, founder of hedge fund group Bridgewater Associates, when asked if he would choose dollars, gold or bitcoin to put under his bed for a rainy day. I would take the gold. . . I would like to sprinkle some bitcoin in this mix as well,” he replied.

Some believe that BOLD will have broad market appeal.

“Investors often view bitcoin as an alternative investment to gold and other commodities, so having a fund that will hold both is compelling,” said Todd Rosenbluth, head of research at ETF Trends.

He believed that retail investors could benefit from an automatic and dynamic readjustment of the respective weightings, without having to do it themselves.

However, not everyone was convinced of the merits of the fund.

Kenneth Lamont, senior fund analyst for passive strategies at Morningstar, said the key question is why someone invests in these assets.

“In terms of gold, you can say it’s volatile, but generally it’s volatile when you want it to be. You want it to rise in times of crisis,” Lamont said.

“But does anyone think gold will go up forever? Probably not. It is an asset that you hold in your portfolio as ballast, as downside protection. It pays no dividends, much like bitcoin. You do not retain it for its lack of volatility over time.

Regarding the cryptocurrency side of the ledger, Lamont said, “if you don’t want the volatility of bitcoin, then maybe you shouldn’t be involved in bitcoin. In a sense, you buy it for its volatility.

“With these asset classes, volatility isn’t necessarily the enemy,” he said, adding, “I’m not sure that’s a sensible approach.”

Lamont also doubted BOLD’s potential longevity.

“At the end of the day, these very niche funds don’t tend to survive. They may be too complicated and fees will clearly be a big part of that,” he added.

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