Don't Fall for the Bitcoin vs. Gold Trap

This topic caught our attention due to a chart circulating on social media this past week, illustrating a notable shift:

The gist is that outflows from Gold ETFs are increasing, while inflows into Bitcoin ETFs are on the rise. It was a big “look at this!” moment for the BTC vs. Gold crowd. Bitcoin appears to be eating gold’s lunch!

But in reality, a deeper look reveals a more nuanced picture…

Understanding The Context:

• For starters, this is cherry-picked data. The chart above only shows 2024. As we all know, bitcoin ETFs launched last month so, of course, inflows are pumping. Comparatively, Gold ETF flows have been on a decline for a little over three years. This trend long predates the launch of the new Bitcoin ETFs.

• There’s a huge geographic disparity going on here. North American Gold ETF inflows are actually on the rise. It just so happens that most Gold ETF outflows are occurring in Europe, where Bitcoin ETFs are notably absent.

• Meanwhile, Central bank gold buying is still humming at breakneck pace. 2023 annual net purchases of 1,037 tonnes almost matched the 2022 record, falling just 45 tonnes short.

The Bigger Picture

Ultimately, bitcoin's market cap is still a tiny fraction of gold's. Let's be real.

In other words, we have a long way to go even start comparing the two in terms of investor preference and global recognition.

But back to the original chart, bitcoin should never be outright replacing gold anyway. As we’ve written about extensively before, investors should consider both gold and bitcoin for a well-rounded portfolio. Not just one or the other.

I get it – we all want bitcoin to succeed as the hardest, most scarce asset on the planet. There’s also gold bugs out there like Peter Schiff that sh*t on bitcoin all day, every day, and who only point to gold as the solution.

It sure is enjoyable to watch the naysayers look like idiots.

But in a rational view, both gold and bitcoin should coexist.

• 👍️ For the gold bugs… dismissing bitcoin might mean missing out on substantial long-term returns.

• 👍️ For the bitcoin maxi’s… you ought to recognize gold's value in providing stability during market volatility. For example, a little more exposure to gold would have stabilized those ~80% drops in BTC last cycle.

At the end of the day, the battle isn’t bitcoin vs gold… It’s scarce, unprintable money vs an Orwellian future. This is the only chart we should be focused on:

Speaking of Gold…

The best investors buy what everyone hates and sell the stuff everyone loves. And, at the moment, everyone loves tech while everyone hates gold (gold just hit all-time highs and the mining stocks haven’t even flinched).

But the great Stanley Druckenmiller might be giving us some signal here. This week, it was reported that he is buying Newmont (NEM) and Barrick Gold (GLD) and selling some of his tech positions.

If Druckenmiller is gradually de-risking out of tech… and accumulating exposure to unfavorable gold stocks… maybe we should start paying attention.