One of the most common debates currently taking place within the economic sphere is what constitutes the best inflation hedge. You know, because a KitKat Chunky nearly costs more today than a two-bed apartment did this time five years ago.
Old-school investors still argue gold is the best hedge, which traditionally is the ultimate way to protect oneself against a depreciating currency. After all, the shiny metal has been part of almost every human culture throughout history. It’s stood the test of time. Yet its returns since it spiked after the GFC have been lacklustre, to say the least – up only 21% in the last ten years.
The more irreverent investors think there’s a new kid on the block, first name Bit, second name Coin. Is Bitcoin digital gold? Is it a superior store-of-value than the OG king that is gold? The bulls argue that Bitcoin’s (outrageous) outperformance of gold over the last decade highlights its superiority. Then again, amid the highest inflation environment in recent memory, gold is up 3% YTD, while Bitcoin is down 17%. So, what gives?
What About Both?
Well, the good news is that, like a wise politician, we can sit on the fence. Because today a novel exchange-traded product has been launched on the Swiss SIX Stock Exchange which combines Bitcoin and gold. It’s the first combined gold/bitcoin exchange-traded product in the world, and has been developed by crypto ETF provider 21Shares, in partnership with crypto data provider ByteTree Asset Management.
Even the ticker symbol is an amalgamation of the two assets – BOLD. The issuing firms stated the ETP will provide “protection against inflation, giving optimal risk-adjusted exposure to bitcoin and gold”. What is that breakdown? It’s 81.5% gold and 18.5% Bitcoin, and will “rebalance monthly according to each asset’s inverse historical volatility”.
“BOLD seeks to take away the hassle of personally managing the two assets while imposing a disciplined process when it comes to delivering higher risk-adjusted returns”, 21Shares CEO Hany Rashwan said.
Asset Characteristics
It’s an interesting concept. Of course, investors can simply invest in gold and Bitcoin in their desired proportions, but that’s the case with most ETPs. It gives an automated, easy exposure to both assets, and the risk-weighted adjustment is a neat feature. It may also make it easier for certain institutions to gain Bitcoin exposure, as regulatory barriers to the cryptocurrency remain in place for several entities.
Novice investors can rotate into assets outside the traditional stock/bond sphere, both of which have been getting hammered amid the high-inflation environment. Typically negatively correlated, stocks and bonds have both been suffering recently, which has been the case throughout history when inflation soars past manageable levels.
With a large portion of investors still intimidated by Bitcoin, and hesitant to fully embrace its volatile nature, the BOLD ETP is a nice avenue to gain exposure to Bitcoin in a moderate capacity. With its high risk/return profile combined with gold’s more conservative price action, it’s no surprise 21Shares have chosen to launch the product – which amounts to the 30th digital asset ETP that the innovate firm has brought to market.
