Before the Bitcoin ETF: What Happened to the Gold Price When the First ETF Came to Market?

This decision will be groundbreaking. More than a dozen financial services companies have filed applications for Bitcoin spot ETFs with the U.S. Securities and Exchange Commission (SEC). Markets are reacting nervously as they await the verdict in the coming days. Bitcoin’s already volatile price is experiencing another rollercoaster ride.

What happens if the applications go through? What if the mother of all cryptocurrencies suddenly becomes (indirectly) tradable on the largest exchanges in the world? The example of gold could provide an indication of this.

ETFs have several advantages. One of these is that they allow easy exchange of goods whose acquisition, storage, management and resale pose certain obstacles. Instead of laboriously buying shares in sustainable companies, Tobias Bünzli from Dübendorf can invest in a sustainability ETF with just a few mouse clicks. The ETF provider is responsible for compiling and managing the various shares and is of course paid for this. Instead of buying a gold bar from a dealer, dragging it home and burying it under the oak tree, Heidi Gugus can buy certificates for a gold spot ETF on her PC. But it is not only Mr Bünzli and Ms Gugus who benefit from these simplifications. ETFs are also interesting for large investors, financial service providers and pension institutions.

In some (few) countries, with Switzerland playing a pioneering role, there are already Bitcoin ETFs on the market. In the world’s most important market, the US, all applications for this have so far been rejected. This could now change. If the SEC approves the applications, Bitcoin trading will be made possible with new sources of funds. Huge sources of money. It’s billions. Estimates range from 10 to 25 billion in the first year after the ETF.

What will cause this?

The range of short-term forecasts is wide and colorful – in other words, the experts completely disagree about what will happen in the days and weeks that follow. There is more agreement about the long-term consequences: a price increase is expected. Because: The supply of Bitcoins remains the same. Demand, on the other hand, will increase.

You should know that ETF providers are required to actually purchase Bitcoins in the same amount for each investment in their ETF. The number of Bitcoins is limited to 21 million, of which there are currently less than two million on the market. Bottlenecks in supply in combination with increasing demand drive the price up. The example of gold shows the effects this can have.

The first gold ETF was approved in 2003 in Australia, an insignificant market for global trading. A year later, on November 18, 2004, the United States followed suit. The gold price at the time was $445 per ounce (not to be confused with the oft-quoted troy ounce).

In the days, weeks and months following the ETF’s launch, the price fluctuated between $450 and $411, increasing gold price volatility. Ten months later, however, the price broke out and began a rally that, apart from some corrections, had only one direction for six years: up.

In September 2011, the gold price reached a high of $1,920, which it would not reach for almost a decade. The price had more than quadrupled within six years, even though about 2,500 tons of gold were mined annually between 2004 and 2011.

Bitcoins will also be mined in the coming years, but the rate will slow down. In the spring, as every four years, it is halved. 93.3 percent of the 21 million available Bitcoins have already been mined. For gold, this percentage is believed to be around 80 percent.

Of course, the examples of gold and Bitcoin cannot be compared one to one, even though the mother of all cryptocurrencies is repeatedly called “digital gold.” The designated Bitcoin spot ETFs certainly reduce barriers to entry. The coming years will show to what extent this will affect demand.