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It’s a scenario playing out with bitcoin: exchange traded funds are broadening access to a specific asset class. Just look at the spot bitcoin ETFs that debuted in the U.S. earlier this year. By the standards of new ETFs, all of these funds have been successful, but for the purposes of this piece, I’ll mention the iShares Bitcoin Trust (IBIT).
As of last Friday, IBIT had $34.33 billion in assets under management, ranking it among the 100 largest US-listed ETFs and making it bigger than scores of ETFs that are years or decades old. Believe it or not, IBIT is nearly 25% bigger than the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD), as just one example.
The success of spot bitcoin ETFs isn’t surprising. Actually, there was a template: gold ETFs. The SPDR Gold Shares (GLD), the original ETF in this category, turns 20 years old on Nov. 18, meaning it’s a good time to review the success of gold in ETF form – success jumpstarted by GLD. Indeed, GLD is a success story. It’s $76.18 billion in assets under management confirm as much.
GLD History Is Meaningful
As was once the case with bitcoin and still is for some market participants, there was a time when gold was viewed by investors as a pain in the neck because accessing the yellow metal was considered complex and expensive.
So the integral elements in the development of GLD were meeting investor demand for accessibility and security – issues that ring true with bitcoin bulls. George Milling-Stanley, chief global strategist at State Street Global Advisors (SSGA), mentioned those points in a piece reflecting on GLD’s two-decade track record of success.
“The new product would have to be as close a proxy as possible for the spot price of gold. It would need to be traded on a regulated stock exchange. And it would have to be 100% secure,” he wrote. “That’s when light bulbs began to go on over our heads. Maybe what we needed was a gold exchange traded fund. I think the many responses that the product needed to trade on a stock exchange convinced us of that.”
Like IBIT and its spot bitcoin ETF peers, GLD leveraged accessibility to quickly shatter even the most bullish of projections. It was a $1 billion after just three days on the market and doubled in size on its fourth day of trading, according to Milling-Stanley.
GLD Brought Gold to the Masses
Following a post-election pullback last week, gold traded at $2,684 per troy ounce at last Friday’s close. That’s not bitcoin expensive, but it’s cost-prohibitive enough that many investors can’t buy many ounces without overloading their portfolios with bullion exposure or paying for adequate storage.
Those issues, among others, were solved by GLD, sparking a revolution when it comes to investing directly in one of the most important commodities.
“With gold prices continuing to hit all-time highs this year, these achievements underscore that GLD continues to deliver what investors wanted all those years ago,” concludes Milling-Stanley. “Putting gold in an ETF wrapper made it easy to access and store gold , reduced the investment cost, and supported liquidity. And investors now understand that gold’s unique characteristics and multiple sources of demand across global economic and business cycles make it a vital part of investment portfolios — during good times and bad."
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