Bitcoin ETF vs Gold ETF: 4 Key Differences You Need to Know

Key Takeaways

• Bitcoin ETFs and Gold ETFs differ a lot when it comes to their underlying asset characteristics. While Bitcoin ETFs allow investors to interact with crypto world, Gold ETFs are a gateway to gain exposure to physical gold asset.
• Bitcoin ETFs and Gold ETFs majorly differ when it comes to the market volatility of their underlying assets. Bitcoin is known to be a more volatile asset when compared to traditional gold.
• Choosing which ETF to invest in, between Bitcoin ETFs and Gold ETFs, depend on your risk appetite and investment preferences.

Bitcoin and Gold emerged as the two most popular assets in the industry, owing to their properties like scarcity and rarity. These unique assets combined with advanced investment products like ETFs, provide new ways of investing and making returns. While Bitcoin ETFs have Bitcoin, also known as digital gold, as its underlying asset, Gold ETFs’ market performance relies on the market price of Gold.
Despite both of them being exchange-traded funds, Bitcoin ETF and Gold ETF share multiple clear differences. The major difference between Bitcoin ETF and Gold ETF is Bitcoin ETF offers high liquidity compared to the Gold ETFs and its underlying digital currency, Bitcoin is more volatile than gold.
If you are wondering what are the other differences between Bitcoin ETF and Gold ETF, to know which one is the best option to invest, this is the article for you. Let us look at the key differences between Bitcoin ETF and Gold ETF in detail, in the present article.

What is a Bitcoin ETF?

Bitcoin is the first-ever cryptocurrency to be developed and even after 15 years, it remains the largest cryptocurrency to exist in the market. With its limited supply and an increase in its value over years, Bitcoin became popular as digital gold.
The digital nature of Bitcoin makes it mandatory to set up a wallet and hold manage its private keys and public keys to buy and store Bitcoins. Moreover, all of this works in a decentralized manner and is complicated for new investors to enter the market.
To make the process of investment into Bitcoin, its ETF products have emerged. Bitcoin ETFs are investment instruments that represent the price of Bitcoin but are traded on traditional, regulated stock markets.
There’s no need to interact with complex crypto wallets and expose online frauds and thefts on risky exchange platforms. Similar to how you buy stocks of a company, you can buy a portion of Bitcoin ETF and benefit from its price rises. Thus, Bitcoin ETFs offer an easy way to invest and leverage the price movements of Bitcoin without directly interacting with Bitcoins.
Bitcoin ETFs are majorly two types – Bitcoin Spot ETFs and Bitcoin Futures ETFs. Bitcoin spot ETFs directly represent the Bitcoin Price and current market trends. On the other hand, Bitcoin futures ETFs use Bitcoin futures contracts as their underlying assets.

What is a Gold ETF?

Gold is the ancient yet most valuable traditional financial asset. Buying and holding gold over a long period will always be profitable, which makes it one of the best investments. However, buying and holding physical gold involves risk and selling it is also a risky process to realize profits later. That is where Gold ETFs come into the picture!
Gold exchange-traded funds or Gold ETFs help investors buy a portion of gold without physically owning gold. The advent of Gold ETFs came as a relief to the investors who struggled to buy and store gold in safe places. Similar to how you buy shares of a company and benefit when their value increases, you can buy a portion of gold through Gold ETF and benefit when its price increases.
There are two major types of Gold ETFs – Physical Gold ETFs and Synthetic Gold ETFs. Physical gold ETFs allow investors to buy shares of physical gold that is stored in vaults. These ETFs track gold prices accurately, in real time. Synthetic gold ETFs are like Bitcoin futures ETFs because they represent gold futures contracts.

Bitcoin ETF vs Gold ETF: 4 Key Differences

1. The Underlying Asset

The primary difference between Bitcoin ETF and Gold ETF is their underlying asset. While Bitcoin is a digital currency that came into existence in 2009, gold existed for a long time and is one of the ancient assets.
Even though Bitcoin is the largest cryptocurrency with huge future growth potential, traditional investors choose gold over Bitcoin. This is because gold is thousands of years old and is a more familiar asset than Bitcoin. While Bitcoin is also expanding, most of the investors do not yet understand the mechanics and functionalities of it.

2. Historical Market Performance

The first Bitcoin ETF was launched by ProShares ETF provider company on October 19, 2021 under the ticker symbol BITO. It started trading with an initial price of around $40 and is now trading at $24.61 as of Feb, 2024.
However, it took around eight years for the Bitcoin ETF to launch after The Winklevoss Brothers first filed an application. Bitcoin spot ETFs also took several months of time to get approval from the US SEC and finally got approval on Jan 11, 2024.
Coming to the gold ETFs, the first Gold ETF was launched in 2003. However, the biggest gold ETF that exists today is SPDR Gold Shares, launched in 2004. The first itself witnessed incredible demand, crashing major exchange platforms due to high trading volumes.
The first month itself saw huge inflows into Bitcoin spot ETFs, boosting the price of Bitcoin. According to SoSoValue data analytics platform, the cumulative total net inflows of all Bitcoin spot ETFs crossed the $5 billion mark, as of Feb 17, 2024.
According to Coinbase’s weekly report, the net inflows of Bitcoin spot ETFs surpassed the net inflows of gold ETFs in their first month. While GLD, gold ETF accumulated around $1.88 billion, Bitcoin spot ETFs gained around $4 billion in the first month of trading.

3. Accessibility and Liquidity

Coming to the accessibility of Bitcoin ETFs and Gold ETFs, there isn’t much difference between them. While Bitcoin ETFs make Bitcoin investments more accessible to investors without directly involving Bitcoin, Gold ETFs improve accessibility by eliminating the need to store physical gold.
There is also no significant difference between the liquidity of Bitcoin ETFs and Gold ETFs. Both markets maintain liquidity, enabling users to trade with ease. However, if we look close, Bitcoin ETFs could be more liquid as they maintain more trading volume. With the recent statistics of net inflows of Bitcoin spot ETFs, it has become evident that Bitcoin ETFs are highly liquid assets.

4. Scarcity and Market Volatility

The underlying assets of Bitcoin ETFs and Gold ETFs, Bitcoin and Gold, both are scarce. While no one knows how much gold exists in the world and how much is left to be mined, that is not the case with Bitcoin. Bitcoin has a limited supply of 21 million and there is no way of gaining more Bitcoin. This is one of the major reasons why Bitcoin’s price has been increasing over the years.
But, there is a clear difference between Bitcoin and Gold when it comes to their volatility. Bitcoin, being a relatively new asset than gold, is more volatile. On the other hand, gold is stable with no major price fluctuations. The same thing can be applied to their exchange-traded funds as well. Thus, Bitcoin ETFs are more volatile and riskier than Gold ETFs.

Conclusion: Which One to Invest In?

The present article gives an insight into Bitcoin ETFs vs Gold ETFs and explains major differences between them. The underlying asset, market performance, and the factors that influence their market performance, accessibility, volatility, scarcity, are some of the differences between them.
If you are wondering which one to invest in, it completely depends on your risk appetite and investment profile. Stable market performance with constant growth is your priority, Gold ETFs are the best option for you.
But, if high liquidity is your priority to trade on the market with the potential to record growth in the future, Bitcoin ETFs are the right choice for you. Nonetheless, allocating a small portion of your portfolio to both Bitcoin ETF and Gold ETF helps you diversify your investment portfolio.