The first cryptocurrency, Bitcoin, gold, will be launched in Europe

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The first exchange-traded product that combines gold and bitcoin in one fund is set to launch on Wednesday.

The fund will combine a store of value from thousands of years ago and an upstart security that some have described as the “new digital gold” — even if bitcoin’s drop in recent months has tarnished a reputation it may have had as a safe haven in turbulent or inflationary times. .

Charlie Morris, chief investment officer at ByteTree Asset Management, which is behind the 21Shares ByteTree Bold index, said due to its listing on the SIX Swiss Exchange with stock ticker BOLD. The German list is expected to follow at a later time.

While both gold ETPs and spot Bitcoin ETPs are both widely available independently – in continental Europe at least – Morris claimed that ByteTree’s active rebalancing strategy improved returns by 7-8 percentage points per year in backtesting.

The fund will rebalance monthly based on 360-day historical volatility, with less volatile assets having a higher weighting in an effort to maximize risk-weighted returns. In fact, this means that gold tends to dominate the portfolio, with a weighting of between 70 and 90 percent in backtesting going back to 2016.

“It amazed me that bitcoin and gold have always been counter-cyclical. Until 2015, Morris, head of absolute return at HSBC, where he managed more than $3 billion said:

With the traditional balanced portfolio of 60 percent stocks, 40 percent of bonds struggling this year as both asset classes sold simultaneously, Morris said “60/40 runs in a deflationary situation. In an inflationary situation, BOLD is 60/40, meaning that Balance risky assets with risk free assets.

Morris claimed that in back-testing, ETP has been less volatile than eight of the 10 largest US stocks over the past five years, defeated only by Berkshire Hathaway and Johnson & Johnson.

Going back to 2014, its biggest loss over the calendar year was 12.7 percent in 2018, as bitcoin tumbled 73.8 percent.

It would have returned 363 percent cumulatively over the full 2014-21 period, compared to 3,816 percent for bitcoin, 58 percent for gold, 134 percent for the S&P 500 stock index and 82 percent for US Treasurys. Inflation guarantees.

Line chart of Reestablished Returns vs. Equity Showing BOLD Claims

The annual fee will be 1.49 percent, high for an ETP in general but not particularly so for a crypto product. Morris said costs have risen due to the difficulty of finding a capable and willing custodian to handle both gold and bitcoin. ByteTree ended up splitting the custody between JPMorgan (for gold) and copper (bitcoin).

“Never before in history has an ETP ever had two independent guards,” Morris said. “Nobody from the old world has any idea what to do with bitcoin.”

The wallet is reminiscent of the one described by Ray Dalio, founder of hedge fund group Bridgewater Associates, when asked if he would pick dollars, gold or bitcoin to put under his bed on a rainy day. I will take the gold. . . He replied, I’d like to sprinkle a little bitcoin into this mix as well.

Some believe that BOLD will have broad market appeal.

“Investors often think of bitcoin as an alternative investment to gold and other commodities, so having a fund that owns both is compelling,” said Todd Rosenbluth, head of research at ETF Trends.

He believed that retail investors could benefit from having their weights dynamically readjusted automatically, without having to do it themselves.

However, not everyone was convinced of the fund’s merits.

The main question is why a person was investing in these assets, said Kenneth Lamont, senior fund analyst for passive strategies at Morningstar.

“In terms of gold, you can say it is volatile but it is usually volatile when you want it. You want it to go up in times of crisis,” Lamont said.

“But does anyone think that gold will rise indefinitely? Probably not. It’s an asset that you keep in your wallet as a heft, a downside protection. It doesn’t pay out any dividends, much like Bitcoin. You don’t hold it. for its lack of fluctuations through time.”

On the ledger cryptocurrency side, Lamont said, “If you don’t want bitcoin to fluctuate, you probably shouldn’t be involved in bitcoin. In a sense, you’re buying it because of its volatility.

“With these asset classes, volatility is not necessarily the enemy,” he said, adding, “I am not sure this is a reasonable approach.”

Lamont also questioned BOLD’s viability.

Ultimately, these niche funds tend not to survive. It’s probably too complicated and obviously the fees are going to be a big part of that.

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