Bitcoin to Become Digital Gold as Investors Seek Safe Haven

The long-anticipated “substitution” of gold by Bitcoin is now underway according to Cathie Wood, CEO of ARK Invest.

This trend is expected to continue as investors can now easily trade Bitcoin through the newly launched spot Bitcoin exchange-traded funds (ETFs). 

Bitcoin Challenging Gold

Relative to gold, Bitcoin has been rising steadily. Wood strongly believes there is now a clear substitution taking place, with investors moving from gold to Bitcoin ETFs.

This is likely to accelerate given the reduced friction in accessing Bitcoin through spot Bitcoin ETFs. Compared to gold, Wood sees Bitcoin establishing itself as a “risk-off” asset in times of banking sector uncertainty.

This fact was clearly established in March 2023 when a regional US bank crisis led to a 40% surge in Bitcoin's price. 

Besides, the US regional bank index has again shown signs of weakness. For Wood, this reasserts Bitcoin's status as a flight to quality and safety during periods of financial instability.

Decoupling from Rates

A Fidelity analysis shows Bitcoin's correlation with gold increased through 2023. This came as Bitcoin decoupled from its prior inverse relationship with interest rates, despite global rates rising over the past year.

The one-year rolling correlation between Bitcoin and gold now sits at a record high of 0.80. This indicates a strengthening relationship as the two assets chart an increasingly aligned course.

Spot Bitcoin ETF Impact

The launch of spot Bitcoin ETFs initially saw Bitcoin prices correct, falling 20% in the days after launch. However, Wood asserts this was an expected "sell the news" reaction.

She noted that 15 million of the 19.5 million Bitcoins in circulation have not moved for over 155 days. This suggests that most holders are taking a long-term outlook.

ARK Invest's Bitcoin ETF

ARK Invest was among ten issuers to launch a spot Bitcoin ETF on January 11, 2023. Their ARK 21Shares Bitcoin ETF held $705.8 million in Bitcoin at the end of last week, making it one of the largest Bitcoin funds behind Grayscale, BlackRock and Fidelity.

The firm, led by Wood, has also been accumulating shares in cryptocurrency exchange Coinbase since February 2022.

ARK Invest ETFs currently hold 7.187 million Coinbase shares worth $843 million. However, selling has accelerated since June 2022, with holdings falling from 11.43 million shares.

Final Thoughts

Wood and ARK Invest are betting big on a Bitcoin substitution for gold, as it emerges as the leading digital store of value.The launch of spot Bitcoin ETFs removes friction for investors, likely accelerating this trend.

With gold correlations at a record high, and Bitcoin detaching from rate movements, 2023 may prove to be a breakout year for Bitcoin as a dominant safe haven asset.